Entering text into the input field will update the search result below

MRC Global: Natural Gas Utility To Provide The Thrust

Mar. 08, 2021 4:13 PM ETMRC Global Inc. (MRC)
Badsha Chowdhury profile picture
Badsha Chowdhury


  • MRC Global is increasing its focus on the natural gas utility business to benefit in the medium-to-long-term.
  • The cost reduction efforts and the benefits of the digital supply chain can keep margin steady.
  • However, its aggregate revenues can decline in 2021 because the short-term pressure on the energy market has not dissipated.
  • Although its net debt is set to reduce, a higher working capital requirement can result in cash burn in 2021.

MRC Builds The Medium-Term Framework

The two crucial markers that underline MRC Global's (NYSE:MRC) shift in strategy are diversification and its leaning on the natural gas utility sector. The company is poised to gain from the secular growth of the natural gas used in utility services. As the pandemic-led downturn begins to tone down, I think the chemical industry will revive because the crack spread has widened in recent times, leading to higher profitability in the industry.

Despite the positives, the upstream and midstream energy markets can remain below the pre-pandemic level, leading to lower revenues in 2021. Its leverage is higher than many of its peers, which can pose financial risks. In Q1, its working capital can increase due to the long lead time related to its inventory, which can lead to a cash burn. Since the stock is reasonably valued, I do not think the investors will see higher returns from the stock in the short-term. Medium-to-long-term investors may want to hold it for higher returns.

An Insight Into Strategy And Challenges

Following the pandemic, MRC's core business has transitioned with a focus on producing higher-margin valve products, reducing exposure to lower margin line pipe. The company expects revenues from Valve, Automation, Measurement & Instrumentation (or VAMI) to double in the next couple of years. On top of that, it has placed greater emphasis on selling through e-commerce channels. I have discussed it in detail in my previous article here. Investors may note that valves are the top-selling product for MRC (40% of the total business). Revenues from the valve engineering and modification center generated ~$50 million in FY2020.

The third leg of the strategy involved increasing expanding sales through regulated gas utilities. The gas utility sector is in long-term secular growth, according to the management. Despite the pandemic-led restrictions, the gas

This article was written by

Badsha Chowdhury profile picture
I have more than 14 years of experience in analyzing and writing on stocks. I write on both long and short sides in an unbiased manner. I have been covering the energy sectors for the past 7 years, with the primary focus on the oilfield equipment services sector. I also cover the Industrial Supply industry. I occasionally co-author with Seeking Alpha contributor Thomas Prescott.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You


Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.