Got oil in your water: Who do you call??? PROSEP
This is a very interesting company based in Montreal and developing products to eliminate water in oil in offshore or inshore drillings, gas sweetening and water treatment system.
We have to understand that oil cannot be delivered with a large content of water and gas has to be almost free of undesired by-products that could clog or destroy a pipeline. No matter where oil or gas come from it does contain products that have to be removed and this is where Prosep intervene.
Seems conventional? Well something is not. We should all expect a company like that to be from some Arab country but wait: they are located in Montreal Quebec.
They have been named twice on the 50 most fast growing technology companies (based on revenue growth). Their actual results are over 10,000% between 2005-2009. That is impressive growth and does not seem to stop there and one of the reasons is the fact that Prosep is an international company not a regional one as many other are. They can deploy a solution anywhere in the world.
During that 2005-2009 period they have signed agreements with so many large oil and gas company that it could be even difficult to name them all but here are a few locations where those deals were signed: South America, Korea, Kuwait, Asia Pacific, Middle East, Far East, Mexico, Colombia, Canada, North Sea, well as you can see a lot of different areas.
With all those signed agreement they must be into something.
And guess what: the more oil price climbs the better the chances for Prosep to gain new contracts as oil purity will have a greater price tag on it. And for those who think that oil will get back to 40-50$ a barrel I have bad news: sure it could dip back momentarily to that level but do you honestly expect the major oil producers to accept these prices on a long term basis? NO WAY. Also it is really important to note that as the oil barrel climbs the more capped wells are put back in production. They were probably shut off because of the price to pay to purify the oil. When oil is 35040$ a barrel it is easy to see that purification cost can easily wipe out any profit. But if oil barrel price continues to climb, the cost to eliminate water from it gets cheaper in %.
On top of that look at how many new companies are trying to get oil and gas around the world, Alaska and Asia to name only those 2. When you look at all projects in Alaska and the fantastic tax credit the government of Alaska gives back on exploration cost (refunded to Exploration Corporation not PROSEP) and their profit tax applied on production level, there will be more and more projects out there. One of the main developers of Alaska oil and gas fields is Conoco Philips and guesses what: it is also a customer of Prosep. How about BP Alaska: they also use solutions provided by Prosep.
The planet seems to be heating up reducing ice in many unexplored areas and companies are actually trying all they can to find ways to be the first one in those unexplored sites. Do you think all those new drillings will produce pure oil and no by-product with it (namely water)? No… so again Prosep could benefit largely. Do not forget also that oil demand is back to the increase side. Close to 90M bpd will be needed on the supply side. Capex from companies will also increase at a rate of 8 to 10% this year and corporations will be probably still behind having reduced largely their expenses over the last 2-3 years because of economic conditions. By increase their CAPEX trying to get back on track to where their equipment should be so will the requests for HELP from Prosep increase.
So after a decline of almost 1 year in Prosep backlog, we can see in their Q3 MD&A document that their orders are now back in positive territories.
They have been quietly (but surely) advancing their technologies with partnership around the world.
In 2009 they announced 7 new contracts around the world and look at the results for 2010: they were already 14 new contracts end of October. WOW. That is already a 100% increase over last year and even if those contracts value are a bit under last year (do not know actual Q4 contracts total) they did signed partnership agreements with Korea and Saudi Arabia companies. Also very important to note is the fact that Prosep is not a 1 or 2 customer based company. Even the spread of contracts around the world makes them less vulnerable to any political change in any country where they do business.
Also please note the new comers to Prosep: Douglass Campbell (formerly vp at marketing and development at NATCO before their acquisition by Cameron end of 2009 and Mr Joseph Wilson Sr Vp also from NATCO. These men have a tremendous experience in the field and they decided to join PRP. I do not think these 2 highly experimented individual would have join any kind of company. If they choose to join PRP there must be a good reason.
What does it all means?
Well they are getting more and more new customers and the Prosep name is getting known more and more around the world as a leader in these very high tech products and they now have almost double their production capacity with their Houston 55,000 sf assembly factory. By simply using some logic, it is possible to estimate that their backlog could return to their 20-25M$ as 2 years ago before recession.
Now what will that brings into the company financial side?
