McCoy Global Inc. - English 🇬🇧

McCoy Global is an innovative leader in the oil drilling technology sector, offering advanced products that improve the safety and efficiency of operations.

Background and context

McCoy Global (TSX: MCB), founded in 1914 in Edmonton, Alberta by Henry McCoy, has evolved over time from an automotive spring repair business to a manufacturer of oilfield drilling technology. The company has undergone significant transformations, moving from the manufacture of springs and axles to the production of oilfield equipment, including hydraulic clamps and advanced technologies for well integrity and data acquisition.

Products & Services

McCoy Global offers a wide range of products, including :

• Hydraulic Power Tongs: Used to connect and disconnect pipe sections during drilling operations.

• Casing Running Tools (CRTs): Advanced tools combining lifting, gripping and rotating functions for casing operations.

• smartCRT™: A digital tool providing real-time data to the driller's cab, reducing dependence on on-site technicians and increasing productivity.

Digital Transformation

McCoy Global has embarked on a digital transformation by integrating IoT technologies into its products. This transformation aims to convert their equipment into devices connected to a cloud platform, enabling real-time monitoring and data analysis. This strategic shift aims to reduce operational costs and improve the efficiency of drilling operations. The use of AWS for cloud infrastructure has been key, offering a scalable and secure architecture for managing IoT devices.

Safety and efficiency

Safety is a top priority for McCoy Global. The company's products, such as the smartCRT™ and Flush Mounted Spider, are designed to reduce the number of personnel needed on drilling rigs, minimizing the risk of accidents. The smartCRT™ enables real-time monitoring and provides detailed reports on the casing connection process, improving the safety and efficiency of operations.

Market and Growth

McCoy Global estimates the total addressable market (TAM) for its products at $1 billion. The potential addressable market is estimated at over $500 million. Recent geographic expansions and operational cost reductions have strengthened the company's resilience to oil price fluctuations. Revenues have rebounded since the low point of 2020, with a notable improvement in profit margins. The company has now been profitable for over two years, and continued revenue growth reflects the benefits of the operational efficiency strategies implemented.

Diversification and Cyclicality Reduction

McCoy Global expects its future revenues to be less dependent on the cyclical nature of drilling activities, which are often influenced by fluctuations in oil prices. The company's strategy aims to mitigate this dependence by focusing on the adoption of new technologies and meeting the growing demand from emerging local and regional players. This approach should enable revenues to stabilize, irrespective of oil market cycles.

The adoption of digital technologies and IoT solutions is at the heart of McCoy growth strategy. By developing products such as smartCRT™ and offering cloud-based solutions, the company is positioning its offerings as essential for modern drilling operations, improving safety, efficiency and reducing costs.

McCoy also aims to increase its market share in new geographical regions. This geographic expansion is facilitated by the growing demand for advanced technologies in emerging markets, where operators are looking to modernize their operations and adopt safer, more efficient solutions. This opens up new growth opportunities for McCoy, by diversifying its revenue sources and reducing its dependence on specific markets.

Acquisition history and added value

Key acquisitions :

• Farr Canada (1986): Initial acquisition that marked McCoy entry into petroleum equipment manufacturing.

• 3PS Inc. (2017) : Specializing in sensors and systems for heavy industrial applications, including torsion and tension technology (TTS). This acquisition has strengthened McCoy ability to offer advanced technological solutions for the drilling industry.

• DrawWorks (2018) : Supplier of casing technologies, has expanded McCoy product portfolio and enhanced its technological capabilities in the drilling sector.

Added value: McCoy strategic acquisitions have enabled the company to expand its product portfolio and strengthen its technological capabilities. These acquisitions have also enabled McCoy to access new markets and diversify its revenues by offering more complete and integrated solutions for drilling operations. The acquisition of 3PS, for example, has enabled McCoy to develop digital products such as smartCRT™, which integrate IoT technologies to improve the safety and efficiency of drilling operations.

Details of DrawWorks acquisition (2018)

Background and Objectives: In 2018, McCoy Global acquired DrawWorks LP, a company renowned for its advanced casing technologies, based in Boling, Texas. DrawWorks specializes in the development and manufacture of advanced casing systems, including the DWCRT 450 and similar tools. The acquisition of DrawWorks has enabled McCoy to strengthen its product portfolio with complementary technologies and increase its presence in the North American and global markets.

