HERD MENTALITY – Investors are busy chasing future growth in Cannabis stocks and paying incredibly high valuations – while well established microcap companies like ESN are dramatically ignored / overlooked.
Essential Energy Services (ESN:TSX 30 cents) –
ESN released Q4 and year-end financials last Wednesday and given what happened to Alberta oil in Q4 (and ongoing depressed natural gas prices), I thought their numbers were excellent given the struggle of this industry in Western Canada. They are doing an impressive job controlling costs and maintaining market share.
The depressed share price of ESN reflects a “significantly” undervalued company – based purely upon “discounted” asset value. This assigns NO value to the business itself which generated $190 Million in profitable 2018 revenue (in a depressed oil economy). This includes an extensive customer base in North America, proprietary technology, and manpower of approx. 400 employees.
Market Cap: $44 Million (shares outstanding: 142 million)
Cash + Receivables – Debt = -$1.2 Million
$1.2 Million + Market Cap = $45 million
Inventory + Equipment = $159 million
$114 Million or 80 cents per share is ignored by investors in the valuation of ESN.
This is based upon net book value of tangible assets (after write-downs and depreciation)
The replacement cost of that equipment is closer to 1/4 Billion $ (as shown below)
FINANCIAL DETAILS (year ending Dec 31/18)
Q4 / 2018 SPECIFICS
Remember that Western Canadian Select (WCS) is the price received for light to moderate oil “within” Alberta. The price collapsed dramatically in Q4/18 but saw a dramatic recovery heading into 2019.
For the Q4/18 reporting period, ESN did surprisingly well considering the state of Alberta’s oil economy in Q4. Fortunately, it was helped significantly by their Tryton Tools division in the United States. This is an important division that holds significant value.
This graphic is from their Q3 financials but it shows the division breakdown.
And note that it is not just the tools / equipment, but the skill-set required to do the work thousands of meters down hole.
As I previously noted when introducing ESN in February, this is a contrarian bottom fishing speculation (based upon the deep discount to net asset value) – simply because no one cares about energy services in Alberta right now.
It is impossible to know if that sentiment will change in 2019, but if you have patience, there is very tangible (unrecognized) value in ESN near 30 cents.
Now that Q4 financials are out, they should be updating this corporate presentation in March. While this one is from January 4th, it provides a very good overview of their services and equipment fleet.