ENGlobal Stock: New Technology with Core Expertise Adds Strong Revenue Stream

EN Global (Nasdaq: ENG) is a provider of engineering, manufacturing and automation services ranging from complete project design to turnkey modular system delivery and installation to existing plant upgrades.This article is an update of a previous article Published in May 2020, this article was the last in a series of articles on ENG from when we first spotted an ongoing turnaround in August 2019. paperThe stock has risen over 70% since our last article and at one point was up over 500% before selling out.

ENG’s success depends on the need for infrastructure to support the emergence of renewable fuels. The company has experienced new project delays due to the pandemic, but is now picking up momentum as its revenues have increased consecutively over the past three quarters. Added. We’re seeing renewed interest in our core business and a tailwind from the just-passed legislation.

Flare Gas Opportunity

Fischer-Tropsch, the gas capture and conversion process (“GTL”), was invented in Germany during World War II. The GLT was practically abandoned about ten years ago. This is because large pockets of natural gas have been emptied and natural gas was found only in small deposits called flares or stranded gas, resulting in significant cost overruns. New technology has made GTL economically viable and lessening environmental concerns.

ENG acquired Belgium’s Calvert Group in May and introduced Calvert’s patented GTL technology to convert stranded or combustion gases into liquid synthetic oils and diesel. ENG combines Calvert’s technology and modular assembly capabilities to build his GTL units in 50 and 100 barrel sizes that can hold up to 500,000 and 1 million cubic feet of flare gas per day.

The company is currently in the design stage of its GTL unit and expects to deliver the first unit by early 2023 and one unit per week by mid-2023. The small unit sells for $4 million and the large unit sells for $8 million per unit. unit. Last month, ENG granted exclusive distribution rights to his OilSERV, covering Iraq, Libya and the United Arab Emirates (four of his ten largest gas flare countries in the world). ENG has similar contracts in Oman and India and plans to sign additional contracts in other regions in the near future. His website for Gas Processing and LN&G features an excellent interview with ENG CEO Mark Hess about the company’s new GTL product.

revenue stream development

The company builds on its track record after completing the first hydrogen plant utilizing licensed Haldor Topsoe technology known as ‘HydroFlex’ or ‘Hydrogen Bridge’. This technology is a manufacturing process with low environmental impact and low energy requirements. The company will use the same technology, combined with its modular construction capabilities, to build a sustainable jet fuel station in North Dakota under a two-year, minimum $100 million contract. More opportunities should emerge from the 2030 Renewable Fuel Initiative guidelines on renewable fuels for jet aircraft.

A recent Inflation Reduction Act specifically mentions sustainable aviation fuel as an area the government is looking to support. The law also promises to reduce greenhouse gas emissions, including methane, which the company’s new GTL technology is capable of.

I enjoyed a recent conversation with CEO Mark Hess and asked if I had missed a key revenue driver beyond GTL and the upcoming new jet fuel station that I hadn’t mentioned in my previous post. He replied that he was disappointed that he could not move fast enough. For example, he cited the Permian Basin where his ENG has his one crew providing well maintenance and construction services. Hess wants a few crew members there to meet demand, which the company is hiring at Permian and all its divisions. big problem i have.

Finance

Insiders own approximately 26% of the 36 million outstanding shares. Market capitalization is $62 million. The company last reported about $14 million in cash and his $6 million in debt, so EV made him $56 million. The company has sufficient liquidity to fund its current operations.

Outlook for ENG

The next year is shaping up to deliver a revenue boom and improved margins for ENG, which should lead to profitability. A new jet fuel plant could bring in $50 million. If the launch is successful, we believe that $20 million from his GTL next year will grow to hundreds of millions of dollars ahead. The reported backlog is $19 million and is expected to convert to revenue within 12 months. The company is one of his three that can bid for the $124 million U.S. government. It is an alternative fuel processing budget and is expected to get his 60% of this work based on past history. All of that translates into at least double the expected revenue of about $50 million this year.

The reported gross margin is about 12%. The new work will require more engineering than construction, will have higher margins, and should be closer to management’s target of 20-25%.

Assuming only $100 million in revenue next year, that’s a P/E of 9 and an EPS of about 0.19. These estimates are conservative and not based on best-case scenarios.

risk

GTL has not had a positive history so far and it remains to be proven whether the new technology can bring environmental and economic benefits to meet the demand.

Full commercial deployment of the one unit per week GTL target depends on resolving supply chain issues in order to obtain the necessary and sufficient material.

New inflation reduction laws could add tax burdens and reduce purchasing power for large businesses, including ENG’s customers.

ENG has a history of cyclical performance based on energy commodity prices.

Conclusion

Environmental concerns have increased the demand for ENG’s core competencies. The company has developed a potentially huge new revenue stream with his GTL. The company has a major project to build a second large-scale hydrogen plant. More work of this kind should develop as the conversion of jet aircraft to renewable fuels continues to progress. The company is delivering growth across all divisions, which should lead to strong earnings growth next year. Future projections show investment opportunities for value and growth.