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Enterprise Group: a "turnaround" story, warranting a further look, says Fraser Mackenzie

Enterprise Group: a "turnaround" story, warranting a further look, says Fraser Mackenzie


In a research note Thursday, Fraser Mackenzie analysts said that construction services company Enterprise Group (TSE:E), what they call a "turnaround" story, warrants a further look, adding the business to their watchlist. 

Enterprise Group is a construction services company operating in and around the Alberta area. The company provides utility construction and maintenance services, heavy equipment rentals and flameless heating services via its divisions TC Backhoe, E-One Ltd and Artic Therm, comprising 70%, 8% and 22% of projected 2013 revenues, respectively. 

Since a downturn in demand impacted revenues from 2008 to 2010, the analysts take note of the fact that management has turned the company around - increasing revenues, EBITDA and profitability over the last two years. 

Indeed, revenue increased from $15.6 million in the full year 2010 to $18.6 million in the trailing 12 months, while related EBITDA margins rose from negative to 21.9%. 

From Fraser Mackenzie's discussions with management, the broker believes the company can achieve revenue of $31 million in the full year 2013, with EBITDA margins north of 30%, noting Enterprise's end customers include large industry players and the long-term nature of its contracts. 

The analysts add that organic growth is further fueled by the possibility of "complimentary acquisitions". The company has $9.2 million in net debt, and may require external capital to fund any acquisition. 

"Since the company’s formation in 2004 Enterprise has completed four acquisitions and survived a bitter downturn in its key end markets. Over the last two years the company has illustrated a rebound in its performance from both a financial point of view and operationally," the analysts take note. 

"The recent addition of Artic Therm positions the company for strong revenue growth and related EBITDA growth, with margins north of 30%."

Fraser Mackenzie states that it believes Enterprise is trading at a significant discount relative to its peer group, which includes Aecon Group (TSE:ARE), Badger Daylighting (TSE:BAD) and Bird Construction (TSE:BDT), among others. 

They caution that key risks include the company's ability to execute its growth strategy, and the limited liquidity of shares due to a smaller market cap. 

Enterprise Group provides its services within the energy, utility construction and maintenance and transportation end markets. Shares of the company were changing hands Thursday at 37 cents. 


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November 12 2013
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