The market did not seem to be responding to the good announcements until very recently. Firstly, in November, the company released the acquisition of Pirate Oilfield Services, Inc., which, we believe, is very remarkable, since, as the CEO said, it will serve as the platform entity for future acquisitions. In our opinion, this good news created some awareness, and some market participants bought shares on the development.
But, we needed to wait two months more to hear the best.
In January, ELTZ released another letter of intent. This time, the company is negotiating for the acquisition of Carter County Resources, an oil and gas service company located in Odessa, Texas. It was the most celebrated announcement in the last six months period. More than 400 million shares changed hands in only one session, which represents an all-time market record. Check it out in the following stock chart before we provide more details:
2 months chart for ELTZ
For starters, Elite Group Inc. was founded in 2012 and is headquartered in Nevada. The management intends to acquire and consolidate water processing assets in prolific oil and gas exploration areas. The plan is to enhance shareholder value through strategic acquisitions, effective business model design, and economies of scale.
Let's now briefly describe the most interesting features that forced us to have a look at ELTZ.
First Catalyst: Oil Price
If Saudi Arabia and OPEC continue to cut oil production in the next meetings, the oil price could creep up higher, which will be good for the stock price of ELTZ. For those who don't follow closely the deals of the OPEC, the countries forming this group have been able to reduce the global oil surplus by 220 million barrels causing Brent Crude Oil to go from $50 to $70.
We believe that if the price is able to maintain this level for a while, oil businesses will flourish, and the assets of ELTZ will be worth much more.
Second Catalysts: The new transactions
On November 11, 2017, Elite Group, Inc. announced that it had closed the acquisition of Pirate Oilfield Services, Inc. on September 12, 2017. This new target is an oil and gas service company located in Midland, Texas, which provides several services to the oil industry. Roustabout services, equipment rental, and welding services are included.
Pirate's financial figures are interesting. It reported a revenue equal to $6.5 million for 2016, while $5 million and $8 million in revenue are expected in 2017 and 2018 respectively. The revenue represents an increase of approximately 60% from the year 2017, which should be very beneficial for the share price of ELTZ. We will need to revise the quarterly financial figures, which may surprise.
Is the company going to stop after this transaction?
We were glad to read that the acquisitions are not expected to stop; in other words, the inorganic growth of the company will follow. Check the words of Terry Tecco, CEO of ELTZ. It is a critical commentary:
"Pirate Oilfield Services, Inc. is the initial acquisition for ELITE and will serve as the platform entity for future acquisitions. As part of our ongoing business strategy we will continue to research and identify additional acquisitions that fit our model." Source
The market did not seem to react to the previous announcement. We believe that only a few market participants were able to get the information on time. In comparison, the news received on January 25, 2018, did wake up the market.
The company signed an agreement to acquire Carter County Resources, located in Odessa, Texas. Like the previous case, this company also provides services to the oil industry. The list also includes roustabout services, equipment rental and welding services provided to other oil operators. The most significant again is the revenue to be received from the acquisition; $1.5 million in 2017.
It was also noted that new acquisition could be announced:
"We anticipate that we will have more acquisitions which we are currently targeting to announce during the course of this year which fit our model. Stay tuned.” Source
Market participants may be missing some information about the potential synergies that these two transactions could create. We believe that they may be very significant, and could make the share price creep up when they are announced. Let's cross fingers and expect the company to give us those numbers.
If ELTZ decides not to inform the market, we should see the effects of the mergers in the following quarterly reports. The decrease in overhead costs should be expected besides the increase in assets and liabilities.
Conclusion
Currently trading with a market cap of $0.16 million, ELTZ is an exciting story among small caps. Checking the financial accounts that we have today, we could see that the assets have already increased by 117% from June to September 2017. We expect this trend to continue in 2018.
Last but not the least, for volatility seekers, the company has a very reduced float of 68 million, while the total outstanding shares are equal to 279 million.
To sum up, we continue to believe that this is a microcap on the move.
Be sure to check out our coverage on ELTZ!
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Disclosure: We have no position in ELTZ and have not been compensated for this article.Image courtesy of Tommaso Galli via Flickr
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