New to board, but have idea to contribute.
How about EXTN? A leading provider of full-service natural gas contract compression and supplier of aftermarket parts, but branded as global systems and process company that offers solutions in oil, gas, water, and power midstream markets. Trades at ever so slightly less than two-thirds of book value (0.65 to be exact). Stock price: $10.55.
Earnings calls from the past year have highlighted some positive developments:
-New contracts are characterized by increasingly more predictable revenues due to the nature of integrated plant versus the pure compression packages they used to sell
-The company has invested in a shale play at Vaca Muerta (great exposure to Argentina, and long-term investment as the country develops into a stable exporter) - this should bring in more revenues as the site is developed
-Exiting lower margin opportunities such as services in Brazil and routine maintenance
-The consolidation of two compression facilities in Houston in order to take advantage of volume opportunities and cut costs
Definitely not a Buffett type company, has a bit of an ick factor with two of the three segments revenues declining. Free cash flow is plentiful taking into account only maintenance cap ex. Growth cap ex actually goes towards growth.
Other catalysts:
-Sam Zell’s Equity Group Investment holds a long-term stake in Exterran (12.8% ownership) so they have an incentive for it not to fail. Zell has a representative, Mark Sotir, who is the executive chairman of the board. EGI’s Chai Trust has been purchasing a significant amount of shares in the past year (933K averaging $21 per share).
-Company initiated huge share buyback program ~ $100 million through Feb. 2022. Have done $10 million thus far (averaging $13 per share). Repurchases were done at less than book value ($15 per share) which is a great sign. Management doesn’t believe in dividends and believes that buybacks are the most effective way to return value to shareholders and I tend to agree.
Have done most of the research on this (if anyone wants me to elaborate more in this idea, I’d be happy to), but am still working on potential downsides. Could anyone help scout out what could go wrong with this idea? It’d be much appreciated.
Anne |
