Pat McKeough responds to many requests from members of his Inner Circle for specific advice on Canadian stocks and other investments as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week an Inner Circle member wanted to know about a Canadian stock which provides a unique service. Enterprise Group specializes in underground construction. The company’s shares have risen this year, partly on the strength of its aggressive strategy of buying up small firms. Pat examines the risk inherent in that strategy and also looks at the company’s financial outlook and whether the stock can keep on rising. Q: What are your thoughts on Enterprise Group? Thanks for all your advice throughout the years. A: Enterprise Group (symbol E on Toronto; www.enterprisegrp.ca), provides underground construction services for utilities, including installing power, communication and natural gas lines. Enterprise Group continues to expand by acquisition. In early 2012, it started up a heavy equipment rental division called E One Limited. In September 2012, E One acquired Artic Therm International. Founded in 1998, Artic Therm rents flameless heaters to customers in the construction and oil and gas industries. These heaters range in heat output from 375,000 British thermal units (BTUs) to three million BTUs. In June 2013, the company paid $2.1 million for Pro Tech Construction. Pro Tech’s main asset is 12.29 acres of land and buildings in West Edmonton, along with a development permit that allows for future expansion. This location will also serve as a West Edmonton field office for Pro Tech’s TC Backhoe and Directional Drilling divisions, as well as for Artic Therm.
New acquisition Calgary Tunnelling has projects at Calgary airport and on TransCanada highway
Also in June 2013, Enterprise Group bought Calgary Tunnelling & Horizontal Augering, a specialized underground tunnelling and construction company, for $12 million. Calgary Tunnelling serves clients in the energy, utility and infrastructure industries from the west coast through to central Canada. Its customers range from Canada’s largest rail companies and utilities to leading construction firms and some of North America’s largest pipeline firms. Calgary Tunnelling’s current projects include a series of technically difficult tunnels at the massive $600-million Calgary International Airport expansion, while other crews are completing several large-diameter utility crossings under the Trans Canada highway near Banff National Park. In Saskatchewan, the company’s crews are bringing underground water lines to one of Canada’s largest potash mines. In the three months ended March 31, 2013, Enterprise earned $0.05 a share, compared to nil per share a year earlier. Revenue jumped to $8.9 million from $3.6 million, partly due to acquisitions. Its total debt of $10.6 million is a reasonable 17.2% of its market cap. The shares have moved up to $0.75 from just $0.22 at the start of this year. In the Inner Circle Q&A, Pat looks at the risk of Enterprise’s strategy of growing by acquisition. He also looks at the risk of the company’s focus on western Canada. He concludes with his clear buy-hold-sell advice on the stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Are you willing to take a chance with smaller Canadian firms that show promise? What is the first thing you look for with stocks like this? If the stock is growing through acquisitions, does this give you more confidence in its growth, or make you anxious about the added risk?
