Enteq Upstream – expect this Thursday’s interims to spell out the massive potential
If you have enjoyed the profit-ride in Capital Drilling (LON:CAPD) since I profiled the company in late July at 48p, now 71p and just 5p below my end 2021 Target Price of 76p – then you should love Enteq Upstream (LON:NTQ).
Way back in 2011 an enterprising team of experienced executives in the oil and gas sector founded a ‘buy-to-build’ cash shell through the AIM Placing of 15m shares @ 100p each.
The company was established by the same leadership team behind Sondex, a leading oil and gas products and technology provider. Sondex was sold to General Electric in 2007 for 460p per share, having listed publicly for 100p in 2003.
Enteq Upstream was then a newly-incorporated company, which was focused on acquiring and consolidating companies providing specialist products and technologies to the upstream oil and gas services market.
Understandably it was rapidly supported in the issue by a number of blue chip long-term institutional investors, as well as a range of oil and gas specialists, smaller institutions, Private Client Brokers and individuals.
The management of the budding group believed that they could create a leading specialist oilfield supply company by converting acquired products and technologies into an integrated portfolio to be sold internationally to regional and global oilfield service companies.
A couple of acquisitions in the directional drilling sector were funded by further issues in 2012 and 2013.
The buoyant market for oilfield services has an on-going need for technology to assist in identifying, evaluating and recovering hydrocarbons.
It has not been plain sailing for Enteq as it tried to build up its highly specialised offer, but I do believe that it is now on the right track to deliver.
Today it supplies the global Oil & Gas directional drilling market with high-end, differentiated, robust ‘Measurement While Drilling’ equipment and associated parts and components.
MWD sensors and systems record and transmit data from the bottom of an oil or gas well during the drilling phase, enabling the well to be drilled in an optimal manner.
Its equipment is recognised as being of the highest quality, extremely reliable and capable of being operated in rugged and testing conditions, including very high temperatures.
MWD gives producers the ability to perform directional drilling operations without having to stop the process and take measurements.
The company sells, or even rents out, its equipment and kits from $50,000 a piece to $500,000 for a complete kit. Its rental fleet is now up to 32 kits.
Most of its current business is handled in the US, where there are some 1,080 drilling rigs, up from 800 two years ago. The company reckons that its equipment is being used in over 320 rigs currently.
However, the company has recently been spreading its marketing wings, with contracts for equipment being secured in the Far East, the Middle East and in Europe.
It is now looking for further opportunities in China, where its equipment handles environments very much better than its Chinese competitors.
A recent ‘technology tie-in’ agreement with Shell will see the company expand its product range and thereby enable it to sell to even bigger markets.
The company has around $10m in cash currently, enough to cover further capital equipment and infrastructure investment.
There are 65,488,644 shares in issue, valuing the company at around £19m.
The largest holder is Canaccord Genuity (14.1%), while the directors and employees are also sizeable holders (10.6%).
Other professionals include: Allianz (9.2%), Soros Fund Management (8.3%), Morgan Stanley (5.94%), Octopus Investments (4.6%), Church House Investments (3.8%), Hargreaves Lansdown (3.6%), Miton Asset Management (3.6%), Investec Securities (3.6%), and Columbia Threadneedle Investments (3.1%).
Apparently, Patrick Evershed, the veteran small companies fund manager, owns 3,115,000 shares in his own name, representing some 4.9% of the company’s equity.
At the end of last month I attended the Proactive Oil Capital Conference, specifically to see Enteq Upstream and the way they present their company. I was impressed by both Martin Perry and David Steel.
Perry, who is the Chief Executive, has been in the oil industry since 1984. He was previously the CEO of Sondex, the oil services group that was acquired for £290m cash by General Electric. He subsequently became the CEO of GE’s Oilfield Technologies division.
Steel, the finance director, is ex KPMG, and before joining Enteq he was Deputy Finance Director of a global provider of geoprediction tools to the upstream oil and gas industry.
Other members and employees of the company were ex-Sondex, the company has some 33 employees in total.
Proactive analyst Ed Stacey is bullish about the company and its prospects. He is looking for it to see revenue growth of 20% annually up to 2022, and an impressive 28% growth in EBITDA in the same period.
Stacey is estimating revenue in the current year to end March 2020 of $11.46m, then $14.46m for 2021 and up to $17.50m for 2022.
In the same period of time he is going for EBITDA to rise from $3.56m in 2020 to $3.75m in 2021, then up to $5.23m in 2022.
Earnings are due to come out at 0.2c in 2020, then 2.5c in 2021, and up to 4.7c in 2022.
He estimates that the strong cash management is continuing through the period, at around $11.25m average cash at period ends.
This team of execs has built up and sold off before and it would be sensible to expect them doing the same again within the next few years.
The company is just coming out of losses and going into gradually increasing sales and profits. I anticipate a bullish statement accompanying the interim results this Thursday morning.
The shares are now trading at around the 28p level – I am now setting a 50p Target Price by the end of next year.