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WEQ - Western One Inc


Patmo
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Here's yet another potentially interesting western Canada energy construction services company trading at .50 vs $8 a year ago. Here are some quick and dirty facts:

 

It has 2 business units:

WIS:  heat services to the construction, infrastructure and oil and gas sectors; and aerial equipment for construction, television, and movie production (the better but smaller business, showed very resistant to oil price change. 47mil rev in the last 6 months vs 48mil the year prior)

 

Britco:  provides temporary and permanent residential and commercial modular buildings and for a wide range of customers in the infrastructure, construction, energy and resource sectors ($103mil revs past 6 months, vs $150 prior year)

 

Market cap: $18

EV: $156, includes credit facility

EBITDA2014: $51

EBITDA2015(6months): $9.5 (includes a negative contribution from Britco)

EBITDAttm: $30.2

Book value: $97 ($90 intangible)

 

Note these #'s might be wrong as I went through the  FS at lighting speed.

 

 

The debt is trading at deep discount and beyond being interesting as a potential investment in their own right, the company could also deleverage at half price. Mgmt discussed it briefly in their last CC as an interesting option. (I'm a total debenture neophyte, correct me if any of this is materially wrong):

 

8% convertible at $7.5, unsecured:

Face value $71mil, trading at $38mil

 

6.25% convertible at $11.75, unsecured:

Face value $51mil, trading at $22mil

 

 

Hypothetically they could buy back $120mil worth of debt for $60mil...

 

 

That's a quick run down, it seems like there could be an attractive opportunity somewhere here. I think it's worth further review, so I'm sharing the idea here for anyone who would perhaps like to perform a proper analysis.

 

 

 

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  • 2 years later...

Kitimat LNG positive for Western One (WEQ - TSX - $1.60)

 

Demand for heat services & other construction rentals...

 

http://www.westernone.ca/locations/british-columbia/terrace

 

 

ENERGY: Can the LNG Mosaic Tighten Further? It Just Did!

 

Off the back of our note yesterday which highlighted our trip to Kitimat to check on LNG progress, the government of Canada announced this morning that the project’s proponents would be exempted from any steel tariffs. This is MASSIVELY good news for the project although we had speculated previously that it was already known to the proponents but not publicly released. Find the story here. Teaser:

 

The Globe and Mail has learned that Ottawa has told the Royal Dutch Shell PLC-led consortium backing the project, LNG Canada, that it agrees the terminal will need to be constructed from imported steel modules, a position that, if endorsed by federal agencies, would avoid substantial tariffs.

 

The past Chief of the Haisla Nation said this (he said the same thing to me earlier this week):

 

“I have been at LNG projects for 14 years, and I have never seen the signals that I’m seeing today, and the amount of activity I’m seeing now," Mr. Ross said. “When you see what is being done around Kitimat – it’s got to happen, there is really nothing stopping them announcing a positive [decision].”

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Western One -  Shares have gradually been moving upwards on this as fundamentals for its equipment/thermal rental businesses improve. As this Company is now controlled by its 2 largest shareholders (Ewing Morris & Verition) it could be sold sometime in the near future (plan has been to repair balance sheet, bring profitability back, then sell the business). There has been substantial insider buying and share buybacks by the Company this year. My model estimate potential sale price from $2.76 to $4.95 based on $18mm Ebitda amount....

 

 

Potential Value Western One Equity

 

Total cash & equiv $12,000,000

Bank debt $22,600,000

Debenture $51,750,000

Total Net Debt $62,400,000

 

Sale value:

WIS ($18mm ebitda @ 8 times)

$144,000,000

Less debt $62,400,000

= Equity value  $81,600,000 Shares outstanding 16,500,000

 

Equity value/share $4.95             

 

 

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  • 4 weeks later...

Not the return I was looking for, but decent upside from the current price of $1.61...

 

WesternOne currently estimates, after repayment of all Obligations, to distribute in aggregate a per share amount in the range of approximately Cdn$2.20 to Cdn$2.43.

