Definitely on the drilling side, there has been far less activity than management expected which has translated to lower than expected revenue generation for MCE's buoyancy solutions in O&G subsea drilling.
Re delays again in '26, I'm by no means a macro expert and won't pretend to be. In saying that, I do believe this is CAPEX that fundamentally needs to happen due to the structurual supply/demand deficit. Granted, your point of it being pushed out another year is certainly still a risk.
It's interesting that it's happened so soon after their recent engagement with Matrix. On the one hand, the ASX has a robust market for energy and resources stocks. On the other hand, it does seem unusal for a UK headquartered company to list in Australia without any majorly visible regional ties. All in all, it's hard to read into their exact logic.
To call me "not a macro expert" is being charitable :-) But if you look at some offshore names like NE, VAL, TDW, it looks to me like the market is not feeling very positive about 2026 offshore capex.
What do you think happens to the convertible note at maturity? + potentially higher WC on growth + potential delayed CAPEX as per the above discussion (first comment I believe)? If PX stays below conversion, would they refinance easily? if higher and Collins St converts, would likely cause drop in PX for dilution? thx!
Assuming Collins St don't convert, I don't see why MCE won't be able to gain access to a more flexible term loan to payoff the outstanding note given their net cash balance sheet and positive operating cashflow.
Delayed CAPEX in the drilling segment is certainly a possibility. However, I don't believe we need the incremental CAPEX to win from here. Recall that for FY26 I underwrite 0 growth from MCE's drilling segment and expect the revenue gains to come in via SURF.
The other thing to note here is that the father of Vas (one of the partners of Collins Street Asset Management) is a major shareholder of MCE - owning approximately ~5% of the company. As such, I don't believe Collins St will be hostile regarding note repayment and would more than likely be flexible in the event MCE are unable to secure refinancing (an event I believe is highly unlikely).
In the event of conversion, I'm not worried about dilution and believe the value here far outweighs any potential ~10% increase in shares outstanding. Collins St are value oriented fundies, and as such in the event shareholder approval is needed to consummate an AIS merger, this too would be helpful in my mind.
As for financing WC, obviously more work serves as an increased risk with respect to WC management. In saying that I believe continued internally generated cashflows plus a more flexible debt facility upon dealing with the con. note should provide enough headroom for the company to manage their WC needs effectively.
Thanks for the write-up. I read the intro and thought "nah", that's too technical. But still continued reading. :-)
I think you overstate EBITDA. The co accounts under IFRS and leases are capitalized, so you won't see the actual lease expense in EBITDA as they appear under interest & depreciation. If you want to show this EBITDA, you'd need to include the lease liabilities in debt (anyway, that's a stupid way to look at valuation in my view, but each to their own).
In any case, if the growth materializes, EBITDA should still explode.
What's your view on mgmt? Tbh, you could say that the CEO's achievements are not exactly great.
Any sense for competition / competitive landscape? I don't understand this industry at all.
Thanks for calling this out and you're spot on that TIKR number of $11M EBITDA does exclude interest expense from Lease Liabilities of ~$2M. Agree that it makes no sense to think about the lease liability as debt and it should be treated as an operating expense (this is why I left it out of the EV). My point still stands that the facility is highly underutilized with immense operating leverage such that we should see a step-change in EBITDA growth approximating ~$20M (and therefore close to doubling) in FY26 given the company can execute on its impending contracts.
I have no firm view of management - one way or another.
For background, syntactic foam is the most widely used material in the deepwater buoyancy space because of its attractive properties: highly durable, lightweight, high-pressure resistance and cost effectiveness.
There are only 2 other key players that specialize in providing syntactic foam buoyancy solutions: Balmoral and AIS (who are looking to IPO on the ASX in August).
Hope that's helpful and appreciate all your comments as usual!
They’re not the most inspiring bunch of peeps judging from the calls I’ve been on.
It’s a hard market to get into that’s for sure. Massive CAPEX requirements, certifications etc. We’ve got the facility and the capability, just need the work.
Competitive landscape is slim in Asia Pacific which is why I like it. Again, these type of companies are just waiting to be picked up. I’m surprised a SS7 or similar don’t just acquire us. Some of our contracts with them are the size of our MC!
Thanks for another good piece.
I think there are risks to those offshore capex numbers.
2025 has repeatedly disappointed, eg: https://x.com/EnergyRealist25/status/1928741306597257309
Could this be at least part of the reason why those contracts expected last year haven't happened yet?
If oil stays under pressure, I would expect to see 2026 capex get pushed to the right again.
Is it odd that AIS is listing on the ASX? I can't imagine why a UK-based company servicing the global energy sector would do that.
Thanks Whirly.
