MCE earnings are exiting the bottom of a bearish cycle and entering a multi-year uptrend that could see margins and earnings expand materially. A scenario that could easily see MCE enterprise value 3x from where it is currently.
Oil and Gas service businesses have lagged the producer earnings expansion by 8-16 months. This is impart a function of the restructuring that was needed, working capital cycle and supply of production and exploration equipment to the industry. Clearly the working capital has been the issue for MCE until recently. Collin Street who is an astute investor with O&G producer, explorer & service exposure identified this and understood the benefits of a convertible note over a capital raise for management and shareholders of MCE. I view the CN terms as mutually beneficial for both parties.
MCE has significant operating leverage and enough capacity in their manufacturing plant to deliver on a materially larger amount of contracts than how we are operating currently. If earnings improve and margins normalise returns to shareholders will be meaningful.
MCE Price at posting:
26.5¢ Sentiment: Buy Disclosure: Held
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