DJ United Rentals to Buy WesternOne Unit for $92 Million >URI

  By Colin Kellaher

 

United Rentals Inc. (URI) on Monday said it agreed to buy the assets of WesternOne Rentals & Sales LP from WesternOne Inc. for 120 million Canadian dollars (US$91.8 million) in cash.

 

The Stamford, Conn., equipment-rental company said WesternOne, which provides aerial lifts and heat solutions in western Canada, has 12 locations and about 330 employees.

WesternOne, which sold its modular rental and construction division last year, said the sale of its remaining unit will allow the company to wind up its operations and return proceeds to its shareholders after it repays its bank debt and other liabilities.

Vancouver-based WesternOne said it expects to distribute about C$2.20 to C$2.43 a share to its holders. The company's shares closed Friday at C$1.61.

United Rentals said it expects to complete the transaction, which isn't contingent on financing, by the end of the year. The company said it doesn't expect the deal to have a material impact on revenue or earnings.

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I think that there is a fair bit of sandbagging or $9-13 million of costs to arrive at that liquidation estimate of $2.20-2.43 per share.

 

And why not $2.40 or $2.45 instead of $2.43? Why being so precise on the high end of the range? Maybe that $2.20 is using the same precision? Just bizarre.

 

It could be an interesting arbitrage opportunity for those interested. You have two large holders on the board of directors who will be doing all they can to maximize value as this winds down.

 

Cardboard

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I think that there is a fair bit of sandbagging or $9-13 million of costs to arrive at that liquidation estimate of $2.20-2.43 per share.

 

And why not $2.40 or $2.45 instead of $2.43? Why being so precise on the high end of the range? Maybe that $2.20 is using the same precision? Just bizarre.

 

It could be an interesting arbitrage opportunity for those interested. You have two large holders on the board of directors who will be doing all they can to maximize value as this winds down.

 

Cardboard

 

I don't think the range is bizarre. Probably management guessed some numbers, came up with a total amount to be distributed and divided that by the expected number of shares outstanding, i.e. if you end up at ballpark $40m and divide by 16.49m shares (assuming debentures are paid out in cash) outstanding you end up at $2.43. The specific calculations will probably be included in the proxy.

 

Setup looks good. Insiders on board. Vote should pass easily. Quick payout. Decent IRR at bottom of range, great IRR at middle of range at current prices. I agree that management tends to be conservative with guidance in cases like this. Given the balance sheet the payout should be a return of capital (i.e. no taxes). I bought some shares today.

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  • 1 month later...

I think those dates are optimistic. The drop dead date to close the acquisition is Dec 31st, and I bet it'll take at least a month post close before they distribute, and probably more like 2. I bet they'll wait until they have the debs called in and paid as well.

 

My experience with Canadian liquidations is that the gating issue for the final distribution is receiving a clearance certificate from the CRA on the final tax return. They will almost certainly have a 2019 return to file. I'd put the final distribution in June 2020.

 

Anyway, I'm probably wrong about both dates, but I think those estimates are more realistic.

 

That is unless they decide to split the initial distribution into 2 payments, in which case you might get a second smaller one in q2 2019. That is actually worse, because they could probably pay the vast majority of the money in Q1 in the first payment.

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From the press release:

An initial distribution is expected in the first quarter of 2019, with a possible final distribution at the conclusion of the liquidation.

 

My best guess is something like $2 end of March 2019 and $0.30 a year later. Obviously we can disagree somewhat but I think your estimates are too optimistic.

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I think the important thing is that you should fiddle around a bit with the dates / possible payouts to get a feel for the IRR of a few possible scenario's. The whole transaction is in CAD so there is no currency risk afaik. Assuming the price range in the press release is still more or less valid this is (or at least was, until today) trading at a ~10% discount to the possible range of distributions. That's quite a bit, so even if the first payout is in April and is only $1.50 your returns are still quite satisfactory.

