Smallcap Discoveries: Weekly Update: April 10

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Subject: Smallcap Discoveries: Weekly Update: April 10 - 14

April 10 -14

Market Commentary

Markets

Major North American equity markets were all to the upside this past week as better than expected inflation data had the bulls back in a buying mood. The DOW index gained 1.2%, Nasdaq was higher by 0.3% and the TSX managed a 1.9% gain. By week’s end the markets were also weighing weaker retail sales data which is causing some investors to worry about an economic hard landing.

Commodities

Gold had another solid week with the price of the yellow metal touching 2 year highs of US$2048.45 and inching closer to its all time high of US$2074.

Industrial metals such as copper continue to trade range bound and not giving investors any indication of economic direction. Copper is usually a good indicator of global economic health.

Lumber had a better week closing back above $400 for the first time in a while. Stronger US housing data is giving lumber a bit of a boost but prices remain very far off the year highs.

Financials

The US dollar continues to trend lower verses its global cousins. The US dollar index briefly pierced below the 101 level for the second time in almost a year.

US treasury yields ended higher on the week, with the US 2 year treasury yield back above 4%

The Canada 5 year bond closed the week higher.

Stocks

Many companies are reporting their year end results and this past week we had a few of our favorites do just that. Zedcor, (ZDC.V) reported nicely higher 2022 year end and Q4 results. Full year revenues were higher by 63% over 2021 while Q4 revenues were up by 57% over Q4 2021. The company generated a profit of $3.99 million compared to a loss in 2021 of $3.09 million. Q4 profits were $1.07 million compared to a loss of $804,000 the prior year. The company continues to see high demand for its proprietary MobileyeZ security towers and services however, we can expect a hiccup as one of their large customers ends a big contract. The company states: “While the company expects the utilization rates to remain strong going forward, there will be a drop in utilization rates as the Trans Mountain Pipeline Expansion project comes to an end and equipment is redeployed to other customers throughout the company's operating regions.”

According to our calls with management demand for these units is very strong and any slowdown in utilization of these units is likely to be short lived as they get moved to other locations.

Ceapro (CZO.V) reported record year end results for both revenues and profits. Revenues reached $18.84 million in 2022, up 9.6% 2021. Profits were higher by 30.7% reaching $4.4 million or $0.06 per share. Q4 revenues however were lower than in 2021, $3,322,000 vs $3,562,000 a drop of 6.7%. The company had a net loss of $230,000 in Q4 vs a profit of $734,000 in 2021.

Strong cash generation from operations of $6,637,000 in 2022 brought the cash position to $13.8 million and net working capital of $18.5 million. The cash will come in handy as the company will be pushing the company’s avenanthramides into clinical trials and advance the scale-up of the PGX Technology for the development of yeast beta-glucan as an immune modulator and the commercial scale-up of a malting technology to enable the production and selling of enriched oat flour with high concentration of avenanthramides to serve some nutraceutical market segments.

Firan Technologies, (FTG.T) reported their Q1 financial results. Revenues were up 20.4% to $24.6 million. Gross margins saw significant improving to 39.7% from 20.7% last year. Net earnings improved to $4.1 million from a loss last year of $733,000. Earnings included $3.4M of U.S. government support in Q1 2023 compared to $0.3M in Q1 2022. Adjusted earnings per share was $0.04 compared to a loss of $0.04 last year. The company reported a net cash balance of $20.6 million at the end of Q1. FTG.V climbed to a new 52-week high.

And I keep coming back to the housing sector. Shares in US home builders had another strong week with Builders FirstSource (BLDR) up to another new 52 week high. US housing data continues to defy the housing bears and a tight supply of housing units has allowed new home builders to sell inventory and most of those that have reported recently have exceeded analyst expectations.

US home builder ETF (ITB)

With similar data being reported in Canada some are saying we are back to a seller’s market. “The sales-to-new listings ratio jumped to 63.5 per cent in March, the “tightest market in a year,” according to the latest data from the Canadian Real Estate Association (CREA), as new listings dropped and sales rose.”

It should be long before this tightness is reflected in Canadian housing related stocks.

Other Stuff

Trevor and I are scheduled to do a site visit at Total Telcom’s (TTZ.V) offices in Kelowna. We’ll report back with anything new we learn.

A reminder that both Ola Media and Alchemy Nanotech have open financings. If you have an interest in participating let Trevor or myself know. It will soon be opened up to non SCD participants and may close soon.

And we’re booked…..! We have an official date for the SCD Conference, October 11, 2023. We’ve started compiling the list of companies we’d like to see present as well as a list of industry keynote speakers. We are working with the hotel, The Pan Pacific Vancouver Hotel, to arrange discounted rooms for those travelling in from out of town. We’ll let you know as soon as arrangements have been made. https://www.panpacific.com/en/hotels-and-resorts/pp-vancouver.html

We’ll have 24 of the best quality smaller companies presenting along with and a number of great guest speakers. You’ll have an opportunity to meet 1 on 1 with company management and ask questions. It will be a great opportunity to network with other great investors and meet other SmallCap Discoveries members. And all SCD members attending are invited to an exclusive SCD dinner overlooking the scenic Vancouver harbour.