Prosep operates on a close to 25% gross margin (2010) and when you look at losses vs accounts receivable + cash on hand, they have enough liquidity to go a long way as their cash burning value last quarter was about 2,5M$ compare to cash on hands of 2,3M$ + receivables for 14M$. So even if it is not the best situation you can be it is ok at this moment. I would estimate that they are within reach of making a profit. Sure they will continue to invest largely in r&d but there is light at the end of the tunnel and it does not looks like a train.
The release of their Q4 may bring some interesting facts and if situation has stabilized (on cash flow burned by quarter and value of new contracts) they could definitely be en route for a great 2011 year.
They would not need that many new contracts or partnerships to have them break even. If Asia gross margin was to come in line with rest of the world customers (actual gross margin of 7% for Asia compare to about 29% average for other countries) this would give another boost to their financial ratio.
So where is the play?
- I think Prosep will continue to grow in 2011 by even a better margin than 2009 and 2010 due to better economy and stabilization around the world. My estimations are around 26-29% (gross margin)
- I think that their share value is grossly undervalued at this moment. Just a single good contract could have them skyrocket. Yes they have a massive accumulated deficit and are still a going concern but it could change rapidly
- Their products are innovating and getting more and more attention from the oil and gas producing companies around the world.
- They maximised the number of contracts against 1 or 2 large one. This is helping them in a way that the cash needed to complete many smaller contracts is easily manageable compared to a very large one that would need an immediate infusion of cash.
- The actual price for this company is dirt cheap. So Prosep could also be a good target for a takeover with a good premium.
As usual, be extremely prudent in investing in penny stock companies but when you find one that’s seems to sparks, it is worth a try. Stay diversified but I think PRP is a good play if you have still some profit left over in 2010.
Their products are solid and adaptive, getting well known and expectations about sales are excellent. The more oil and gas produced, the demand for their knowledge will increase.
Naturally any rewards when investing in stock market always come with risk but to my knowledge risk on this one under average when taking into account the possible reward.
For all those reasons, I am adding PRP to my list of top picks for growth in 2011.
- Trading range for accumulation 0,095 to 0,11
- Trading range for hold 0,115 to 0,145
- Trading range for profit taking 0,15 and over
- Buy and hold strategy 0,36
PLEASE: always do your own due diligence and never invest more than you can afford to lose. You should consult your financial advisor before investing in any company to make sure stock market fits properly with your investment risk and strategy.
This is a very interesting company based in Montreal and developing products to eliminate water in oil in offshore or inshore drillings, gas sweetening and water treatment system.
We have to understand that oil cannot be delivered with a large content of water and gas has to be almost free of undesired by-products that could clog or destroy a pipeline. No matter where oil or gas come from it does contain products that have to be removed and this is where Prosep intervene.
Seems conventional? Well something is not. We should all expect a company like that to be from some Arab country but wait: they are located in Montreal Quebec.
They have been named twice on the 50 most fast growing technology companies (based on revenue growth). Their actual results are over 10,000% between 2005-2009. That is impressive growth and does not seem to stop there and one of the reasons is the fact that Prosep is an international company not a regional one as many other are. They can deploy a solution anywhere in the world.
During that 2005-2009 period they have signed agreements with so many large oil and gas company that it could be even difficult to name them all but here are a few locations where those deals were signed: South America, Korea, Kuwait, Asia Pacific, Middle East, Far East, Mexico, Colombia, Canada, North Sea, well as you can see a lot of different areas.
With all those signed agreement they must be into something.
And guess what: the more oil price climbs the better the chances for Prosep to gain new contracts as oil purity will have a greater price tag on it. And for those who think that oil will get back to 40-50$ a barrel I have bad news: sure it could dip back momentarily to that level but do you honestly expect the major oil producers to accept these prices on a long term basis? NO WAY. Also it is really important to note that as the oil barrel climbs the more capped wells are put back in production. They were probably shut off because of the price to pay to purify the oil. When oil is 35040$ a barrel it is easy to see that purification cost can easily wipe out any profit. But if oil barrel price continues to climb, the cost to eliminate water from it gets cheaper in %.
On top of that look at how many new companies are trying to get oil and gas around the world, Alaska and Asia to name only those 2. When you look at all projects in Alaska and the fantastic tax credit the government of Alaska gives back on exploration cost (refunded to Exploration Corporation not PROSEP) and their profit tax applied on production level, there will be more and more projects out there. One of the main developers of Alaska oil and gas fields is Conoco Philips and guesses what: it is also a customer of Prosep. How about BP Alaska: they also use solutions provided by Prosep.
