Enteq Technologies Share Discussion Threads

[1gw] 13/6/2018 23:14

I've done a bit of digging back over old notes and I think I have a narrative to match up the exuberance of the TU with the somewhat ho-hum nature of the final results.

I remembered correctly on 2HFY17 revenue: at $4.02m it was actually slightly higher than the $3.95m in 2HFY18. So year-on-year decline in 2H revenues. Hardly worthy of the "significantly ahead of expectations" TU comment at first sight.

But going under the skin a bit and 2HFY17 was flattered by international revenue, specifically the Saudi contract. If I look at the significant (i.e. 10%+ of revenue) customers for the year, I have:

FY17: $1.2m, $1.0m, $0.9m, $0.5m
FY18: $1.4m, $0.9m, $0.9m

International revenue fell from $1.4m in FY17 to $0.4m in FY18 and there was only $0.7m revenue in total (North American and International) in 1HFY17 so there can't have been much international revenue then. So definitely more than $0.7m international revenue in 2HFY17 and probably over $1.0m.

Taken together with what I picked up from the AGM this makes me think the Saudi contract probably contributed about $1m revenue in 2HFY17. Although Enteq have talked about this being an ongoing relationship it would appear they haven't had much, if any, revenue from it in FY18.

So if I say the Saudi contract was one of the "lumps" that Enteq say characterises their international business, it appears they were relatively lump-free in FY18.

Stripping out this $1m lump of presumed international earnings from 2H FY17, the figures would then show nice YoY growth - from $3.0m in 2HFY17 to $4.0m in 2HFY18. If I assume that Saudi was the $1.0m significant customer then it looks like 2 of the other significant customers might have increased business nicely over the year ($0.5m to $0.9m and $1.2m to $1.4m) while the other stayed flat, although it is possible that the 3 FY18 customers were not all there in FY17.

Taking just the North American revenue performance for the full year, it wasn't far short of doubling, from $3.3m in FY17 to $6.0m in FY18. This was masked by the 2/3 decline in international revenue from $1.4m in FY17 to $0.4m in FY18.

So after all that as context, the narrative I have come up with is that management probably knew that there weren't going to be any big lumps of international revenue in FY18, so they were expecting a significant fall in international revenue. But they were surprised by the strength of the North American business (lots of relatively small orders coming in from their main customers). So the "significantly ahead" I think reflects the strength of this core North American business.

And given the nature of the North American business - lots of repeat business in relatively small amounts from customers with whom they have good relationships - then if the oil price stays in the zone (say WTI above $60/bbl) it seems reasonable that they can expect the 2HFY18 run-rate to be at least maintained through FY19 - say $3.7m or so of North American revenue per half. This is consistent with their outlook statement about "Core market of USA land drilling expected to remain near current levels". Given the low FY18 base for international revenue it seems there must be a reasonable chance of a big lump showing up in FY19, which would further improve the figures.

So all guns firing at home, and international looking to land another big one in order to give the company a stellar FY19!

A fair bit of speculation here. Please do your own research.

[rp19] 13/6/2018 20:57

I think some maybe expected a more glowing tone given the recent increase in the price of oil. However, I am happy enough at this stage. It is well managed and in time I think will exploit the growth opportunities.

[masurenguy] 13/6/2018 13:03

Current market cap is £20.4m of which £11.65m (57%) is net cash ! EV is therefore only £8.75m.

[1gw] 13/6/2018 12:51

I don't have my records to hand, but didn't they do something like $4m in 2H the year before as well though? I think that year it may have had a lump of international in it whereas perhaps last year's 2H number has more N American which is more likely to be sustained through to 1H this year.

[varies] 13/6/2018 11:22

rivaldo
Thank you for further comment drawing our attention again to the improvement of H2 over H1.
I must confess that I did not read your first one as carefully as I should have done.

[rivaldo] 13/6/2018 10:44

People don't seem to have cottoned on to the H2 upturn.

I repeat, NTQ made $4m of sales in H2 compared to only $2.5m in H1, and achieved $0.5m EBITDA in H2 alone (up from a $0.3m loss in H1).

This year then, we can hopefully see a minimum of $1m EBITDA, and potentially quite a lot more given the rate of growth.

That's on top of the $15.5m cash pile.

[varies] 13/6/2018 09:02

The phrase "significantly above expectations" in the recent trading statement for 2017/18 suggested a decent profit to me but I see now that I was a little naïve.
Much seems to depend on the American rig-count.

[masurenguy] 13/6/2018 08:31

A few profit takers at the open but buyers coming in should move the shareprice up again shortly!

[fozzie] 13/6/2018 08:25

Haha you couldn't make it up could you.

[fozzie] 13/6/2018 07:43

Cautiously optimistic here. This business has been through a severe downturn and will have pared back every cost they can. Any improvement in trading should make for accelerated growth. I am a hopeful holder.

