As always, we cannot predict what the market will do next, and we certainly do not have a crystal ball. The outbreak of COVID-19 has impacted almost every company. If the company’s fundamentals have not been impacted, their operations and how they do business has likely been altered as a result of the pandemic.
While we have seen record unemployment statistics and depression style economic numbers in the US and around most of the world, the stock market has bounced back impressively (thanks in large part to the US Fed easing and government stimulus checks) from the start of the pandemic and despite analysts’ predictions, thus far, the stock market has seen a V-shaped recovery.
Now that companies have reported their first quarter financials, we are expecting second quarter financial statements to show the effects from COVID-19. With a strong V-shaped recovery and negative headlines pending, we are expecting some weakness in the market alongside decreasing activity as summer ensues which could potentially create some opportunities in a lower volume market. While we are not looking forward to the negative earnings from Q2, we are excited about finding new opportunities and trends. There will be both winners and losers in the upcoming Q2 reporting period, and we will be actively looking for any new trends that emerge. Healthcare and new online service providers are two sectors that may offer new and rapidly growing opportunities. Before the next earnings season, we wanted to provide an update on our select companies that have recently released earnings or important updates. We have provided updates on Lite Access Technologies (LTE-TSX.V), RIWI Corp (RIW.CSE), Renoworks Software (RW.TSX-V.), Immunoprecise Antibodies (IPA-TSX.V), Hamilton Thorne (HTL-TSX.V), Pioneering Technologies (PTE-TSX.V), Atlas Engineered Products (AEP-TSX.V), Aurora Solar Technologies (ACU-TSX.V), Spectra Products (SSA-TSX.V) Thermal Energy (TMG-TSX.V), and Network Media Group (NTE-TSX.V). Highlights are below: Lite Access Technologies (LTE-TSX.V) – Price $0.69 Market Cap $32M- May 28th, awarded a $1M contract in Clearwater County, Alberta
- Part of the Connect to Innovate (CTI) program with mandated $500M spend by 2021 connecting remote communities of Canada
- Delivery expected in Q4, 2020
- June 1st, reported Q2 financial results
- $2.03M in revenues – a decrease of 28%
- $-1.63M EBITDA loss
- $-2M Net loss
- $2.9M in cash
- $3.3M in working capital
- $1.9M undrawn credit facility
- The private placement of 6.99M shares for $3.49M with a full warrant at an exercise price of $0.65 has become free trading as of June 2nd, 2020.
- Acceleration clause on the warrants if the stock trades equal to or above 0.85 for 20 days
- Creates an overhang on the stock and increases selling pressure until warrants are fully exercised
Our note:
Since the UK government declared telecom and infrastructure an essential service, Lite Access has seen minimal disruptions to its business due to COVID-19. Moving forward the Company is set to begin delivering on its growing backlog of work in the UK and the next quarter should demonstrate new financial trends.
While we are not expecting outstanding results in Q3, we will be closely examining this quarter as a guide for Q4 and fiscal 2021. The macro backdrop for the Company remains strong, and we think the Company is perfectly positioned to receive additional work if they can execute on heir delivery to CityFibre. CityFibre has announced that they will be awarding several new city deployments by the end of summer. As for the stock, we think the Company is likely to be rangebound between $0.65 to $0.90 until some of the overhanging share supply is accumulated.
However, we are fully expecting the Company to announce additional contracts that could potentially double the current backlog. Any new contract announcements are likely to spike the shares to new highs. We continue to like this story and think it is good buy on any large pullbacks into the mid $0.60’s.
Riwi Corp (RIW.CSE) – Price $2.70 Market Cap $48M- Insider selling activity
- Eric Meerkamper – has sold 135,900 shares since May
- Still owns a 563K shares
- BP Capital – has sold 296,650 shares since January
- Still owns 2,401,450
- Management discussion:
- We have communicated with management about the large insider selling and have concluded there is no fundamental or business issues driving these transactions
- Neil Weitzman the new Chief Revenue Officer has integrated well with the team and management are quite pleased with hire
- COVID-19 has impacted the business operations
- Working from home has made it harder to build and develop company culture
- Hard to integrate new employees within the team
- Challenged sales and how they communicate with new clients
- Company remains focused on their top line, bottom line and cash in the bank
- Strong cash position and are looking to invest it wisely in their business
- We recently had an interview with management which can be found here:
- https://youtu.be/Jd6FEqhRISo
Our note:
We continue to like Riwi and management’s execution. In our last update, the Company was trading at a forward price-to-sales ratio of 9x. Since then there has been a barrage of insider selling which has driven the stock from a $5 high to as low as $2.52. At the current price, the Company is now trading at 7x forward price-to-sales. We believe this is a fundamentally strong Company, that is not likely to trade too cheap, but recognize that the combination of an illiquid stock with high insider selling can continue to depress the share price.
