One of the great things about being an investor is unearthing something that, while logical, is unexpected: But could be a nifty value add to shareholders. Such an example is Enterprise Group’s (E: TSX) proprietary asset tracking software ‘STAR’; critical to maximum use of equipment and most importantly, getting it back.
Experienced investors will note the potential of Industrial equipment rental leader Enterprise Group, not the least of which is that its book value has risen to $1.01 a share and is trading at 44 cents. This growth is just the latest in a successful strategy taken by Enterprise management after weathering the 2014-15 resource downturn. If anything, the company is leaner and stronger now; the result of the recent sale of subsidiary sale of CT Underground for $20.6 million.
The tale of Enterprise's proprietary ‘STAR’ tracking program is one such story. For those old enough, the software is like Six Sigma on steroids.
Likely the most significant headache/loss/revenue hit haunting all rental businesses (in this case resource and industrial rentals) is the risk of losing a piece of expensive equipment (or several parts that add up to a significant corporate loss.)
Or not realizing maximum usage through inefficient tracking. Given that the security of assets could well be at the whim of client honesty and the weather; pieces lost for a period of time or forever can obviously be costly.
When Enterprise Group (TSX: E) acquired Westar Oilfield Rentals in 2014, one of the assets the company was working on was a business management software, known today as ‘STAR’. Enterprise continued to fund and upgrade the project and found itself with a proprietary asset that is critical to the profitability and cost mitigation of all of its subsidiaries.
Enterprise management currently owns almost 20 percent (just shy of 11 million) of its shares, so investors should not worry about motivation. It intends to be the leader and industrial and resource rental company of choice nationwide.
How E Got Here
Through strategic plans including asset sales, ongoing cost-cutting and sound business decisions E is leaner, more pivotal and have added diversity to its client base. The fact that Enterprise also designs and builds specialty equipment for our clients—15 patents in place with more coming --means that it can be immediately responsive and relevant to address its private or Government customers' unique needs.
Since January 1, 2018: Key investment metrics evidencing ongoing growth:
- Secured a $9 million Supply and Services agreement with a significant International resource company.
- Q4 2017 revenue $10.7m versus Q4 2016 at $8.3m
- EBITDA Q4 2017 $2.56m versus Q4 2016 $1.87m
- Net Income Q4 2017 $1.1m versus Q4 2016 loss ($9.9m)
- EPS Q4 2017 $0.02 versus Q4 2016 loss ($0.85)
In Q1 2018, Enterprise has secured a $9.1 million contract, sold its CT Underground subsidiary for $20.6 million resulting in virtually complete debt retirement. As well, the Company has an acquisition chest of $15 million loan availability for accretive and complementary companies or assets.
Next? STAR
Financial results of the software use are measurable and impressive:
- Proprietary platform for future development and refinement
- Task and monitoring capabilities saves two significant salaries
- Allows management to plan to deploy company-wide through 3 subs and future acquisitions
- Generates a roughly 30 percent annual cost savings
- Produced a five up to a possible 10 percent margin improvement
- One of the Company's impressive value propositions over competitors
- No plans to license; to remain a corporate asset.
- Not aware of any competitive software
The software tracks assets, which in itself cuts costs, utilizing the location and site ID put directly on the invoice. The system always knows where the asset is, and fleet managers confirm that on delivery.
This approach keeps the customer up and running and ensures other expended revenue and protection of the asset. The key is the development of about 18 modules that work together and exchange information over a central database; all laid out in a very user-friendly navigational format.
"With the components developed, we began process mapping our existing business operations. As a result, we were able to considerably reduce our administrative costs by automating many of the human elements," stated Des O'Kell SVP of Enterprise Group. "Furthermore, with its implementation, the cost benefits that emerged from asset tracking are substantial.”
Enterprise is not the same Company that went into the 2015 resource downturn.
All Cylinders Firing
Throughout 2017, Enterprise has experienced a meaningful increase in activity from its existing customers coupled with a substantial surge in new customers which has resulted in increased market share for its business units.
Management's efforts to streamline and maximize efficiencies have translated into improved margins, decisive cash-flow quarter after quarter and a return to profitability in Q3 2017.
Management feels that Enterprise is within a very select group of producers and service providers that have aggressively adapted their organizations to operate successfully in the current commodity price environment.
With 2018 starting out with impressive strength, the Company has many other initiatives and strategic business plans to execute, particularly in further debt reduction, potential acquisitions and expansion beyond Western Canada.
With the calculated diversification of its customer base over the last three years, the Company has further mitigated market risk and is exploring substantial development opportunities to grow and enhance shareholder value.
