About 6 months ago I posted about a position I have in Macro Enterprises. At the time shares were trading at $2.40 vs. $2.50 today. This is slightly outperforming the TSX over that time. My blended ACB position has performed slightly worse FWIW.
Given that I focus on business fundamentals as a large portion of my investment thesis, my timeframe is typically 9-36 months. However, for Macro there have been a couple of relatively big announcements that seem to have been overlooked by the market. Below is a quick summary:
- May 19, 2021 – signed a construction contract for the Deep Valley South Section and Colt Sections of NGTL System Expansion Project. Scheduled to start Q3 2021 and finish Q1 2022. Estimated value was in excess of $190 million.
- May 27, 2021 – released Q1 2021 and held AGM. During the presentation they confirmed $250 million in revenue for 2021.
- August 19, 2021 – announced Q2 2021. Results were positive from an operations standpoint. They upped the estimated revenue for 2021 to be $300 million. Subsequent to quarter end they confirmed that they received the $20 million that was marked as receivables related to JV with Spiecapag.
- September 7, 2021 – construction contract with Kiewit TMEP Corp for segments of the TMX along the Coquihalla-Hope corridor. Estimated value was approximately $180 million. As a result they are now expecting revenue to be $350 million in 2021. They will also increase the capex program from $8-$10 million to $20 million to meet demand. To me this demonstrates that they can still win high value contract as an independent.
Putting this all together I see the company as having being de-risked. They have more revenue visitibility than they had 6 months ago. In the short term we should see continued strong trend in EBITDA and revenue.
I went through some risks in the previous post, but I think they are worth looking at again.
- There is a chance that they are unable to win more contracts in 2022 and they could see materially lower revenue at some point.
- The political risks associated with pipelines and hydrocarbons in general.
- The margins on the recent contract wins could be lower than prior contracts.
- Using tangible book as a downside scenario could be incorrect.
Using the current tangible book value and $200 million in revenue coupled with prior multiples I derive a blended downside of 15-20%.
There are only a handful of times where the company traded below half of tangible book value for longer than a week or two over the last 10 years. I am comfortable using that as a worse case downside scenario.
The company could trade below these multiples of course. The business does have more project work and less recurring maintenance work than prior.
The upside uses a blend of $250 million in revenue for 2022, my estimated EBITDA and analyst estimated EBITDA.
I believe the share price in MCR does not reflect the recent developments. Of course, the market could have digested this news already and MCR could possibly be fairly priced at today’s prices.
Despite the headlines of oil hitting multi-year highs, MCR is still out of favor in my mind. Yes the business is capital intensive and lumpy, but I believe the price paid is at such a discount that MCR represents a decent bet here. If I didn’t have a position already, I would take one here.
Anyone else own MCR?
*the author is long MCR at time of writing