Synergies and Strategic Advantages :

• Product Portfolio Expansion: The addition of DrawWorks technologies has enabled McCoy to offer a broader range of products, meeting a wider range of customer needs in the drilling industry. DrawWorks' casing technologies, such as the DWCRT 450Ton casing systems, have complemented McCoy existing products and strengthened its position as an industry leader.

• Integration of technological capabilities: DrawWorks brings specific expertise in casing technologies, reinforcing McCoy capacity for innovation. This technological synergy enables McCoy to offer more advanced and integrated solutions, thus increasing added value for its customers.

• Increased market share: The acquisition has enabled McCoy to expand its market share, notably by strengthening its presence in the United States and accessing new international markets. It also helped McCoy diversify its revenue sources and reduce its dependence on specific markets.

Financial and operational impact: The acquisition of DrawWorks has had a positive impact on McCoy finances, contributing to an increase in revenues and profit margins. The operational synergies achieved through the integration of DrawWorks technologies have enabled McCoy to reduce its production costs and improve its operational efficiency, thereby strengthening its competitiveness in the global market.

Aftermarket revenues

McCoy Global generates a significant portion of its revenues from the aftermarket, which includes the sale of components and maintenance services for existing drilling equipment. The aftermarket is crucial to the company as it offers stable, recurring revenue streams that are less sensitive to drilling industry cycles.

Characteristics of the Aftermarket :

• Revenue stability: Drilling operators must regularly maintain and repair their equipment, which ensures a constant demand for spare parts.

• Product life: McCoy equipment is designed to last a long time, but requires spare parts to maintain its performance, which reinforces the ongoing demand.

• Customer relations: The aftermarket enables McCoy to maintain ongoing relationships with its customers, fostering loyalty and cross-selling opportunities.

McCoy Global's aftermarket revenues include various products and services that generate recurring and stable revenue streams.

1. Spare Parts for Drilling Equipment: critical components such as clamping jaws, friction elements and hydraulic seals.

   • Hydraulic clamps: Critical components such as clamping jaws, friction elements and hydraulic seals.

   • Casing Tools: Spare parts for casing tools, including worn components and repair kits.

2. *Maintenance and Repair Services

   • Service Contracts: Offers preventive maintenance and on-site repairs to ensure optimum performance of drilling equipment.

   • Overhauls and Refurbishments: Complete overhaul and refurbishment services to extend the life of drilling equipment.

3. *Training and Technical Support

   • Training Programs: Specialized training for drilling operators on the use and maintenance of McCoy equipment.

   • Technical Support: Ongoing technical assistance and troubleshooting to solve problems and optimize equipment performance.

4. Upgrades and Modernizations : Software upgrades.

   • Software Upgrades: Enhancements to equipment-integrated software to add new features and optimize performance.

   • Modernization Kits: Kits to modernize existing equipment with the latest available technologies.

5. Consumables sales: Consumables sales

   • Lubricants and Fluids: Supply of lubricants, hydraulic fluids and other consumables required for equipment maintenance.

   • Tools and Accessories: Sale of additional tools and accessories to complement drilling equipment.

Competitors

NOV (National Oilwell Varco) : NOV is a leading supplier of equipment and components used in oil and gas drilling and production operations. The company offers a wide range of products, including fluid management systems, pressure control equipment and drilling tools.

Weatherford International: Weatherford is a multinational company providing well drilling, completion and production services and equipment. They are known for their directional drilling, reservoir management and cementing solutions.

Frank's International (Expro): Specializing in casing and tie-in services, Frank's International offers complete solutions for casing and liner installation, as well as well pressure and integrity management services.

Eckel: Eckel specializes in the manufacture of hydraulic clamps and clamping devices for drilling operations. Their products are renowned for their robustness and reliability in difficult drilling conditions.

Vallourec: Vallourec is a world leader in the production of premium tubular solutions primarily for the energy markets, including oil and gas. They supply seamless tubes and tubular solutions for oil and gas wells.

Sales Force and Strategy

The CEO said they aim to be able to reduce the number of drilling personnel from typically 8 to 2-3 for drilling operations using this equipment and related cloud and IoT technologies. This is a key element of McCoy commercial strength, as even as industry-wide drilling operations decline, customers are likely to increase their equipment purchases to drive down costs and improve safety.

