# Logan International (TSX: LII)



## PMREdmonton (Apr 6, 2009)

This is more of a curiousity than anything else. I was just checking up on my position in PSD (Pulse Seismic) which is probably my largest position and noted a company listed in the TSX just below it on Google Finance with crazy good fundamentals. This is a small-cap play with a market cap of about $100M. It has a PE of 4.8, P/B of 0.74, P/S of 0.78, D/E of 0.3, large cash flows, growing revenue and net earnings.

The thing is that the stock has been in a major downtrend despite those fundamentals for about two years and is around 60% off of its all-time high. The stock was formed as a RTO back in 2010 but is a Cdn/US firm that sells tools and services in the oil fields, not a Chinese shell firm. It appears as though they have been a serial acquirer of other small oil tool and service companies over the past couple of years and seem to have put together a decent company.

The other thing is that insiders have serious ownership here. They own 54% of the company as it stands. Having said that, they haven't been doing much acquiring here at the recent lows. There has also been a management change with the CEO leaving but the downtrend started well before this announcement. The other negative is accounts receivable is a bit high for my liking but not climbing (40% of market cap) and inventory levels are high and have been climbing (about 60% of the market cap now). The company seems confident about growth and are just coming off a record quarter so maybe that shouldn't be a huge concern but the current levels are about 1/3rd of current projected next year's revenue.

The other issue with this stock is a serious lack of liquidity. Because of the high insider ownership not many stocks trade on a given day or should I say no stocks often trade on any day so bid/asks likely to be wide.

I just thought it was interesting to see a company that seems to be doing well while the stock seems to be getting killed in the market. This sort of divergence can't last too long. At some point the market will be proven right and the fundamentals will deteriorate or the market will be proven wrong and maybe the stock price goes up, they get acquired or the insiders may just decide to take it private and pay a premium to the shareholders.

Any ideas on this oddball and why it is getting hammered?


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## Hawkdog (Oct 26, 2012)

Oil prices likely. Drilling and exploration will likely be down in 2013 - pipelines are full. Driving prices down.


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## PMREdmonton (Apr 6, 2009)

Hawkdog said:


> Oil prices likely. Drilling and exploration will likely be down in 2013 - pipelines are full. Driving prices down.


Only thing is they have been acquiring and so actual projected revenues are still projected to be up next year. Debt levels are okay. They are not issuing any stock. They have lots of EBITDA (EV/EBITDA around 4) and it is growing and expected to grow again. They recognize slight downward revision of previous expectations but not by a huge amount.

They are definitely a niche player but apparently quite dominant in that niche. I have no expertise to project how much overall decrease in drilling may affect them. The other thing to keep in mind is they seem to have most of their production in the US and also have a decent international presence with new operations set to commence in China. So they are a Cdn company but almost seem to be more international than national in their businesses. So even though Canada is slowing down, US oil production is surging while dry gas well counts are markedly down so I'm not sure how much this affects them in particular.

Funny company - not sure what to make of them. The screen is screaming value right now, though. I'd be more convinced if insiders were buying hand over fist.


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## Hawkdog (Oct 26, 2012)

I will take a closer look and ask some questions,
looks interesting...


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## doctrine (Sep 30, 2011)

They do have almost $110M of "intangibles and goodwill" on the books, which is a lot. But their sales to book ratio is about 1, and the P/E is quite strong. Too bad there's no dividend. And it's very thinly traded - there must be nearly zero public float. There are lots of small cap oilfield service companies out there though, that would likely have similar reaction to an improvement increase in North American oil prices and drilling activity. And that pay dividends.


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## PMREdmonton (Apr 6, 2009)

I agree that they do have a lot of "goodwill" but isn't that how acquisitions are classified on the balance sheet? The intangibles part is presumably related to technology and innovation that they have developed in oil related service work. Now there are a number of dividend paying energy service Canadian companies but most of them trade above book value by a substantial margin and most of them have had declining earnings which accounts for the drubbings some of their share prices have taken over the last year. This stock is quite a bit different from them so I thought I'd just highlight them here for some feedback.

The thing that gets me with them is how many stocks have:

1. Low P/E ratio
2. Low P/B ratio
3. Rapidly growing sales
4. Rapidly growing earnings
5. High insider ownership
6. Reasonable debt levels

and 

7. Negative momentum

Their share price has been cut 60% as their revenues have doubled (from 61M to end 2009 to 162M over their last four quarters) and earnings gone up 3.5 times (from 0.19 to end 2009 to 0.66 in their last four quarters). 

So I know some people don't like acquirers but these guys seem to be growing their business well without too much debt.

The stock price has been up a bit after bottoming out in the last quarter so maybe better times are ahead, but maybe not.

Anyhow, the metrics jump off of the page at me so I thought I'd run it by others to see what other thoughts there are.


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## Feruk (Aug 15, 2012)

There is a lot of buying and selling of companies/assets going on here. It's to the point where I have NO idea what is organic growth and what they made by selling off divisions of their company. I think the P/E of 4.8 is misleading and packed with one time events. If I were to guess at an organic growth P/E, I'd bank in the 10 range. This is not far off their peers'. With utilization rates dropping off and differentials making another bad year in Canada seem like a reality, I see no reason to be in this sector. I'd argue they're overvalued.


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## PMREdmonton (Apr 6, 2009)

I agree financials are a bit confusing. This is because of a big divestiture about 1.5 years ago and one big acquisition that was completed in the fall of last year.

However, this is not a "Canadian oil services" company. I think most of their action seems to be in the US so they are in more of a booming oil sector rather than a declining gas sector and stagnating oil sector. Looking at their financial statements it looks like 2/3 of revenue come from the US.

The last quarter did see record revenues and profits at $44M and quite a bit of EBITDA - this is a marked departure from most of the other Canadian oil service companies. They have guided down some but not markedly so for 2013 from prior projections. They are still forecasting a record year for revenues. All the earnings and revenues mentioned in the last quarter do come from ongoing operations - they were not counting any results from the discontinued geological seismic operations from the most recent quarter or even the results from the past 9 months.

The price action of this one has recently reversed but I wouldn't be surprised if some investors try to take profits on this bounce and drive the price back down a bit.

Still thinking about this one. I have to dig a bit deeper but I don't think there is much earnings manipulation. I agree that there isn't much projected growth next year but we all know that analyst predictions of growth are virtually useless anyways. They definitely operate in a niche field - servicing horizontal oil fracking but in a very specialized manner. They are not a brute horsepower fracking company which offers undifferentiated products. One could argue they are dominant in their field and so long as there is a lot of fracking going on their services will be needed based on what I've read about them.

Still very speculative. I'd be more convinced if there were more insider buying.


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## Feruk (Aug 15, 2012)

Record revenue no doubt, record EBIT as well, but neither by much. Their earnings beat appears to be from an $11MM source of "other income", not related to their revenue. This is what makes the earnings multiple look so good. Actual earnings would be closer to that historic $2.5-$3MM, not $15MM (6X Q2) without that $11M. Another concern is $59MM in debt on a market cap of $112M.

Having said that, I do agree on a reversal of activity down south that will benefit them. Too risky for me.


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