Enteq Technologies Share Discussion Threads

[masurenguy] 05/12/2018 13:16

Shareprice has followed the decline in the price of crude and is off by 33% over the past 3 months. Nothing much to do other than wait for it to recover.

[rivaldo] 16/11/2018 09:22

MGW is certainly positive:

[...]

"Enteq Upstream

For Enteq this is a very positive set of figures, with revenue showing ‘steady improvement’ and progressive growth in adjusted EBITDA the company are almost buoyant but as always keeping the powder dry. There has been significant investment in technology and the rental fleet of MWD systems from existing cash reserves which will hopefully increase market share. It still leaves the company with $11.6m of cash ($15.3m) and whilst obviously North America is the key area international opportunities are always being addressed. Enteq is a good company, it deserves a greater coverage and CEO Martin Perry has impeccable qualifications to grow the business after what was an almost impossible start."

[1gw] 15/11/2018 16:18

The only fly in the ointment that I could see really was the increase in the loss reported, both at the operating loss level and at the bottom line level.

Digging into that I think it may be down to the depreciation policy on the rental fleet. They took a $1.1m depreciation charge this half, compared to $0.3m a year ago and $0.8m for FY18. The book value of the rental fleet has increased to $3.0m from $2.1m at end-March and $0.8m a year ago.

According to the FY18 accounts the depreciation policy for "Rental assets" is "Over the life of the asset, up to a maximum of 2 years "

I would hope that writing off the rental fleet over just 2 years is conservative and that there may be profit upside to come once each bit of rental kit is fully depreciated. At the AGM Martin Perry talked about rigs typically renewing their kit every 5 years, so presumably that means the rental assets might be expected to have a 5-year life.

[rivaldo] 15/11/2018 14:36

Good interim results today, with steady improvement in all respects. No "excitement" as such, so unsurprising to see the share price drift a little in these markets, but the outlook is going in the right direction.

I note the North American rig count has continued to increase slightly since the 30th September interims date, even with the oil price falling.

- NTQ still have over £9m of cash against the £15m m/cap
- they achieved $0.7m cash inflow in H1 before working capital movements
- international sales increasing nicely to Saudi, China, Russia etc
- new technologies being released commercially and patents published
- geothermal drilling sales being made in the Far East and Europe

Another set of decent results, with a contract win or two, could see the share price back to 40p assuming the oil price stays at current levels or better.

[masurenguy] 15/11/2018 07:57

Prospects:
"Enteq has returned to progressive growth in adjusted EBITDA and investments are being made from existing cash reserves into both new technology and strategic opportunities. Management believe that the returns from these investments will both broaden the market that can be addressed by Enteq and increase market share. Outside North America management continue to pursue opportunities which could be significant in scale. Providing the oil price remains at a level to sustain investment in the drilling sector, Enteq is confident of continuing growth." Iain Paterson, Chairman. Martin Perry, CEO.

[1gw] 15/11/2018 07:51

Well I get the 60%+ YoY growth in revenue, but not highlighted (as a %) on the front page - have to go to "Overview of results" to see:

"The first half revenue of US$4.2m represented a rise of 66% over the US$2.5m for the first half of last year..."

It doesn't translate very far down the income statement though, being more than offset by increases in COS and admin.

Very good to see the growth in adj EBITDA to $0.6m. [Note there's a mistake in the adjusted earnings line I think - should be (261), not (61)]

Good also to see the $0.7m operating cashflow before changes in working capital. WC eats it up though with inventory up by the same amount and receivables up, payables down, meaning $1.4m net cash outflow on operating activities.

So revenue strongly up (YoY), profitable at the adj EBITDA level, investing to grow and net assets per share still looking good relative to the share price, although the cash component of that coming down.

[errors excepted]

[1gw] 11/11/2018 15:28

Interims due on Thursday (15th) according to the AGM statement.

[brugen] 10/11/2018 21:59

Thanks,1gw.
As you say big rig count jump on Friday but WTI dropping.I note the spread to Brent is widening as stocks build up at Cushing due to pipeline constraints which won't be released until late 2019. This should keep a lid on rig count as stocks build but hopefully they are burning through parts.
Do you know which day the results are due?

[1gw] 10/11/2018 15:12

Brugen- I think even with shale oil the fraccing process is relatively short but the decline rate is much faster than for conventional oil. So you drill, complete & frac and then move the rig away (pumping with a nodding donkey or otherwise to keep the oil flowing). After a year the production rate may have declined enough that you need to frac again in which case you would put a rig back on the well to pump more fluid in. But I'm definitely not an expert so I may be mistaken.

