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Enteq Upstream: Positioned for resilience, opportunity for big growth

Enteq Upstream PLC (LON:NTQ) has released full-year (FY) results for the year-end March 2020 with commentary on the ongoing trading environment. The company reported revenues of around US$10.9mln, underlying adjusted EBITDA (earnings before tax interest depreciation and amortisation) of US$3.1mln, and a year-end positive net cash balance of US$10.2mln, all of which are in line with a trading update released in April.

Geographically the company reported North American revenues at US$7.7mln (FY Mar 2019: US$9.2mln) reflecting already softening conditions pre-COVID. Overseas revenues rose strongly to US$3.2mln (versus US$1mln the year before) led by new business in China. In its previous update, the company stated that overseas revenues were expected to show more resilience near-term than North America, and our reading of the earnings release is that this resilience remains intact.

Outlook and strong cash balance

We believe that it is still too early to make definitive financial forecasts for FY Mar 2021; however, the earnings release gives us some more indications of the direction of travel. We believe that North American revenues (70% of FY Mar 2020 total) are likely to decline to a fraction of previous levels. We expect overseas revenues to show another year of very strong growth. The net of these effects could lead to a revenue decline of around 50%, in our view.

The company announced substantial cost-cutting measures in April 2020, and we believe that these measures leave the company positioned for a year where it will more or less break even at the EBITDA level in FY Mar 2021. This could mean negative EBITDA, but we do not expect this to represent a major drain on the company’s US$10.2mln cash balances.

The earnings release states that the company retains an appetite to invest in focussed new product development. We also expect some investment in financing continued expansion in overseas markets. In terms of new technology developments, the biggest project is the Rotary Steerable Drilling system that is under development. This project, together with other new product lines, will give Enteq an addressable market of US$2bn per year, compared with US$100mln for the current core technology offerings. The first revenues from the Rotary Steerable Drilling system could be realised in 2022, in our view.

Allowing for the current pipeline of investment activities, we believe that Enteq is still on track to end FY Mar 2021 with a large net cash position. We believe that this provides scope for the company to consider additional investment opportunities that could become available in the current environment.

 

Quick facts: Enteq Upstream PLC

Price: 11.505 GBX

AIM:NTQ
Market: AIM
Market Cap: £7.76 m
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Enteq Upstream PLC: Analyst expects new business opportunities to lead to...

Proactive Research analyst Ed Stacey gives his assessment of Enteq Upstream PLC's (LON:NTQ) results for the year-end March 2020 as well as the ongoing trading environment. Stacey says overseas revenues rose strongly to US$3.2mln (versus US$1mln the year before) led by new business in China. He...

on 1/7/20

3 min read