The planet seems to be heating up reducing ice in many unexplored areas and companies are actually trying all they can to find ways to be the first one in those unexplored sites. Do you think all those new drillings will produce pure oil and no by-product with it (namely water)? No… so again Prosep could benefit largely. Do not forget also that oil demand is back to the increase side. Close to 90M bpd will be needed on the supply side. Capex from companies will also increase at a rate of 8 to 10% this year and corporations will be probably still behind having reduced largely their expenses over the last 2-3 years because of economic conditions. By increase their CAPEX trying to get back on track to where their equipment should be so will the requests for HELP from Prosep increase.
So after a decline of almost 1 year in Prosep backlog, we can see in their Q3 MD&A document that their orders are now back in positive territories.
They have been quietly (but surely) advancing their technologies with partnership around the world.
In 2009 they announced 7 new contracts around the world and look at the results for 2010: they were already 14 new contracts end of October. WOW. That is already a 100% increase over last year and even if those contracts value are a bit under last year (do not know actual Q4 contracts total) they did signed partnership agreements with Korea and Saudi Arabia companies. Also very important to note is the fact that Prosep is not a 1 or 2 customer based company. Even the spread of contracts around the world makes them less vulnerable to any political change in any country where they do business.
Also please note the new comers to Prosep: Douglass Campbell (formerly vp at marketing and development at NATCO before their acquisition by Cameron end of 2009 and Mr Joseph Wilson Sr Vp also from NATCO. These men have a tremendous experience in the field and they decided to join PRP. I do not think these 2 highly experimented individual would have join any kind of company. If they choose to join PRP there must be a good reason.
What does it all means?
Well they are getting more and more new customers and the Prosep name is getting known more and more around the world as a leader in these very high tech products and they now have almost double their production capacity with their Houston 55,000 sf assembly factory. By simply using some logic, it is possible to estimate that their backlog could return to their 20-25M$ as 2 years ago before recession.
Now what will that brings into the company financial side?
Prosep operates on a close to 25% gross margin (2010) and when you look at losses vs accounts receivable + cash on hand, they have enough liquidity to go a long way as their cash burning value last quarter was about 2,5M$ compare to cash on hands of 2,3M$ + receivables for 14M$. So even if it is not the best situation you can be it is ok at this moment. I would estimate that they are within reach of making a profit. Sure they will continue to invest largely in r&d but there is light at the end of the tunnel and it does not looks like a train.
The release of their Q4 may bring some interesting facts and if situation has stabilized (on cash flow burned by quarter and value of new contracts) they could definitely be en route for a great 2011 year.
They would not need that many new contracts or partnerships to have them break even. If Asia gross margin was to come in line with rest of the world customers (actual gross margin of 7% for Asia compare to about 29% average for other countries) this would give another boost to their financial ratio.
So where is the play?
- I think Prosep will continue to grow in 2011 by even a better margin than 2009 and 2010 due to better economy and stabilization around the world. My estimations are around 26-29% (gross margin)
- I think that their share value is grossly undervalued at this moment. Just a single good contract could have them skyrocket. Yes they have a massive accumulated deficit and are still a going concern but it could change rapidly
- Their products are innovating and getting more and more attention from the oil and gas producing companies around the world.
- They maximised the number of contracts against 1 or 2 large one. This is helping them in a way that the cash needed to complete many smaller contracts is easily manageable compared to a very large one that would need an immediate infusion of cash.
- The actual price for this company is dirt cheap. So Prosep could also be a good target for a takeover with a good premium.
As usual, be extremely prudent in investing in penny stock companies but when you find one that’s seems to sparks, it is worth a try. Stay diversified but I think PRP is a good play if you have still some profit left over in 2010.
Their products are solid and adaptive, getting well known and expectations about sales are excellent. The more oil and gas produced, the demand for their knowledge will increase.
Naturally any rewards when investing in stock market always come with risk but to my knowledge risk on this one under average when taking into account the possible reward.
For all those reasons, I am adding PRP to my list of top picks for growth in 2011.
- Trading range for accumulation 0,095 to 0,11
- Trading range for hold 0,115 to 0,145
- Trading range for profit taking 0,15 and over
- Buy and hold strategy 0,36
PLEASE: always do your own due diligence and never invest more than you can afford to lose. You should consult your financial advisor before investing in any company to make sure stock market fits properly with your investment risk and strategy.
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