The negative perception from the insider sales is creating a buying opportunity, and given the large positions held by the insiders, we do not know how long this will persist. We are continuing to buy on pullbacks and recognize that in the short-term the stock could trade cheaper or be rangebound until the insider selling stops. We feel it is a very good buy below $2.75. Renoworks Software (RW-TSX.V) – Price $0.28 Market Cap $10M- April 15, 2020 – Reported record Q1 financials
- $1.1M in revenues – an increase of 5%
- $478K in design services revenues - an increase of 50%
- $7K Adjusted EBITDA loss
- $70K net loss
- Strong gross margins of 69%
- Metal Roofing Alliance launched a measurement & design tool for metal roofing industry which is powered by Renoworks solution
- James Hardie launched a measurement & design tool which helps remodelers take their sales digital and is powered by Renoworks solution
- We recently had an interview with management which can be found here:
- https://youtu.be/V-H4Gy8Jhwc
- Insider Robert Schulz has purchased 917,500 shares since January
- Total ownership 5,080,166
Our note:We continue to hold Renoworks and are encouraged by the consistent insider buying. While the Company reported record first quarter financials with its highest revenue to date for the quarter, they are still well below our minimum growth rate of 25%. However, we believe the Company is trending in the right direction and has many of the key SCD criteria.
We continue to hold our shares and recognize that the Company will likely remain undiscovered until the Company achieve profitability or report rapid growth in sales. We think the Company is worth more to an industry acquirer and the risk to reward is attractive at current prices. ImmunoPrecise Antibodies (IPA-TSX.V) – Price $1.48 Market Cap $106M- $75K US grant from the state of North Dakota for the enhancement of a novel platform for rapidly developing treatments for COVID-19 and other pathogens
- The Company leased a high throughput, label-free Octet HTX biosensor from ForteBio
- Increased speed and sample throughput for researchers
- Closed a non-brokered private placement financing by issuing a total of $2.59M 10% convertible debentures
- Unsecured with 10% per year, paid annually
- Due May 15, 2022
- Convert at the option of the holder to units at $0.85 per share
- Insiders participated in the financing
- Jennifer Bath – purchased $175K
- Paul Andreola – Purchased $229K
- Chief Technology Officer, Chip Wilson, resigned
- NSERC awards grant to fund collaboration between IPA and the University of Victoria for the generation of a potential COVID-19 antibody-based test in Canada that can provide real-time responses
- Saliva based test
- Designed to be suitable as a home-test kit
- $50K grant
- IPA provides the antibodies and retains an exclusive option on the commercialization rights
- Video outline here:
- IPA collaborates with the NIH and Integrated Biotherapeutics to study the structural details of antibodies with therapeutic potential to treat or prevent COVID-19
- IPA’s subsidiary U-Protein Express (UPE) announced a new recombinant SARS-CoV-2 proteins for use by global researchers
- New revenue stream for the Company
- $400 EU each
- https://www.u-proteinexpress.com/webshop/corona-virus
- The subsidiary has seen increased demand since the COVID-19 outbreak
- IPA announced a collaboration COVID-19 vaccine project with LiteVax BV
- Funded by TRANSVAC2
- Covers the complete costs of a preclinical vaccine study
- Analyze the immunogenicity, safety, and potency
- Anticipated pre-clinical vaccine trials will begin August, 2020 and that data will be compiled by mid-November, 2020
- Company has a $10M EU budget
- https://eatris.eu/projects/transvac-2/
- IPA confirmed the discovery of fully human, potent, neutralizing antibodies targeting SARS-CoV-2
- Numerous lead candidates – Total number undisclosed
- Screening from the top 300 lead antibodies from Human and Llama campaigns
- 1,300 lead antibodies from Rabbit and Ligand Pharmaceuticals’ (LGND-Nasdaq) OmniRat campaigns were independently analyzed and to be announced at a future date
- Preparing to test the lead antibodies against additional, documented, mutated strains of the virus
- Pre-clinical studies are anticipated to begin in summer of 2020
- Warrants are being exercised
- 875,000 warrants at $1.00 were exercised
- $1.25 warrants are in the money
- 9,102,500 total warrants
- Expire – Sept 28, 2018
Our note:ImmunoPrecise is uniquely positioned to benefit from the COVID-19 pandemic and increased healthcare and biotech spending. As for the share price the Company is already seeing benefits from its relationship to COVID-19 and is up 173% year-to-date. The company has substantially improved its balance sheet. Revenues in the latest reported quarter hit record levels and grew organically by 50%. The company is due to release audited financial statements by the end of August so we should see if they have been able to continue their growth trends.
