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CUI 4Q19 Results plus other hydrocarbon news ?3

21:18 30-Mar-20

Technical problems at the source of the CUI Global call meant I had to go back for a second try.  In short, management's plan, which was to grow revenue 20% sounds plausible in a normal world, but that's not where we are.  As such, management acknowledges that breakeven will be difficult for this year, and declined to give guidance in the midst of the pandemic.

The U.K. business is seeing significant impact from both Brexit and the virus, but there is little virus impact in U.S. so far, though that may still be coming.  This is critical as the company needs more volume to be profitable on its gas probes.  First quarter CapEx is set to increase and CUI Canada & Japan (remains of the Power segment) still should be sold.  The company also repurchased 353K shares at $1.17 each.

Some detail on the Reach purchase was provided also.  The company remains debt free, as solar finance debt was used in the transaction, rather than cash on hand, and ~2M shares were issued.  Reach employs 30-35 people, including support staff, who work in 4-6 person crews, with two bucket trucks and a digger.  Management plans to ramp that size and also to do more acquisitions (2-4 per year) though may not this year.  Net margin on the business is said to be better than 10%.

When I put it all together, I respect management for avoiding diluting shareholders and think its plans make sense.  However, I can't take a chance on how long the business will take to develop, especially with the first fiscal quarter looking particularly dangerous, numbers-wise.  I'll keep an eye on the company, but probably write much less going forward.  Questions are always welcome from those who are interested.

CUI Global has reported its fourth quarter results:

• a loss of 10 cents per share beats by a penny
• from $5.7M in revenue, which misses by $300K

The conference call is at 5pm.  We'll see if there's anything meaningful to report on against the backdrop of WTI bouncing around $20 and Brent just $2.50 above that.  In this environment, Shell is pulling out of the Lake Charles LNG project.  There are some signs that the spread of COVID-19 may have peaked globally, but not in the U.S.  Thus, I'm not sure it's the right time to be pivoting toward solar, but with Sino-American relations continuing to deteriorate, I am sure that it's not a good time to be in hydrocarbons.

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