[1gw] 09/11/2018 19:30

Conflicting currents ahead of next week's results:

On the downside, WTI flirting with $60/bbl again
On the upside another big jump in the rig count this week



I hope that this time they will have no choice but to highlight what I think should be a c. 60%+ improvement in YoY 1H revenues ($2.5m to $4m+ if I interpreted the TU correctly), rather than just talk about building from 2H levels, and I hope that may generate some positive comment.

[brugen] 02/11/2018 21:51

A technical question for any experts on the board.
As I understand it with conventional oil a rotary rig will drill until oil is hit. The well will be capped and the rig moves on to drill the next well. A nodding donkey is then placed above the bore to pump out the reservoir.
With fracking the rig always has to be in place while the well is producing as nothing will come out unless fracking fluid is being pumped in.
Is this correct or is there some version of a fracking nodding donkey which allows the rig to move on to a new site?

[thetrophyman] 03/10/2018 08:53

Thanks for that rivaldo

[masurenguy] 03/10/2018 08:49

Cheers riv - some good insight there !

[rivaldo] 03/10/2018 08:44

There's a good report on NTQ's AGM from a week or so ago from Mark Bentley of Sharesoc (which investors here really should join if they're not already members).

Mark re-purchased NTQ shares earlier this year. I hope he won't mind me posting an extract from his report:



"I attended the AGM today, 26th September. Bullet point notes, based largely on my questioning, follow. I have commented on the answers given in italics:

Q: I noted that cashflow had been boosted by a significant reduction in receivables, so asked whether this was a one off or due to a change in the business's terms of trade. A: It was a one off, due to collection of old receivables. So I expect cashflow to deteriorate going forward, as working capital will rise with business recovery and growth, together with investment in the rental fleet and in R&D. However this is not a problem due to Enteq’s strong net cash position.

Q: Next I asked about the company's competitive position. A: Enteq equipment is being used in about 20% of US land rigs, making it one of two leading suppliers to independent oil service companies. There are only 2-3 competitors supplying complete MWD kits, but more offering components. Very satisfactory - Enteq is a leader in its specialist market.

Q: Please describe the typical sale. A: Sales are primarily equipment & software. The service element is small. A full MWD kit sells for around $400k. Enteq's rental model appeals to smaller independents. The rental period is typically 20 months and the kit is largely written off over this period. Enteq vets renters carefully and has not, so far, had to take any debt recovery actions (after some 20 rental contracts). So, sales will be somewhat lumpy and are entirely dependent on oil companies’ CAPEX, though the company also advised that a reasonable rule of thumb was to assume that 20% of kit in the field needed to be replaced each year due to wear & tear. That also suggests that there might have been a backlog of replacement orders which Enteq’s clients had deferred to preserve their own cash during the downturn.

The board also commented in response to another questioner that, having laid off staff during the downturn, the company had now re-employed sufficient staff to meet current demand and was not constrained by staff availability.

Current investment in R&D, IP and patent protection was expected to lead to the company offering new products. The CEO would not be drawn on when these new products were likely to be brought to market, both due to commercial sensitivity and to the inherent risk in development and testing timescales.

Nevertheless, this implies to me that shareholders can look forward to growth from two drivers: general oil services market recovery (whilst the oil price remains firm) and new income streams from new products.

I complemented the board on their prudence and having successfully steered the company thorough a very difficult period, without financial problems, avoid the need for share issuance and dilution. One of the NEDs commented that he had not had to steer the executive to cut costs but that the company's COO in particular had taken pre-emptive action on his own initiative to control costs.

It is also notable that whilst Enteq’s market cap. is £17.2m, EV is only £5.9m, due to the substantial cash on the balance sheet. Hence it doesn’t take much profits recovery for the shares to look pretty cheap.

Finally, I would note that this stock is a useful hedge against Brexit risk, as its operations are largely US based and its functional currency is the US$.

Fingers crossed that management can put that cash to work profitably!"

[rivaldo] 02/10/2018 10:39

The latest issue of Master Investor magazine is out today, and there's a feature on "picks and shovels" companies in the oil and gas sector - one of which is NTQ. It concludes:



"Valuation

Despite the oil price having risen by around 11% since Enteq's upbeat April trading statement, the shares have slipped back from their May peak of 40p to the current 26p. That currently values the business at £16.3 million.