Solid revenue growth and progress in advancing their Covid-19 programs could make for a strong move in the shares. A number of companies working on Covid-19 therapies/vaccines and diagnostics, especially those listed on US exchanges, have seen meteoric increases in share prices. Should ImmunoPrecise garner similar interest we could see a violent move higher. Until then we are comforted by solid corporate execution both in the core contract research operations and their Talem subsidiary’s Covid-19 programs. We expect a considerable number of updates on their Covid-19 programs including more in-vitro data, potential partnerships, and out-licensing agreements. While we reserve opinion on current buy/sell action we note that Paul (company director) has been a buyer recently: https://www.canadianinsider.com/node/7?menu_tickersearch=IPA+%7C+ImmunoPrecise+Antibodies Hamilton Thorne (HTL-TSX.V) – Price $1.27 Market Cap $167M- May 28th, 2020 Reported Q1 financials
- Revenues of $10.4M – an increase of 36%
- Gross profit of $5.2M – an increase of 31%
- Net income of $145K
- Adjusted EBITDA of 1.8M – an increase of 21%
- Organic growth of 11% for the quarter
- $709K cash flow from operations
- Total cash $15.9M
- May 29th, 2020 closed a non-brokered private placement
- 6,364,000 shares at $1.10
- Gross proceeds - $7M
- Use of proceeds for future acquisitions and general corporate purposes
- Fax Capital Corp (FXC-TSX) participated in the private placement
- Purchased 3,182,000 or $3.5M at $1.10
- Breached the 10% ownership level
- Total ownership 15,756,700 or 11.4%
- Insider selling activity
- Robert Potter – has sold 59,300 shares
- Exercised 100,000 options with an exercise price of $0.05
Our note:
As previously noted, we continue to hold a small position in Hamilton Thorne and have reduced our position over the past twelve months. We recognize the Company is executing, but we are finding other opportunities that are more mis-priced and are taking advantage of these other situations, which is the primary reason for reducing our position.
Pioneering Technology (PTE-TSX.V) – Price $0.115 Market Cap $6.5M
June 8, 2020 – Reported Q2 results
$2.5M in sales for the quarter – an increase of 175%
$(-260K) net loss
$45K in adjusted EBITDA
Gross margins of 34%
Declined due to US tariffs, special incentives for select customers, inventory accounting consequences of supplier price increases
$4.4M in cash
$3.1M in accounts receivable
Noted a decline in product shipments in Q3 due to COVID-19
Noted a disruption to supply chain due to COVID-19
Break-up value is $0.115 per share
Expected to install SmartBuner in Mercy Housing properties in both 2020 and 2021
Our note:
This was a strong quarter for Pioneering Technology. While the Company showed a net loss and lower gross margins, we are viewing it as a strong quarter based on the merits of their revenue growth. As noted in our previous update, Pioneering is a turnaround story and revenue growth is one of the leading indicators for a successful turnaround story. Revenue for the quarter was up 175% and for the first six months of 2020 was up 116%.
However, we do note that the inventory significantly dropped this quarter and recognize the Company will have to replenish its inventory in the future. Moreover, we think there is going to be a slower quarter or two in the future that we anticipate additional volatility.
