On February 13, 2017 we stated to our premium members that we intended to keep a close eye on a microcap wind energy company due to its restructuring efforts and a recent acquisition of a privately-held fabricator, kitter and assembler of industrial systems, primarily supporting the global gas turbine market.
Company Fun Facts
- Wind Towers — 92% of revenue
- Industrial (mainly gearing products) — 8% of revenue
- Employees – 600
- 2016 Revenue – $181 million
- Zero debt
- $200 million in NOL (tax shelter)
- Served Markets :
“Our most significant presence is within the U.S. wind energy industry, although we have diversified into other industrial markets in order to improve our capacity utilization and reduce our exposure to uncertainty related to favorable governmental policies currently supporting the U.S. wind energy industry.
Outside of the wind energy market, we provide precision gearing and specialty weldments to a broad range of industrial customers for oil and gas (“O&G”), mining, steel and other industrial applications.
Recent Acquisition of Red Wolf targets the gas turbine industry.”
Challenges Faced Over The Years
Tower Segment
- Manufacturing inefficiencies
- Too much exposure to this segment
Industrial
- Loss of major customer
- Exposure to energy customers impacted by depressed oil prices
General
- Unsuccessful acquisitions made in 2007 and 2008
- Customer concentration
Solutions
- More focused acquisition strategy
- Improve quality control
- Diversify within the industrial segment
- Compressed Natural Gas (CNG) Equipment
- Acquisitions
MileStone – 2016 Marks first year of profitability
Interview with Management
We had a chance to speak with a member of the company’s management team. We were impressed with her candidness when we discussed past missteps and unfortunate circumstances the company has faced since it went public through a reverse merger in 2006.
Log in to read our interview notes, as well as our take on valuation:
George
Thanks for your BWEN report. 2017 guidance on tower production is a bit soft. What are your valuation estimates based on first quarter report: http://s2.q4cdn.com/410569189/files/doc_presentations/2017/05/Q1-Earnings-Slides-Final.pdf
Maj Soueidan
Hey Keith, Thanks for the analysis. Great points. Did not catch that debt info. I should have included the NOL’s in the summary. I agree that lots of upside exists here. There is considerable upside to guidance if just one of a few things fall into place, just from their legacy business. Throw in some cross selling synergies and it gets very interesting. And it’s a plus that the company can trade with some liquidity.
Maj
Keith Rose
I think you are under appreciating their FCF due the company’s $200mm nol.
I think this stock is a 2x from here based on FCF. assuming a $18mm EBITDA number for 2018 with $5mm normalized capex — they are spending on capex this year to get a return — there are no taxes — so FCF is $13mm. that equates to a current FCF yield of 16%. Today’s 2017 projection is 10%. if the stock trade there, it’s over $10 per share.
Overall, the company is debt free*, HUGE NOL, their backlog is full and they are adding capacity. They today just guided to $14-$16mm of 2017 EBITDA which is a 55% growth from last year (which was albeit depressed) – anyway, very interesting I think. (* the $2.6mm of Debt they have on their books is literally forfeited in August 2018 back to the state of Texas….)
AND IT is so far off the radar….