Macro Enterprises Update

I only wrote about Macro Enterprises (MCR.V) six weeks ago but there has been quite a bit of news (both good and bad) related to the company since then. So far, Mr. Market has responded to this news by pushing the stock down to C$1.80 (so -16.3% since I posted the idea). They don’t report third quarter earnings until the end of this month, but I wanted to review what’s been going on.

A major focus of my initial write-up was the potential catalyst of an LNG export terminal on British Columbia’s west coast. This would massively increase pipeline construction where Macro operates and would almost certainly lead to a lot of business for them. As a reminder, the LNG terminal closest to coming to fruition is from Petronas. The others are probably at least a year from a final investment decision and some of them have been pushing that decision farther to the right thanks to the oil collapse.
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Macro Enterprises: Below Liquidation Value and Profitable

Macro Enterprises is profitable, selling for below liquidation value, still run by its founder who has significant stock ownership and there is an impending catalyst that could significantly increase revenue. Macro is based in Canada and its main listing is the TSX Venture Exchange under the symbol MCR (C$2.15); they’re also listed on the American pink sheets under MCESF ($1.60). Unless noted, all numbers in this write-up are in Canadian dollars.

Business overview

Macro builds and maintains pipelines for the oil and gas industry in Western Canada. Not surprisingly due to the oil collapse, very few (if any) new pipelines are being built today. Their revenue has declined from a high of C$212 million in 2013 to a projected C$130-140 million for full year 2015. Because no new pipelines are being constructed, almost all of their current revenue is maintenance and integrity work on existing pipelines under master service agreements (MSAs). The silver lining here is that maintenance work is required by law on active pipelines which means they’re able to maintain pricing power even during a downturn. As proof of this, towards yearend 2014 one of their MSAs came to an end and was extended for three years at similar terms. Management has stated they expect gross margins to remain fairly close to where they were in 2012/13 (~22% vs 26% at the peak). This has been proven true through the first several quarters of the downturn.
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