Reducing the number of personnel required on drilling rigs through automation and advanced technologies represents a significant cost saving for drilling companies. By reducing the number of workers exposed to potentially dangerous environments, McCoy Global also improves safety on drilling sites. This dual proposition of reducing costs and improving safety makes McCoy solutions particularly attractive to drilling operators looking to optimize their operations.

Technologies such as smartCRT™ and other cloud-connected tools enable remote monitoring and management, reducing the need for specialized on-site technicians. These innovations enable operators to maintain high levels of productivity and safety with fewer personnel, which is crucial in an industry where labor costs and associated risks are high.

By focusing on the adoption of these technologies, McCoy Global is positioning itself to capture a growing share of the market, even in an environment where the total number of drilling operations could decline. Drilling companies will be encouraged to invest in equipment that enables them to operate more efficiently and safely, offering McCoy an opportunity for continued growth despite industry challenges.

Investment highlights

1. Technological Innovation and Digital Transformation

   • Advanced Products: McCoy offers innovative products such as the smartCRT™ and Flush Mounted Spider that improve the safety and efficiency of drilling operations.

   • IoT and Cloud technologies: The integration of IoT and cloud technologies enables real-time monitoring, reducing the need for on-site personnel and optimizing operational costs.

   • Digital Technology Roadmap: McCoy continues to invest in the development of new technologies, aimed at reducing dependence on drilling cycles and boosting demand.

2. Strong Financial Position

   • Solid Cash Position: At the end of the first quarter of 2024, McCoy maintained a net cash position of CAD 10.6 million.

   • Financial Performance: In 2023, McCoy reported consolidated revenues of CAD 52.4 million, with a notable improvement in profit margins thanks to effective cost management and a favorable product mix.

   • Profit Growth: Net earnings for the first quarter of 2024 increased by 85% over the comparative period of the previous year, indicating effective management and sustained growth.

3. Diversification and Geographic Expansion:

   • Expansion into New Markets: McCoy expanded its presence in new regional and international markets, contributing to revenue diversification.

   • Reduced Cyclicality: By focusing on the adoption of new technologies, McCoy expects future revenues to be less and less dependent on the cyclicality of drilling activities.

4. Commitment to Safety and Efficiency:

   • Reducing Costs and Improving Safety: McCoy products reduce the number of personnel required on drilling rigs, thereby reducing risks and associated costs.

   • Focus on Innovation: McCoy commitment to innovation continues to strengthen its competitive position and meet the evolving needs of the industry.

Risk analysis

1. Fluctuating oil and gas prices

   • Demand for McCoy products and services is directly linked to levels of drilling activity, influenced by oil and gas prices.

2. Intense competition

   • McCoy faces competition from well-established companies such as NOV, Weatherford International, and Vallourec, which could affect its market share and profit margins.

Expected return over the next 3 years

Taking into account the above-mentioned factors, here is a projection of the expected return for the next three years:

1. Revenue growth

   • 2024 : Revenues are expected to grow by 5% to 10% per year, driven by the continued adoption of new technologies and geographic expansion.

   • 2025: Similar growth of 5% to 10% is expected, with possible increases due to market share gains and investment in new products.

   • 2026 : Revenue growth could reach 10% to 15%, supported by increased adoption of IoT technologies and continued expansion in emerging markets.

2. Improved profit margins :

   • Profit margins should gradually improve thanks to cost optimization and a favorable product mix. Gross margins can be expected to increase by 1 to 2 percentage points per year.

3. Increase in Net Profits

   • 2024: Increase in net profits of 10% to 15%, reflecting efficient management and favorable market conditions.

   • 2025: Net profit growth of 15% to 20% expected, underpinned by robust operating performance and cost reduction initiatives.

   • 2026 : Net profits could grow by 20% to 25%, driven by continued technological adoption and expansion into new markets.

4. Dividends and share buybacks : McCoy should continue to return a portion of its earnings to shareholders.

   • McCoy should continue to return part of its surplus cash to shareholders in the form of dividends and share buybacks, thereby increasing shareholder value.

Conclusion

McCoy Global presents an attractive investment opportunity, underpinned by continued technological innovation, a solid financial position and a clear strategy of geographic expansion and revenue diversification. Despite the potential challenges of fluctuating oil prices and intense competition, McCoy is well positioned for sustained growth and improved profitability over the next three years. Investors can expect positive returns from McCoy increased adoption of advanced technologies and its ability to navigate effectively in a dynamic market environment.

Please be advised!
I am a shareholder of McCoy Global.