Macro Enterprises: Owner-Operated Pipeline Construction Firm

Michael Melby of Gate City Capital Management presented his in-depth investment thesis on Macro Enterprises (Canada: MCR) at Best Ideas 2020.

Thesis summary:

Macro Enterprises constructs oil and natural gas pipelines, builds energy-related infrastructure facilities, and provides maintenance and integrity work on existing pipelines. Macro is headquartered in Fort St. John, British Columbia and conducts most operations in Alberta and British Columbia. Macro has a market capitalization of C$124 million and an enterprise value of C$101 million. Macro has established itself as one of the largest pipeline construction companies in Western Canada and has built a strong reputation for safety and reliability over the company’s 34 years of operations.

Macro has recently benefited from a sharp increase in pipeline construction activity in the area and has built a record backlog of $870+ million. This backlog includes large contracts on both the Coastal GasLink Pipeline and the Trans Mountain Pipeline Expansion. A large portion of both projects is cost-plus in nature, dramatically reducing the company’s execution risk. Macro continues to bid on additional projects, and Mike expects the company to continue to add profitable work to its backlog. Additionally, Macro has four master service agreements with large pipeline operators to provide maintenance and integrity work on existing pipelines. These service contracts provide Macro with a higher-margin, recurring revenue base.

The company’s recent valuation metrics are attractive, with Macro trading at a P/E ratio of ~3.5x, EV/EBITDA of ~1.5x, and price/book of ~1.2x. Macro has a clean balance sheet, with net cash of C$23+ million and owned property, plant and equipment with a book value of C$75+ million. Management is aligned with shareholders, as founder and CEO Frank Miles owns 30+% of shares outstanding.

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About the instructor:

Michael Melby is the founder and portfolio manager of Gate City Capital Management, a micro-cap value focused investment firm. Before starting Gate City Capital, Michael worked as a research analyst at Crystal Rock Capital Management where he covered the consumer, restaurant, retail, and gaming sectors. Michael previously worked at Deutsche Bank Securities in their Debt Capital Markets group and at the University of Notre Dame Investment Office where he focused on natural resources, fixed income, and risk management. Michael earned an MBA from the University of Chicago Booth School of Business where he graduated with Honors and a BBA in Finance from the University of Notre Dame where he graduated Summa Cum Laude. Michael is a CFA Charterholder and has earned the Financial Risk Manager designation.