Founded in 1914, Edmonton, Alberta-based McCoy Global Inc. (Toronto: MCB) operates in the oil and gas sector and focuses on maximizing well bore integrity and data collection so customers can make swift decisions with the best information, explains Benj Gallander, editor of Contra the Heard.
McCoy — a favorite growth-oriented idea for 2022 — was badly hurt by Covid-19. The first quarter of 2021 saw sales shrink by 35 percent and cash flow turn slightly negative. Compounding this, the backlog dropped and the loss doubled, albeit it was still a minor league $200,000.
The debt load looked worse on a relative basis than it was at $9.4 million, but that was because of cratering revenues. In the most recent quarter, a turnaround was in evidence, in conjunction with the increase in oil and gas price. Revenues jumped 62 percent to $9.9 million, bookings were up 54 percent.
McCoy’s management has persevered through oil and gas gyrations before. Jim Rakievich has been president and chief executive officer since 2002. The chair, Christopher Seaver, has been on the board for more than a decade. He is also experienced with selling companies, as he was president and chief executive officer of Hydril Co. when it was sold in 2007.
And this is part of the kicker for our interest in this outfit, as management has formed a committee to evaluate strategic options. While joint ventures and partnerships are possibilities, our assessment is that the preferred alternative is to sell the enterprise.
Management feels the business would be a good catch especially since it is now commercializing the automation of tubular running services, which include casing and tubing installation. This could increase demand as the technology should lower the cost of labour for drillers ready to modernize.
Behind the scenes, insiders are exceedingly motivated to receive a high price for the corporation as they own almost 50 percent of the 27.8 million shares outstanding.
One problem for investors looking to buy McCoy is that it trades an average of about 22,000 shares a day. Given the lowly share price, it makes it difficult for many people to acquire a meaningful position unless they’re patient. The stock traded at greater volumes in the fall of 2013 when the price was above $7. Oh, those halcyon days.
The initial sell target on McCoy is $2.24. However, if a takeover occurs in the near future, it will almost assuredly be well below that mark. A buck would be a significant premium from the current trading price, albeit less than the book value of $1.26. Given how much insiders own and how well they know the company, the bid could even come from management.
