December 21, 2013 - 9:11pm EST by
2013 2014
Price: 0.80 EPS $0.09 $0.18
Shares Out. (in M): 112 P/E 8.9x 4.4x
Market Cap (in $M): 90 P/FCF 0.0x 0.0x
Net Debt (in $M): 16 EBIT 9 27
TEV ($): 116 TEV/EBIT 13.0x 4.3x

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Enterprise Group (E.CA) stock price will double and possibly triple in the next year. It is getting tougher to find attractive investments, but Enterprise trades at a 4.4x P/E on 2014 EPS of $0.18 and EPS will rise 100% in 2014. The catalyst for the stock price will be rapid  EPS growth in 2014, with my estimates being 32% above consensus. A re-rating of the stock to a higher valuation is likely as analyst coverage rises from one to 5 analysts publishing on Enterprise after its secondary offering in December 2013. The stock can be accumulated over time with liquidity of $0.5 million/day.

The company is not well known among investors, so let me spend some time explaining what they do. Enterprise was created to be a consolidator of profitable businesses serving the utility, energy and infrastructure construction sectors in Western Canada. In the past year management has made three high quality acquisitions that will represent 75% of 2014 EBITDA. Thus historical financials are not helpful.








June 2013

Calgary Tunneling





TC Backhoe




Sep 2012

Artic Therm




Jan 2014

Hart Oilfield





Corp Expenses





Enterprise EBITDA






























Tax rate





Net Income















Artic Therm ($15 mil EBITDA in 2014) 39% of total pre-overhead EBITDA

Artic Therm has a patented flameless heating technology. There are many applications, but the one driving profits is for  “pipe stretching.” Natural gas being extracted from an underground well is extremely hot. When it reaches a cold metal pipeline above ground in Canada it causes the pipe to stretch and sometimes crack at the seam. These breaches can cause millions of dollars of environmental and reputational damage.  The pipeline is also shut down with millions of dollars of lost sales.

               Artic Therm prevents this problem as they heat up the pipeline tubes and cause them to stretch before they are placed underground during  construction. A long list of Canadian firms such as Encana, Enbrdige, Suncor, Syncrude and Nexen are lining up rent Artic Therm’s equipment. Most firm’s have only worked with Artic Therm for 1 - 3 years. As Artic Therm penetrates these accounts there is the potential for over $50 million of annual EBITDA compared to only $5 million in 2013. This is a great business with EBITDA margins that exceed 30% and return on equity that surpasses 50%.

Artic Therm was acquired in September 2012. The prior owners were content to earn a few million dollars a year and made little effort to expand the business.

Calgary Tunneling  ($6 mil EBITDA in 2014) 15% of total pre-overhead EBITDA

Calgary is a construction company with expertise in tunneling through mountains or under highways to help build right of ways for pipelines, electricity lines,  and rail roads. There are few competitors which has led to consistent EBITDA margins exceeding 30%. The prior owners were not ambitious as well and turned down projects all the time.  As of June 2013 Enterprise acquired Calgary Tunneling with the intention to help the business reach its full potential .  The pipeline for future contract awards has more than tripled since June under new owners,  and faster growth will be seen in 2014.

TC Backhoe  ($9 mil EBITDA in 2014) 23% of total pre-overhead EBITDA

TC Backhoe does maintenance work for regional electric & telephone utilities. They have been able to grow their business by winning master service contracts in additional geographies.  Annual profit growth of 10% is likely.

Hart Oilfield  ($8 mil EBITDA in 2014) 21% of total pre-overhead EBITDA

The Hart acquisition will close in January 2014. Hart Oilfield rents trailers for housing, sewage systems and fuel tanks for energy exploration companies in remote parts of Western Canada. They have grown EBITDA at a 37% compounded rate the past 4 years. They hope to grow even faster within Enterprise group as they will have easier access to capital.




The key observation is that Enterprise  Group ($90 million sales in 2014) is able to grow profits at a 30% organic rate as they more effectively manage privately owned business that now have a more ambitious mandate.  Growth prospects are going to get even better in the 2015-2025 timeframe.

The province of British Columbia has a GDP of $217 Billion and a population of 4.6 million people. The largest investment boom in the history of the Province is about to get started as $60 Billion (Source:  Eurasia Group) may be spent to build (LNG) liquefied natural gas  facilities in Western Canada. All of the Enterprise business units will be direct beneficiaries.  

Today an over-supply of natural gas in Canada has resulted in low natural gas prices of $4/mcf. Half way around the world in Japan & China natural gas prices trade at $15/mcf. This arbitrage opportunity has resulted in a stampede of proposed construction projects by Exxon, Chevron, China National Oil Company and others to transport cheap Canadian natural gas to Asia.

Stock market investors understand this opportunity and have invested in companies like Cheniere Energy (LNG) that has a terminal in the United States that will export LNG to Asia. Amazingly, Cheniere’s stock price has appreciated +2,100% in the past four years from $2 --> $44, and the company is still losing money.  Enterprise Group by comparison is an undiscovered stock with all the upside. The company will likely earn over $0.35/share in EBITDA by 2015 and thus trades at under 3 times EBITDA. At 6x times EBITDA the stock will double. At 9x times EBITDA the stock will triple. Keep in mind that all this growth is taking place before the LNG construction boom begins in Canada.

Enterprise has a highly seasonal business as most construction in Western Canada takes place in the winter months when the ground is firm. As a result 80% of profits are reported in the December and March quarters.  Enterprise should report especially strong results in the next 6 months as 3 of their 4 business segments I have spoken about were not part of the company a year ago.



I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


Rapid EPS growth in 2014 of +100%
Reported EPS will exceed Wall Street consensus estimates in 2014
Four more brokerage firms are likely to initiate coverage of Enterprise Group in early 2014 after the recent secondary offering.
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