Value Line has initiated coverage of MRC Global (MRC) in its flagship product, The Value Line Investment Survey. It is one of the largest global industrial distributors of pipes, valves, fittings (PVF), and related products and services to the energy industry. The company holds a leading position in its space across each of the upstream (exploration, production, and extraction of underground oil & natural gas), midstream (gathering and transmission of oil & natural gas, natural gas utilities, and the storage and distribution of oil & natural gas), and downstream (crude oil refining, petrochemical processing and general industrials) sectors. MRC offers more than 175,000 items, including an extensive array of PVF, oilfield supply, automation, instrumentation, as well as other general and specialty industry supply products from its more than 18,000 suppliers. The company operates in three segments, consisting of its U.S., Canadian, and International units. Through these segments, it serves over 18,000 customers via more than 400 service locations across North America, Europe, Asia, and Australasia.
The company’s PVF and oilfield supplies are used in mission critical process applications that require it to provide a high degree of product knowledge, technical expertise, and comprehensive value added services to a broad range of customers. Furthermore, MRC provides services such as product testing, manufacturer assessments, multiple daily deliveries, volume purchasing, inventory and zone store management, as well as warehousing, technical support, just-in-time delivery, truck stocking, order consolidation, product tagging, and system interfaces customized to customer and supplier specifications for tracking and replenishing inventory. The critical role the company plays in its customers’ supply chains, together with an extensive product offering, broad global presence, customer-linked scalable information system, and efficient distribution capabilities, serves to solidify long-standing customer relationships and drive growth. As a result, MRC Global has an average relationship of over 20 years with its largest 25 customers.
The company has historically benefited from several growth trends within the energy industry, including rising levels of customer expansion and maintenance expenditures. Although these trends were offset in 2009 and 2010 due to adverse economic conditions, growth in PVF and industrial supply spending within the energy industry appears to be on the mend. Various factors have driven the long-term growth in spending, chiefly underinvestment in North American energy infrastructure, production and capacity constraints, and market expectations of future improvements in the oil, natural gas, refined products, petrochemical, and other industrial sectors. In addition, the products it distributes are often used in extreme operating environments, leading to the need for a regular replacement cycle. In fact, approximately 70% of the company’s sales are attributable to multi-year maintenance, repair, and operations arrangements. MRC Global’s average annual retention rate for these contracts since 2000 is 95%. Moreover, it considers this business to be normal and generally repetitive, primarily addressing the recurring maintenance, repair, or operational work to existing energy infrastructure. Project activities, including facility expansions, exploration, and new construction projects, are more commonly associated with a customer’s capital expenditures budget. Such undertakings can be more sensitive to global oil & natural gas prices and general economic conditions. Thus, the company mitigates its exposure to price volatility by limiting the length of any price-protected contracts, and as pricing continues to rebound, MRC should be able to pass increases on to the marketplace.
The broad PVF distribution industry is fragmented and includes large, nationally recognized distributors, major regional distributors, and many smaller local distributors. The principal methods of competition include offering prompt local service, fulfillment capability, a diverse breadth of product and service offerings, as well as competitive price and total costs to the customer. The company’s main competitors include nationally recognized PVF distributors, such as National Oilwell Varco, Inc. (NOV) and Ferguson Enterprises (a subsidiary of Wolseley, plc), several large regional or product-specific businesses, and many local, family-owned PVF distributors.
Recently, MRC Global has been active on the M&A front, acquiring Norway-based, Stream AS, which is the largest PVF distributor in the North Sea. The purchase ought to give MRC a strong presence within this vast offshore market, bolstering revenues and share earnings accordingly. In addition, the company has acquired more than $4 billion in total sales over the past six years, as it seeks to aggressively acquire market share. What’s more, the growth in offshore drilling and a pickup in worldwide energy infrastructure buildouts have this company poised for solid top- and bottom-line gains ahead.
All told, subscribers interested in this global industrial PVF distributor are advised to consult Value Line’s quarterly reports for MRC Global, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.