[masurenguy] 13/6/2018 07:39

Agree with the two comments above. For me the most positive takeaways were cash, increasing rig counts and further investment in product development to enhance their competitive position.

"Cash reserves during the year have increased once again even though investment in Engineering, Product Development and increases in the rental fleet have continued. This has been achieved as a result of prudent and decisive management initiatives taken throughout the down-turn and which have continued into this current period.

The key market indicator of the North American rig count has continued to increase to the current level in excess of 1,000 compared to 840 in April 2017 and 420 in April 2016. However, this remains significantly below the 2,000 plus level of 2014. Although activity levels have improved, the pricing in the market generally remains under pressure with margins for operators, service companies (Enteq customers) and suppliers continuing to be squeezed.

Enteq has managed the business through difficult market conditions. Cash has been preserved, there has been a return to profitability and strategic investment has been maintained. Core competencies are in place, technical differentiation is being improved and market share maintained. The business is poised for growth opportunities."

[1gw] 13/6/2018 07:30

Sometimes less is more, I guess! I found the TU more exciting than the full year results. Net assets were disappointing I thought, although it's good that they're managing the working capital - so much for it increasing as a result of the increased revenue. International revenue was also disappointing, but they have said that this is lumpy.

North American revenue was great though (increasing from $3.4m to $6.0m) and I did like this statement:

"Enteq is operating a strong, profitable, cash generative business in a sector which is in recovery, is sustainable long term, and is expected to grow."

[rivaldo] 13/6/2018 07:27

Much improved results, with positive EBITDA and $15.5m net cash.

But most importantly....NTQ made $4m of sales in H2 compared to only $2.5m in H1, and achieved $0.5m EBITDA in H2 (up from a $0.3m loss in H1).

This year then, we can hopefully see a minimum of $1m EBITDA, and potentially quite a lot more given the rate of growth.

Progress too on innovation with further patents, and growing prospects in the Middle East and Far East.

I particularly like the Strategic Direction:



"Enteq is operating a strong, profitable, cash generative business in a sector which is in recovery, is sustainable long term, and is expected to grow. Enteq has a strong balance sheet, and also has the ability to raise further funds, should incremental opportunities be available. Through investment in technology, both in-house and through partnerships, the market being addressed can be enlarged. The current customer base, and therefore market share, remains strong. Additional growth outside North America is expected."

[1gw] 12/6/2018 19:12

Yes, looking forward to seeing what the net asset position is in p/share now, given they talked about having invested in their manufacturing facilities and having increased their rental fleet. Plus I presume that revenues significantly ahead of expectations is likely to mean a noticeable increase in working capital.

Will we get some decent guidance for the year ahead, or discussion of options to deploy the cash if they're expecting to be somewhere near cashflow positive going forward?

Here's hoping for a second shareprice spike on (effectively) the same news (but more detail) of how good full year performance has been.

[someuwin] 12/6/2018 12:08

And remember, they have cash of $15.5m (at end march 2018).

[someuwin] 12/6/2018 09:20

Time for another attempt to break 40p imo.

[brugen] 07/6/2018 22:03

1gw. Quite right about market expectations. The TU said "The Board is pleased to report that both full year revenues and underlying EBITDA are expected to be significantly ahead of its expectations." It did not say what the Board's expectations were or what, if any, the market's expectations were.

I take comfort in the institutional purchases since the TU.I assume they are in it for the longish term otherwise I would have expected to see more sales at 40p.

I have no idea what the market reaction will be on the 13th. Whatever it is, the long run economics look good assuming the Enteq products are worth buying. I'll do a DCF and probably keep holding.

[1gw] 07/6/2018 15:16

I'm not sure anyone really covers Enteq, do they? I picked up an Investec note as a result of attending last year's AGM. The note was dated June 2017 and just looking on Barclays now, what Barclays is presenting as "current" forecasts look suspiciously like the numbers in the Investec note.

But it looks to me like the share price closed at 24.5p on 17th April, the day before the TU, so I have to think the current share price reflects much upgraded expectations, whether or not those expectations are reflected anywhere in a broker forecast.

[firtashia] 07/6/2018 12:16

AFAIK, despite the TU there were no subsequent upgrades to broker forecasts. The only forecasts I can find were last updated in Sep 17 which showed NTQ was expected to be loss making (EPS -1.13P, PBT -£0.7m). So any move into profitability should hopefully surprise the market positively and boost the share price.

[1gw] 07/6/2018 10:15

Looks like we might have to wait until 13th for any decent liquidity. Test of nerve - will the results manage to beat the heightened expectations coming from that TU?

[masurenguy] 30/5/2018 10:50

Shareprice still creeping up on very small trading volumes.

[someuwin] 29/5/2018 12:19

Can currently buy £3k worth online. But not £4k.

[red army] 21/5/2018 14:09

My target 60p ish

[someuwin] 21/5/2018 11:57

They're going to have to move it up again soon - imo.

Just no stock available.