Description

Business Overview

• Offers field inspections, lab QA/QC, maintenance, engineering consulting, access, data management and services, montioring, and equipment solutions for maintaining safety and uptime for industrial and civil assets
• 80% of gross profit comes from domestic services, 18% is international services, and the remainder is products predominantly in the U.S.
• The companies' primary customers are in O&G (57% of 2020 revenue), aerospace & defense (12%), and industrials (11%), with the remainder in power generation & transmission, other process industries, infrastructure/research/engineering
• The company has primarily been focused on non-destructive testing but is increasingly offering integrated solutions that include mechanical maintenance, monitoring, digital and online access and reporting, etc. Bundling of multiple service lines creates stickier relationships
• The founder and chairman owns 30% of shares

Trade

• This is a PA trade as a play on a business with high exposure to O&G and aerospace & defense whose stock has languished despite supportive end markets
• MG has a consistent record of generating FCF, and shares trade near their lowest multiples as a public company
• On trough FCF in the pre-covid period of $21mm, the yield is ~11%

Valuation

• If the company simply returns to pre-covid levels of revenue at 10% EBITDA margin and converts that to FCF at 50% as it has done in the past and gets an 7x multiple, then shares have ~40% upside
• Any benefits from expansion beyond NDT, or increasing penetration of digital reporting platforms 

Risk

• International exposure is 18% of GP, which could be impacted by events in Europe
• Small-cap with leverage

Catalyst

Free cash flow