GEO Investing

gv power linesGoldfield Corp (GV) is back on GeoInvesting’s radar since the company’s revenue picture could be about to improve.  Those familiar with our coverage of GV know that on On May 11, 2012, GeoInvesting coded Goldfield (GV) as a GeoBargain at $1.51. On June 7, 2012 we released a bullish article, “Goldfield: A Four-Bagger In The Making”.   At that time we speculated that shares would rise due to a burgeoning backlog, stemming from a large Texas infrastructure project (STEC) the company had been awarded.  We were also bullish based on one of GV’s directors buying large amounts of stock in the open market.  The stock reached a high of $5.67 on March 25, 2013, after reporting a strong string of quarterly sales and EPS numbers.

However, shares eventually reversed most of their gains when it became known that the company would not be awarded further STEC contracts.  We also became frustrated with the company’s lack of communication with our team and unwillingness to adopt suggestions we outlined for the management team to do a better job in educating investors about its business.

Growing Backlog, Predictable Revenue Stream, Insider Buying

Recently, Goldfield Corp has been experiencing growing backlog, a more predictable revenue stream, insider buying and favorable industry trends, a combination of which we feel could bring ex-GeoBargain GV back from the grave. The financial performance of Q4 2104  will  give  investors  clues as to how successful  management has been in replacing contracts that had given the company a brief period of  growth during 2013.  We will code  GV as a  GeoBargain on the  radar as we perform our due diligence.

While we have still had little success in reaching management, it is worth noting the following positive factors, which have led us to not totally abandon actively tracking GV:

  • Goldfield Corp still operates in an industry that will experience positive trends for years to come, specifically the need for providers of energy (utilities) to upgrade outdated infrastructure and adopt clean energy technology.
  • The company completed a key acquisition (C and C Power) in January 2014 which added a new source of revenue and exposure to new geographic regions that will also help the company to replace the revenue it has lost from STEC.
  • Core revenue (not including STEC ) appears to be growing  at a brisk pace.
  • The company is placing more emphasis on filling its backlog with longer duration, more  predictable,  maintenance and service work. This could lead to an expansion of valuation multiples.
  • Backlog of $87 million that GV believes will fill in the next 12 months already approximately matches revenue the company will probably report for 2014 (numbers are due soon).
  • After reporting unimpressive growth in 3 of the last 4 quarters it appears that GV could be in a position to grow sales again, possibly reflected in Q4 2014 results.
  • CEO John Scottie recently purchased a large block of  stock  in the open market.

Commentary for Q3 2014 financial release :

“As previously announced, the Company has been focusing on developing and growing electrical construction services under multi-year Master Service Agreements (“MSAs”), which provide for more consistent workload and improved operating efficiencies. This effort has scored significant success in the second and third quarters of 2014. Total MSA backlog grew 392% to approximately $246 million as of September 30, 2014, from $50 million at March 31, 2014. The $246 million represents total revenue estimated over the life of the MSAs, of which about $48 million are estimated to be realized within 12-months. Because of the recent signing of these MSAs and the necessary delay in the start of specific construction projects, the new MSAs did not, in large part, impact revenue for the three and nine month periods ended September 30, 2014.

In addition to amounts reflected under MSAs, project-specific firm contracts to be completed within 12 months grew 78% to approximately $40 million as of September 30, 2014, from approximately $22 million as of September 30, 2013.

Of the total $287 million backlog as of September 30, 2014, we expect approximately $87 million (31%) to be completed within the next 12 months.”

John H. Sottile, President and Chief Executive Officer of Goldfield said,

“The almost four-fold growth in our electrical construction MSAs during the second and third quarters demonstrates the strength of our electrical construction operation. At September 30th, anticipated 12-month revenue from MSAs stood at about $48 million – up from about $13 million a year ago. We expect that these new MSAs will begin to have a significant impact on our operating results beginning the current quarter. Future results should also be favorably impacted by the strong 78% growth in our project specific firm contracts, with anticipated 12-month revenue from such contracts increasing to about $40 million from about $22 million a year ago.”

Caveats:

  • We have difficulty speaking with management.
  • It is unclear what margins the backlog carries.
  • Large projects can still lead to lumpiness in quarterly financial performance.
  • Breaking out current backlog would not lead to meaningful growth in 2015, but it is reasonable to expect that the company can generate revenues in addition to the backlog throughout the year.
  • GeoTeam is working on breaking down (1) various valuation scenarios and (2) core backlog growth minus STEC.

To see full coverage of Goldfield Corp, please go here.

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