The real kicker to the investment case here comes in the form of Enteq's large cash pile, which stood at $15.5 million (£11.8 million) at the end of March. This rose by $0.2 million over the year despite statutory losses of $0.6 million being posted. Management did well to preserve funds, with a $2.5 million working capital inflow being a highlight.

So if we strip the cash out of the valuation, the markets are currently valuing Enteq's operations at just £4.5 million. With brokers looking for c.$1 million of pre-tax profits for the year to March 2020, the shares will look very cheap if forecasts are hit. Share price catalysts along the way will be the upcoming interims in November and further positive trading updates."

[sharesoc] 28/9/2018 14:17

There is a detailed report on Enteq Upstream's recent AGM which can be found in our members area here:

To access the report, you'll need to be a full member of ShareSoc, which is a not-for-profit organisation that supports individual shareholders and campaigns for shareholder rights. If you're not already a member you can join here:

Once you've joined, you'll receive an invitation to register for our "members network" private social network, from where you'll be able to access the report (and reports on 100s of other meetings). If you're already a member and have any difficulty accessing the report, please do not hesitate to contact us here:

[rivaldo] 26/9/2018 23:17

Great write-up 1gw, cheers.

[thetrophyman] 26/9/2018 20:32

I haven't posted here before but I dipped my toe in a couple of months back. I like this news, sometimes when you here companies spending more on R&D for example the share price tanks. Here, we've recovered the drift from the last 60 days or so. Obviously a very well run company, if not only for the reason they've survived the downturn. Now there's a significant upturn and I think all good things to come and looking forward to it

[masurenguy] 26/9/2018 17:41

Thanks very much for the AGM feedback 1gw

[1gw] 26/9/2018 17:12

Another good AGM I thought, with a vibe of some confidence in the future. There seemed to be 3 private investors there this year, which I think is 2 more than last year...

I made the point that they could have headlined this morning's release as expecting a 60% increase in YoY revenues (i.e. 1HFY19 vs 1HFY18), rather than just building sequentially from the last half (2HFY18). Still, that ought to become clear in the November results.

I had asked, ahead of the AGM, about the TU words they used in April (the "significantly ahead of its expectations" words) and how this related to the flat YoY revenue number for 2HFY18, so they came with a prepared answer which was that their hands had been tied. The issue is the Investec notes, which are effectively taken as market expectations. If they deviate by more than a certain amount for key metrics then they are expected to inform the market about the significant move. They can't really say "market expectations" though so they say their own expectations - but a moot point I suppose since the Investec analysis presumably reflects discussion with management. So clearly management/Investec had been expecting more of a YoY fall than had happened in 2HFY18. I still think the underlying reason for that expected fall is the big international revenue contribution in 2HFY17 which wasn't going to be repeated.

I did get a peek at what I took to be the current Investec note, which as far as I could see was suggesting between $8m & $9m revenue for the year (so 2H something like 1H) and a bottom-line profit. So fair to say that they are not expecting the 60% YoY 1H increase to be maintained in 2H.

They talked in this morning’s note about investing cash (rental fleet, R&D, strategic inventory, headcount), so I asked how we ought to think about the cash balance trend going forward and was told that we should expect to see it decline as they found value-adding ways to invest it.

One thing I did find helpful was a simple way of thinking about the US business scale. Martin Perry described them as having about a 20% share of the US rig market (i.e. Enteq kit in about 200 of the 1000 rigs in very round numbers) and 20% of these rigs changing their equipment every year. So 20% of 20% of 1000 = 40 rigs a year taking Enteq kit. If they take the full kit, that’s about $400,000 worth of kit, but some only take a bit, so on average say $200,000 a rig. 40 x $0.2m = $8m as a very simplified way to get to the approximate annual US revenue.

I came away with the impression that international was still quite hard work. They continue to try to develop the Saudi relationship and to pursue other leads but it sounds like the timescales are quite long and they don’t yet really have effective relationships with the type of second-tier well services companies that take their product in the US.

Offered in good faith, but may contain misunderstandings or errors. No advice intended.

[red army] 26/9/2018 16:23

Cash pile going down though.

[masurenguy] 26/9/2018 13:08

Hardly any market reaction to today's update with less than 100,000 shares traded in 5 hours

[1gw] 26/9/2018 08:11

Yes, and they've addressed any possible confusion around growth by talking about sequential growth today i.e. "building from the levels of revenue and adjusted positive EBITDA achieved during the second half of the previous year." They've also explicitly mentioned international sales (MWD).

So they're talking about growth from the $4.0m achieved in 2HFY18, not from the much lower $2.5m achieved in 1HFY18, which would be the normal YoY comparator for the first half.