 

In other words, the IRR isn't _that_ sensitive to a month more or less which is why I think the exact schedule isn't super important.

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In other words, the IRR isn't _that_ sensitive to a month more or less which is why I think the exact schedule isn't super important.

 

Which is a good thing because today the first delay has been announced ..

 

Following the Special Meeting, and as part of the final negotiations between the parties in conjunction with the closing of the sale of the Business, United Rentals will have until the end of the post-closing adjustment period in May 2019 to make a claim under the Agreement before any initial distribution is made to WesternOne's shareholders.  Consequently, an interim distribution is now expected to be made in the second quarter of 2019, with a possible final distribution at the conclusion of the liquidation.

 

Good thing is that the sale has closed. Company will be delisted December 12.

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  • 4 months later...
  • 2 months later...
  • 1 month later...

Received C$2 / share today (press release). Bit later than expected but on the flip side the interim distribution was larger than I expected. We'll see how much more (if any) is coming in a few months.

 

.. intends to disseminate a further news release in September 2019 to provide an update generally including with respect to the timing of any additional distribution.

 

95% of the principal has been recovered but given that it took ~9 months the IRR of the entire situation will probably not end up being stellar. Probably around 5% - 15%. Not terrible either.

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  • 2 months later...

https://www.weq.ca/sites/default/files/docs/weq_holdings_inc._-_news_release_re_quarterly_update_september_24_2019_final.pdf

 

WEQ is continuing in its efforts to address remaining outstanding matters relating to its liquidation, including tax

matters. At this time, WEQ is not aware of the anticipated date of an additional distribution, if any, or the date of

its dissolution.

 

Additional distribution seems remote if any...

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  • 1 month later...

more delays ..

 

WEQ is continuing in its efforts to address remaining outstanding matters relating to its liquidation, including tax matters, and is making progress. However, at this time, WEQ is not aware of the anticipated date of an additional distribution, if any, or the date of its dissolution. The Liquidator has filed an application (the “Application”) with the Court for an order to, among other things, extend the time for passing the final accounts. The Application is expected to be heard on or about January 10, 2020. The First Report to the Court of the Liquidator has been filed with the Court as part of the Application.

 

I'm not as pessimistic as the poster above. Still expecting more.

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  • 9 months later...

It’s all taking a bit longer than I’d hope (but certainly not a disaster so far). Anyway: just from the press: another $0.20 / share interim distribution.

 

https://www.bowragroup.com/weq-holdings

 

We are finally in profit territory! And probably there’s more to come. I expect they have paid out the bulk by now though and would be surprised to receive more than a few cents on top of the $2.20 so received so far. But who knows ..

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https://aa5a171d-c337-46f9-9c9a-24fe6cad1d9c.filesusr.com/ugd/2ff03f_68488a6391e74bc488a27624559a190d.pdf

The last page says they had $6.512m in the liquidation account, as of 12/31/19. It turns out to be $0.397 per share. No idea about how much spent and to be spent since then...

 

It’s all taking a bit longer than I’d hope (but certainly not a disaster so far). Anyway: just from the press: another $0.20 / share interim distribution.

 

https://www.bowragroup.com/weq-holdings

 

We are finally in profit territory! And probably there’s more to come. I expect they have paid out the bulk by now though and would be surprised to receive more than a few cents on top of the $2.20 so received so far. But who knows ..

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Thanks for that! Hadn't looked at that one yet. The statement only only shows cash receipts / disbursements though, i.e. a tax refund or 'any further potential recoverable assets' (page 8 ) wouldn't show up there. I'm afraid that's mostly a theoretical point though, after another small distribution and a second year of legal costs you wouldn't expect there is much left nor would I expect the liquidators to suddenly find a few million dollar hidden in a bank account or a 'forgotten' building or something like that :P .

 

The whole thing isn't working out great, but if 'not working out great' means a ~5%+ IRR I'm pretty happy.

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