Q4 Disappointing, 2025 Recovery Anticipated

 ⭐️ Enterprise Group Inc. is an FRC Top Pick ⭐️

• Q4-2024 revenue was down 19% YoY, and as a result, 2024 revenue was up just 3% YoY, missing our estimate by 8%, despite posting 12% YoY growth for 2024-9M.
• With expenses outpacing revenue growth, EPS fell from $0.12 to $0.07 vs our forecast of $0.10.
• Management attributed the revenue decline to an unexpected slowdown in client activity, primarily driven by lower oil prices. Additionally, the delay of the Kitimat, B.C., LNG plant, a critical coastal project for shipping Canadian natural gas globally, from mid-2024 to mid-2025, has led several gas producers to postpone their drilling plans.

• On a positive note, management noted a significant increase in activity in Q1-2025, fueled by higher gas prices, and the resumption of drilling by several clients. In Q4, E closed a $29M bought deal financing, with proceeds used to repay most of its outstanding debt. This is a major development, as most companies in the sector are highly leveraged. Lower interest expenses will positively impact 2025 EPS.
• E is down 28% following the release of weaker-than-expected Q4 earnings results yesterday. The S&P Oil & Gas Equipment & Services index is down 13% YTD, driven by lower oil prices, a broader market pullback, and concerns over a potential recession sparked by escalating trade tensions.
• While Enterprise lacks direct exposure to the U.S., and is unlikely to benefit directly from Trump’s mandate to boost energy production, we expect positive investor sentiment to spill over to the broader North American energy services sector.

Key Financial Data ($)
YE Dec 31	2024	2025E	2026E
Cash	30,674,798	18,075,370	23,217,889
Working Capital	36,281,170	24,065,397	29,610,752
Total Assets	118,341,207	109,509,773	118,581,910
Total Debt	22,669,463	5,551,700	5,551,700
Revenue	34,646,888	39,530,541	42,460,111
Net Income	4,543,553	7,528,257	8,276,160
EPS	0	0	0

 

Price and Volume (1-year)

	YTD	12M
E	-35%	55%
TSX	0%	13%
Sector*	-13%	-23%
*S&P Oil & Gas Equipment & Services

 

Enterprise vs Larger Players 

E is up 55% YoY, making it the third-best performing stock on our list of oilfield services companies. Ranked third in 2024 revenue growth, with the same position projected for 2025. Gross margins in line; debt-to-capital notably below the sector average

 

Financials 

Q4 revenue declined 19% YoY, while 2024 revenue grew just 3% YoY (9M-2024: up 12% YoY), missing our estimate by 8%. Gross margins decreased 1 pp YoY, and 3 pp lower than our estimate. G&A expenses rose 9% YoY, but were 7% lower than our estimate 

With expenses outpacing revenue growth, EPS fell from $0.12 to $0.07 vs our forecast of $0.10. CAPEX increased 11% YoY to $16M, driven by heightened client demand necessitating new equipment purchases

Debt/capital declined QoQ (from 43% to 28%), driven by higher equity following a $29M financing in Q4. Subsequent to year-end, the company repaid almost all outstanding debt with proceeds from the financing. Can raise up to $4.5M from in-the-money options and warrants 

Oil & Gas Price Outlook 

Consensus oil price forecasts (near and long-term) are well above historic averages, implying a positive outlook for the oilfield services sector. E's revenue generally tracks changes in oil and gas prices, and sector CAPEX spending

Historically, a 1% change in oil and gas prices has led to a 1.9% change in E's revenue

 

FRC Projections and Valuation 

As 2024 revenue, and gross margins, were lower than expected, we are lowering our 2025 estimates

Our DCF valuation decreased from $3.89 to $3.25/share, driven by lower near-term EBITDA estimates, and share dilution from the recent financing

 

We are reiterating our BUY rating, and adjusting our fair value estimate from $2.75 to $2.30/share (the average of our DCF and comparables valuations). While Q4 results were disappointing, management’s upbeat guidance for Q1-2025 is encouraging. Our long-term outlook remains positive, supported by the company’s ability to retain clients, and consistently attract new ones. With Trump’s focus on ramping up energy production, we expect positive investor sentiment for the broader North American energy services sector.

 

Risks

We are maintaining our risk rating of 3 (Average)

We believe the company is exposed to the following key risks (not exhaustive):

• The oil/gas field services market is highly dependent on oil and gas prices
• Operates in a competitive space
• Geopolitical

 

Appendix