McCoy Global Inc (MCB:TOR)

Recent Share Price: CAD$0.44

Accounting: IFRS

Fiscal Year: Dec. 31st

Market Cap: CAD$12.0 million ($9.1 million)

Industry: Energy / Oil Related Services and Equipment

McCoy Global’s primary business is selling hydraulic power tongs for onshore and offshore rigs. The company claims to be the market leader and reports to have the largest installed base in the world.

Sales per region
CAD (in Million)2019
United States & Latin America $               23.98 45%
Middle East & Africa $               13.85 26%
Europe & Russia $               10.00 19%
Asia Pacific $                 3.21 6%
Canada $                 2.36 4%

The power tongs are used to connect and disconnect tubing at the wellhead at the proper torque, which is better and safer than connecting by hand. Every active rig, both onshore and offshore, will need a threading device–so financial results for the company are heavily correlated to active rig counts and footage drilled. The piece that comes in contact with the pipe is called a die, which wears out eventually and needs to be replaced. The video below is of a working power tong by Eckel, a competitor to McCoy, but gives you an idea of how this works.

McCoy is looking to lead in the technological advances in their niche field of expertise. This is evident in their purchase of DrawWorks last year. The video below is of their new threading system.

Overall, McCoy is looking to keep up their R&D spend to improve cloud based services for their customers. The thinking here is to push for better technology at the wellhead to allow customers to reduce their headcount at each wellhead and allow rigs to be monitored and run more remotely.

Recent History

2020

Given the pain in the energy sector, McCoy has worked to reduce working capital needs and tightened the belt on operating expenses. Their Q3 results make for 5 quarters of positive EBITDA (and 7 of the last 8). If they can eke out positive cash flow when it’s this bad, their ability to remain solvent looks promising. (But who knows for sure.)

McCoy recently secured a new US$2.5 million line of credit to support working capital needs and refinanced its existing US$2.4 million note with a US$3.4 term facility to extend maturity and pay for their R&D they want to spend.

November Investor Presentation

2019

McCoy completes the first phase of their “Digital Technology Roadmap” with the introduction of two new products: Virtual Threadrep and Calcert Technology. McCoy states they spent $1.9 million in 2019 on these cloud-based products..

Effective October 2, acquired DrawWorks LP for $7.8 million ($5.8 million cash, $1.9 million note) and booked $3.6 million to goodwill and $2.6 million to intangibles. McCoy points out DWCRT, a new type of a casing running tool, as an example of technology driven product offerings they are excited about.

2017

Acquired 3PS, a maker of torque sensors, for $8 million.

Financials

My calculated M-Score for 12/31/2019 is acting quite funny. It appears to be coming from a blow-out in the Asset Quality Index (AQI) with a score of 17.43. Two things may be causing this: (1) the acquisition of DrawWorks put $3.6 million in goodwill and $2.6 million in intangible assets (which they called Acquired IP) on the books in 2019 and (2) McCoy capitalized R&D expense of $2.2 million as IP. Due to write-offs of capitalized R&D in 2018, Intangible assets and Goodwill went from $9 thousand to $8.1 million–that’s quite the move.

 5 YEARS10 YEARS
Change in Working Capital $       32,041,000  $      (15,117,000)
Net Income $      (66,778,000) $      (10,374,000)
D&A $       21,498,000  $       46,968,000 
Other non cash charges $       10,393,000  $       46,033,000 
Capex $      (10,679,000) $      (46,152,000)
Owner Earnings $      (13,525,000) $       21,358,000 

Cannell Capital (Carlo Cannell) owns 12% of shares outstanding. It’s always nice to see a respected value shop in a name.

What happens to oil prices is the obvious unknown.

Write-ups

Value Investors Club

Disclosure: We own shares in McCoy Global Inc (MCB:TOR). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

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