Enteq Upstream: Big opportunities, low valuation
In terms of specific revenue drivers, these were also in line with previous statements from the company. North American revenue has been impacted sharply by the industry slowdown and depressed rigs counts and was down by some 80% for the period. Overseas (meaning non-American) revenues showed greater stability, supported by new customers in China. The company also reports continued progress with its new strategic partner in Saudi Arabia and expects to complete its accreditation process before the financial year-end (Mar 2021), which would lead to additional revenue booking assuming a successful outcome to the process.
Interim results in line with expectations
The company also released new information regarding top management succession planning. The current CEO and company co-founder, Martin Perry, will move to the role of non-executive chairman, while Andrew Law (currently commercial director) will take up the position of CEO effective from April 1 2021. Law was appointed to manage the roll-out of Enteq’s overseas marketing strategy at the beginning of 2019 and was appointed to the board of directors in September 2020. The overseas expansion strategy has been an important driver for Enteq during 2019 and 2020, and we believe that the appointment of Law as CEO signals a continued commitment to that strategy.
Another important growth driver for Enteq going forward is the addition of new product lines to expand the market opportunity. Given the comfortable balance sheet position, the company is maintaining its willingness to make focused investments in new product development. The biggest project is the rotary steerable drilling system that is under development. This product range will enable Enteq to enter the rotary steerable drilling service market, which has an estimated worldwide annual value of US$1.7bn in 2020, of which approximately 40% is accessible by the SRSS technology. Prototype deployment and field trials are scheduled for 2021.
In terms of valuation, the current market capitalisation of £9.05mln (US$11.6mln) compares with the current net cash position of US$8.8mln. This implies that the market is valuing the existing business and the opportunity set at US$2.8mln. We believe that based on current products plus the rotary steerable system, and with further expansion in overseas markets, the company could produce revenues in excess of US$20mln by 2024. We argue that the current share price does not reflect this.
Given the continued progress in line with expectations, we are reinstating financial forecasts for FY Mar 2021, and these are summarised in the table.
Management succession, future growth, and valuation upside
Year end Mar 31 · 2019 · 2020 · Current
Revenue (US$M) · 10.2 · 10.9 · 5.2
EBITDA (US$M) · 2.5 · 3.1 · (0.1)
Net Cash · 11.9 · 10.2 · 7.4