As the value investors who purchased the Company at a discount to book value exit the stock, and new investors purchasing for the growth story enter, we expect there to be a strong opportunity for a low risk entry in the future. We continue to hold our shares, monitor the financial performance, and will look to add to our position on continued execution. We currently view it as a strong buy up to $0.12 Atlas Engineered Products (AEP-TSX.V) – Price $0.265 Market Cap $15M June 30, 2020 – Reported Q1 financials Revenues of $7.1M – an increase of 14% Gross margins 16% - down from 19% for the previous year Noted decrease from lumber price volatility Gross profit $1.1M Operating loss $(-866K) Adjusted EBITDA $(-160K) Cash balance $3.24M Announced a product expansion into prefabricated wall panels in B.C. Announced new engineered wood supply agreement with Taiga Building Products Company implemented cost savings and cash preservation strategies at the end of Q1 to handle the COVID-19 impacts Company noted a return to positive normalized EBITDA margins Q2, 2020 We recently had an interview with management which can be found here: https://youtu.be/5MhGrAa5OhQOur note:The company continues to show progress growing the business organically. The recent quarter reported is seasonally one of the weaker quarters due to winter building activity slowdown. We were happy to see the continued revenue growth but were hoping to see a bit healthier bottom line. We will monitor the coming quarter to see if they can improve some of their operating metrics.
While there is considerable building industry uncertainty due to COVID-19 related issues the company feels it has put in place safety protocols and cash conserving measures to weather any potential slowdown. That said, company management are not seeing any signs of protracted slowdown and are forecasting considerable growth in bookings and sales.
Management also believes that the industry uncertainty has created improved buying opportunities and have indicated that they expect to close on at least one additional acquisition before the end of 2020. We are currently maintaining a hold on the stock and will monitor the next quarter results before deciding to add or sell. Aurora Solar Technology (ACU-TSX.V) – Price $0.08 Market Cap $8.4M Feb 28, 2020 – Reported Q3 financials Revenues of $1M Gross profit of $500K Net loss of -$100K $1M in working capital Subsequent to the quarter end, closed a $1.88M in financing at $0.10 Appointed of new CFO – Joseph Lee History working with Coast Contacts, Terramera, KPMG and Zag Global Announced new order from China-based manufacturer for 2 DM measurement systems Expected to be shipped in Q1 Announced a new order from top-tier solar cell manufacturer for high-efficiency PERC solar cells with nine DM-110h measurement systems Customer is one of the top 10 global solar cell manufacturers Expected to be shipped Q1 and Q2 We recently had an interview with management which can be found here: https://youtu.be/1Um25C62HKAOur note:We are not seeing any slowdown in the solar industry. Large solar companies continue to innovate and demand for products continues. While current revenues are from supplying large solar manufacturers with measurement instrument, the Company is focused on developing and commercializing its Insight product.
Insight once commercialized will provide a steady stream of recurring revenues and is core to our investment thesis. We continue to hold our shares, waiting for updates on the Insight product launch. Spectra Products (SSA-TSX.V) – Price $0.04 Market Cap $3M- There have been no updates from the Company
Our note:We continue to like Spectra products and think anything below $0.05 is a good buy. While the Company is likely experiencing some Coronavirus related slowdowns and impacts, this nimble Company has operated on a shoe-string budget and has low operating expenses. With another quarter of profitability, and improving financial liquidity, we think there’s limited risk to owning shares. Thermal Energy International (TMG-TSX.V) – Price $0.085 Market Cap $13.6MMay 27, 2020 – Reported record revenue and profit for Q3 financials $5.8M in revenues – an increase of 87% $2.4M in gross profit – an increase of 114% Gross margins of 41.6% $527K in operating income $734K in EBITDA $430K in net income or 0.003 in EPS $3.8M in cash $2.8M in working capital 4th straight quarter of profitability $3.4M backlog Travel restrictions, social distancing, and other mitigation measures are having an impact on order backlog and revenue due to COVID-19 Announced an equipment order for approximately $950K with leading consumer protein company Company’s largest “major equipment package” order to date New customer To be completed and revenue earned within six months We recently had an interview with management which can be found here: https://youtu.be/OadwWqkq1WQOur note:We continue to like Thermal Energy and the Company is now trading below our original recommendation price. COVID-19 is having impacts on the business and we anticipate some slower quarters in the future. The backlog serves as a guide for future growth and there has been a significant drop from $10M+ to only $3.4M.
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