Ain’t no Hedge like a Texas Hedge, even if it’s from Canada: Mattr Corp $MATR.TO $MTTRF

One company which has been frustrating me for a couple of years, but is now suddenly starting to catch a bid is ProFrac Holdings (ACDC). What can I say, I didn’t expect two warm winters in a row, very few people did. The Hunga Tonga volcano put so much water vapor into the stratosphere, that it is probably responsbible for the excess warmth. Some scientists are predicting that this effect could last upwards of eight years! But for 2025, just by variability, winter is cold, and the price of natural gas has finally climbed out of the $2 / mmbtu zone of misery.

On top of that, we have a new administration who wants to “Drill Baby Drill,” although aside from streamlining the permitting processes for extraction and for natural gas export terminals, it’s not immediately clear how much the government can actually help the industry. Whenever a government wants to support an industry, it always reminds me of the origin of the phrase “laissez-nous faire."

Supportive administration or not, the natural gas export terminals have been in the works for years, and are starting to come online. While I might not be smart enough to predict the underlying commodity prices, the volumes should be going up. This makes the oilfield services companies my favorite slice of the energy cake. But I already bought so much ACDC that I can’t stomach owning another share. My portfolio is like Monty Python’s Mr. Creosote.

Already bloated from my ACDC buffet, and pretty darn confident in the oilfield services thesis, I am always on the lookout for a good Texas hedge.

Mattr Corp. (MATR.TO, MTTRF) is a Canadian domiciled manufacturing conglomerate with heavy exposure to oilfield services products. The Canadian stock market is still depressed from the threat of Trudeau’s capital gains tax, and although he has resigned, and the obvious prediction is a victory by Pierre Poilievre, the Canadian stock market still hasn’t caught a bid. Furthermore, the Canadian Peso is weak and getting weaker. The state of their housing market is as extreme as Greece and Spain were in the leadup to the PIIGS crisis, with 40% of all capital deployed going to housing in recent years. The smart money is on Canada debasing their currency, which means that labor costs in Canadian Pesos should stay depressed, and that should benefit Canadian manufacturing in the years ahead with lower relative labor costs, and rapidly evaporating Canadian denominated debt.

The conglomerate aspect of the company might well be a value trap. Maybe I’m Charlie Brown, and conglomerates are Lucy with a football. The conglomerate discount makes the businesses cheap, and I am a value degen. If management puts that capital toward share buybacks, and earnings per share grows fast enough, it is possible for the multiple to rerate from earnings per share growth, even with the conglomerate discount hanging over its head. If the conglomerate traded at the same multiples as their more pure competitors, they would go from less than 4.2x EBITDA to around 10X EBITDA, so there is room for a double on multiple rerating alone. Also, management deployed 100 million CAD over the last year into their buyback program, enough to buy back 10% of the float, the maximum allowed by the Toronto exchange. Management says that buybacks are a priority as long as their multiple is significantly beneath their peers.

Mattr has four main product lines, the one I am most interested in for “Drill Baby Drill,” is the spoolable composite pipe which connects newly completed oil and gas wells to gathering stations. If volume does increase to fill the natural gas export terminals and to fuel data centers, business should be booming.

The second business line is that Mattr is the leading North American producer of underground fuel storage tanks. If your state is anything like Florida, you see Wawa’s and Circle K’s being built on every corner. There may also be a data center angle to this as data centers may choose to keep backup diesel generators on the premises with underground diesel storage tanks as well.

The third business is high precision wire and cable. For anyone who has seen “Other People’s Money” (1991) with Danny DeVito, it brings back some memories. Wire and Cable is traditionally a terrible business, but this is the highest precision segment, for example, Mattr produces wiring for nuclear reactors which have to be replaced every 18 months or so. This is a small part of their business, but it is their highest margin product, and there is a huge growth opportunity as they are only licensed to produce wiring for the CANDU reactors, about 5.5% of the global fleet.

And the fourth and final business segment is the heat shrink plastic that goes on the end of the wiring. Mattr is the number two global producer of this product, and it cross sells with their high precision wire and cable. One of their larger customer groups is the US and Canadian automobile market who use Mattr products in their electronic assemblies. Mattr products are used by all major OEMs, including Ford and Tesla.

Mattr just announced an acquisition of an American based wire and cable business for $400 million CAD. This acquisition should be complementary and should provide cross selling opportunities, as the legacy business was for low voltage, and the American business is for medium voltage. But more importantly, Mattr is positioning itself to be able to supply the infrastructure buildout which requires satisfying the “Buy American Act.” Mattr has created a completely North American supply chain without relying on China in order to stay ahead of this era of deglobalization.

If exposure to nuclear reactors, data center buildout, and electrification sounds trendy to you, you might ask, why does Mattr trade so cheaply for an industrial? They are currently sitting at 0.93x price to sales, 1.13x price to book value, and post acquisition, 4.2x market capitalization to EBITDA. Well, Mattr is undergoing a transformation under their new CEO; Mike Reeves became president and CEO in March of 2021, and implemented a turnaround strategy. The goal was to only keep the parts of the conglomerate that were high margin and high growth, and the other parts were sold to pay down debt. After three years of debt repayment, Mattr is emerging from its chrysalis with a big fat share buyback program, and a group of products that should grow organically at least 10% a year, with the goal of expanding margins up from 14% today to over 20% by 2030.

In the short term, the oil and gas piping is going to be needed in a hurry for “Drill Baby Drill.” But in the longer term, Mattr has several solid growth opportunities in front of it. They currently only have 13% of their revenue from international sales, and this could be expanded dramatically. By the second half of 2025, synergies from the medium voltage wire and cable company should be realized, and some cross selling opportunities to existing clients should start to materialize. There is also the possibility of more inorganic growth through acquisitions. Management will be focused on paying down debt in the near term, but if a target is strategic enough, they will stretch the balance sheet to acquire it.

Post acquisition, Mattr will have trailing twelve month EBITDA of 200 million CAD, for a market capitalization of 815 million CAD. With 10% annual revenue growth, and one percentage point of margin expansion per year, Mattr could have 2026 full year EBITDA of 280 million CAD, along with the current share buyback program retiring the float aggressively, that would imply a share price of 24 CAD up from the current 12.89 CAD, or just about a double in two years. If the multiple expands to trade at a 10x Enterprise Value to EBITDA inline with peers, that would be a 48 CAD price target in two years.

I have to say that I like this little industrial. I don’t always buy shares in everything I write about, but I’ll be starting a position in this one.

Mattr Corp. (MATR.TO) 12.89 CAD: 24 to 48 CAD by end of year 2026