Definitely on the drilling side, there has been far less activity than management expected which has translated to lower than expected revenue generation for MCE's buoyancy solutions in O&G subsea drilling.
Re delays again in '26, I'm by no means a macro expert and won't pretend to be. In saying that, I do believe this is CAPEX that fundamentally needs to happen due to the structurual supply/demand deficit. Granted, your point of it being pushed out another year is certainly still a risk.
It's interesting that it's happened so soon after their recent engagement with Matrix. On the one hand, the ASX has a robust market for energy and resources stocks. On the other hand, it does seem unusal for a UK headquartered company to list in Australia without any majorly visible regional ties. All in all, it's hard to read into their exact logic.
To call me "not a macro expert" is being charitable :-) But if you look at some offshore names like NE, VAL, TDW, it looks to me like the market is not feeling very positive about 2026 offshore capex.
Very interesting...
What do you think happens to the convertible note at maturity? + potentially higher WC on growth + potential delayed CAPEX as per the above discussion (first comment I believe)? If PX stays below conversion, would they refinance easily? if higher and Collins St converts, would likely cause drop in PX for dilution? thx!
Thanks Adham.
Assuming Collins St don't convert, I don't see why MCE won't be able to gain access to a more flexible term loan to payoff the outstanding note given their net cash balance sheet and positive operating cashflow.
Delayed CAPEX in the drilling segment is certainly a possibility. However, I don't believe we need the incremental CAPEX to win from here. Recall that for FY26 I underwrite 0 growth from MCE's drilling segment and expect the revenue gains to come in via SURF.
The other thing to note here is that the father of Vas (one of the partners of Collins Street Asset Management) is a major shareholder of MCE - owning approximately ~5% of the company. As such, I don't believe Collins St will be hostile regarding note repayment and would more than likely be flexible in the event MCE are unable to secure refinancing (an event I believe is highly unlikely).
In the event of conversion, I'm not worried about dilution and believe the value here far outweighs any potential ~10% increase in shares outstanding. Collins St are value oriented fundies, and as such in the event shareholder approval is needed to consummate an AIS merger, this too would be helpful in my mind.
As for financing WC, obviously more work serves as an increased risk with respect to WC management. In saying that I believe continued internally generated cashflows plus a more flexible debt facility upon dealing with the con. note should provide enough headroom for the company to manage their WC needs effectively.
Thank you for your thoughts. I think what you mentioned makes good sense.
very well written, thank you!
No problem - appreciate the kind words!
Thanks for the write-up. I read the intro and thought "nah", that's too technical. But still continued reading. :-)
I think you overstate EBITDA. The co accounts under IFRS and leases are capitalized, so you won't see the actual lease expense in EBITDA as they appear under interest & depreciation. If you want to show this EBITDA, you'd need to include the lease liabilities in debt (anyway, that's a stupid way to look at valuation in my view, but each to their own).
In any case, if the growth materializes, EBITDA should still explode.
What's your view on mgmt? Tbh, you could say that the CEO's achievements are not exactly great.
Any sense for competition / competitive landscape? I don't understand this industry at all.
Hi Swissie,
Thanks for calling this out and you're spot on that TIKR number of $11M EBITDA does exclude interest expense from Lease Liabilities of ~$2M. Agree that it makes no sense to think about the lease liability as debt and it should be treated as an operating expense (this is why I left it out of the EV). My point still stands that the facility is highly underutilized with immense operating leverage such that we should see a step-change in EBITDA growth approximating ~$20M (and therefore close to doubling) in FY26 given the company can execute on its impending contracts.
I have no firm view of management - one way or another.
For background, syntactic foam is the most widely used material in the deepwater buoyancy space because of its attractive properties: highly durable, lightweight, high-pressure resistance and cost effectiveness.
There are only 2 other key players that specialize in providing syntactic foam buoyancy solutions: Balmoral and AIS (who are looking to IPO on the ASX in August).
Hope that's helpful and appreciate all your comments as usual!
They’re not the most inspiring bunch of peeps judging from the calls I’ve been on.
It’s a hard market to get into that’s for sure. Massive CAPEX requirements, certifications etc. We’ve got the facility and the capability, just need the work.
Competitive landscape is slim in Asia Pacific which is why I like it. Again, these type of companies are just waiting to be picked up. I’m surprised a SS7 or similar don’t just acquire us. Some of our contracts with them are the size of our MC!
Thank you for the color. Are you referring to "us" because you are invested or because you work at the co? :-)
Invested mate
Nice post. Do you hold an interest in it?
Thanks AJ. I sure do. This will always be disclosed within the disclaimer at the end of the piece.
Great deep dive!
Check out my deep dive on this EU Smallcap
https://open.substack.com/pub/johnlawxv/p/the-best-smallcap-in-eu-is-hiding?r=31luz&utm_medium=ios