March 31, 2013 - 10:03pm EST by
2013 2014
Price: 6.69 EPS $0.50 $0.65
Shares Out. (in M): 38 P/E 13.4x 10.2x
Market Cap (in $M): 250 P/FCF N/A N/A
Net Debt (in $M): 6 EBIT 0 0
TEV ($): 256 TEV/EBIT N/A N/A

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  • Engineering Services
  • Energy services
  • Oil and Gas


Note: eps estimates above are for 2013 and 2014

Furmanite Corporation-- FRM ($6.69)

Description:  FRM provides maintenance, repair and engineering services to the power generation market, the oil & gas industry and to other heavy industries such as pulp & paper and chemical sectors. 


Much of what FRM provides cannot be deferred for too long as it involves the maintenance of critical power plants, refineries, etc.  So, while the cash flows of their customers may be cyclical and that does matter to a point, demand cannot disappear forever.


For more details, see this link: http://www.furmanite.com/ and see recent presentation here:  http://phx.corporate-ir.net/phoenix.zhtml?c=97430&p=irol-presentations


Here is why I think Furmanite is interesting as a long here:


1) FRM has just finished a third year of restructuring, following a new CEO being installed in March, 2010.  The benefits of this have been masked by a sluggish top-line and numerous one-time charges to effect the layoffs and facility consolidations.


2) Revenue growth is accelerating into 2013.  The first three quarters of 2012 were about flat versus the prior year.  Recently reported 4Q had revenue growth of almost 14%, and guidance for 2013 (at midpoint) is for 17% revenue growth.  (About 9 points of this 17% is related to acquisition, so there is still 8 points of organic growth forecasted).  (see also for management commentary: 4Q presentation at http://phx.corporate-ir.net/phoenix.zhtml?c=97430&p=irol-presentations, esp. p4: "all elements of transformation now in place; entering 2013 positioned for accelerated growth")


3) With the recent earnings release, management has initiated guidance for the first time ever (the company is over 60 years old).  I would suggest a high likelihood that they would only do this if they had a high level of visibility for the near-medium term and it seems very very likely (given that this first-time-ever guidance was given on 3/8) that 1Q will be strong.


4) the responses and body language of the recent conference call suggest to me that the guidance is conservative:


From the 4Q conference call (3/8):

Analyst question:


I'm hoping maybe you can give us a little bit more detail around sort of your guidance philosophy just to help us understand. Is the guidance that you have given sort of a realistic this is what you think                            you can do kind of guidance, or have you included some level of conservatism in that guidance just to sort of see how things build as you progress through the year?


Answer (from Charles Cox, CEO):

....I would certainly say that these numbers reflect what we are -- we have a high level of confidence we can achieve.  I think hopefully you will appreciate, as the first initiation of our guidance, we have certainly not attempted to put an unreasonable amount of stretch into these numbers at this time. So again --


Other relevant quotes from the 4Q conference call:

"We believe we are entering 2013 positioned to begin a future of sustained growth based on responsibly delivering more perfect products and services to more customers in more locations than ever before in our history."


"The spring turnaround season continues to be very strong. We were coming out of the fourth quarter, which -- and the numbers showed you we were strong. We are seeing that same strength carried into the first quarter."


5) Valuation is attractive on two fronts: First, FRM trades at a sizable discount to its two peers/comparables.  Closest comps/peers are TISI and MG.  Here is how the three compare:



F13 eps multiple

F14 eps multiple

F13 ev/ebitda mult

F14 ev/ebitda mult

TISI (FY ends May)





MG (FY ends May)











Even adjusting for the different FY ends and even if you suppose that TISI and MS estimates are 10% too low, they are trading well above FRM.  And, while they are larger than FRM, they are not that much larger-- TISI is about 2x and MG is about 1.5x (using revenues).


Second, In addition to FRM being a relative value, one does not need to look back too far to see that FRM can easily trade at 20x.  For much of 2011, the stock traded between $7-$8.50 while earning $0.34 fully taxed for the year and traded in that range while printing 6 to 8 cent fully taxed quarters during the first half of that year.  My upside case here is 20x on F14 within 6-9 months or $13/share, almost a  double from here.


6) This appears to be a little-known company with very little following-- only two analysts from small brokerages follow the company.  However, the initaiion of guidance is also likely a sign that FRM will begin a larger invetsor realaions effort which will include conference presentations, etc.



FRM has just emerged from a restructuring, revenue growth has just picked up and management has just issued guidance for the first time ever.  The guidance seems conservative and current business trends are strong.  Given where peers are trading and where FRM has traded historically, if these trends hold for 2-3 quarters (perhaps 1-2?) and/or guidance proves conservative, there is a strong chance FRM re-rates which could result in as much as a double from here. 



global recession

oil price plunge




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.


increased guidance
simply putting together a few more strong quarters following the strong 4Q results
multiple expansion
increased awareness
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