KeyStone’s March DIY RRSP/TFSA Seminars, Your Stock Our Take – Pioneering Technology Corp (PTE:TSX-V), Star: Breaking Data Corp. (BKD:TSX-V)
We have another busy show for you this week. In our Your Stock, Our Take segment we look at Pioneering Technology Corp (PTE:TSX-V), a unique business that develops and sells patented cooking-fire prevention products. We are following up on the company after calling it overvalued when the stock traded above $1.00 last year. With the stock under $0.40 is it a BUY, SELL, or HOLD. Our Star of the week is Covalon Technologies Ltd (COV:TSX), a company we highlighted in both our annual Breakthrough and Cash Rich Small-Cap Reports over the past 2-years. Covalon saw its share price jump 90% this week, after the company announced it had it has won a series of competitive contracts in the Middle East with an estimated sales value of $100 million over a three-year period. Finally, our dog of the week Breaking Data Corp. (BKD:TSX-V), a technology provider of semantic search, machine learning and natural language processing and owner of GIVEMESPORT – sports related app– year-to-date, the stock is down over 60%.
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Now, let’s dig into the show.
First-off – one housekeeping comment – we are excited to announce that KeyStone’s DIY Stock Investment Seminar – Building a Winning Stock Portfolio Inside or Outside Your RRSP/TFSA – One Stock at a Time is now available online!
The over 2-hour seminar introduces investors to KeyStone’s Investment Strategy in the US and Canadian markets, provides the basics of RRSP and TFSA investing and, perhaps most importantly shows you how to build a DIY Portfolio and includes recommendations on 5 individual stocks. All you need to know to effectively structure a winning stock portfolio and, most importantly, the right stocks to put in it.
We’re making this video series available for FREE to all active KeyStone subscribers. When you login to your KeyStone account you will see the video series under “Your Latest Videos” or you can click the “Video” tab to access it.
It is also available for individual purchase by the public via our website at www.keystocks.com
Your Stock, Our Take
Pioneering Technology Corp (PTE:TSX-V)
Pioneering is a company we have been asked about before in our Your Stock Our Take segment – we reviewed it when the stock was trading in the $1.00 range. At the time we said we were impressed by the business but for a number of reasons we thought it to be overvalued. In fact, today’s question resulted from that review. Brigitte from Mississauga asks us if we would reconsider buying the stock with it now trading in the $0.38 range or over 60% lower than when we found it was overvalued.
What Does Pioneering Do?
Pioneering provides innovative cooking fire prevention technologies and products. The company specializes in commercializing energy-smart solutions that make consumer appliances safer, smarter, and more efficient. Pioneering’s patented cooking-fire prevention products address the multi-billion-dollar problem of cooking fires. Pioneering’s proprietary cooking fire prevention solutions include Safe-T-element, SmartBurner, RangeMinder & Safe-T-sensor and are suitable for the majority of the more than 140 million stoves/ranges and over 140 million microwave ovens in use throughout North America.
Recent Quarterly Financials:
Q1 2018 revenues was $1.76 million, down approximately 26% versus $2.38 million for the same period a year ago. Management stated that the revenue decline was driven by a delay in a large order from a long-standing customer. The company expected to ship this order in Q1 but was unable to deliver due to a customer delay. The company is working with this customer to plan the delivery and installation of the SmartBurnerTM product and is hoping to fill this order in late Q2 or early Q3.
Adjusted EBITDA for the period was a loss of ($61,920) a decline from $762,942 during the same period in the prior year.
Conclusion:
Pioneering’s stock was a very strong performer in 2016 after the company posted a number of strong growth quarters, but the profitability was lumpy and included some forex gains that were non-operational. The profitability proved not be sustainable in 2017. The stock has dropped significantly from 2017 highs in the range of $1.20 to the current $0.38 range. At $1.00-$1.20, we commented a number of times that while we were impressed by the growth the underlying cash flow did not support the share price. The shares have corrected following the weaker Q1, but the underlying fundamentals have deteriorated. While the balance sheet is strong, the lumpy nature of the business, and current valuations despite the drop, give us reason to continue to just monitor the stock. We expect the business to be able to periodically post quarters that show solid profitability and gain market attention, but we fear the opposite will occur as the business is contract driven and sustaining consistent profitability will be difficult. The company has the balance sheet strength to launch new products and or make acquisitions which could provide growth.
At present we are not buyers.
Dog of the Week
Breaking Data Corp. (BKD:TSX-V)
Breaking Data Corp says it provides a range of Artificial Intelligence services including; semantic search, machine learning and natural language processing (NLP). Management believes the company’s technology platform has many practical applications, in multiple business and consumer verticals that are immersed in massive media and data rich settings. The company’s showcase app, BreakingSports, utilizes semantic machine learning and NLP to track social media in a fully automated, real- time manner for significant sports information and events and distributes summarized information through real-time push notifications to consumers.
Hey, I downloaded the app and it seems good – but I have a few other sports apps and they seem to do similar things, so the competition is there.
The stock is of 18% this week and has dropped over 60% in 2018.
What is Driving the Drop?
Recent Financials: Breaking Data’s consolidated revenue for the 9-month period ended December 31, 2017, showed strong growth up over 80% to $5.662 million USD, compared to $3.094 million USD for the same period last year.
The growth looks great – the issue could be that over the past nine months, despite the growth, the company lost almost $6 million. We understand that businesses need capital to grow, but the market may be factoring this in. At at its current spend rate, the company will need capital again this year which could be dilutive to current shareholders.
Conclusion
Classic case of a stock which made an exciting acquisition with strong growth prospects, but investors got too excited too early. When the stock surged above $3.00 early this year it held a market cap of $80 million. While the underlying business showed revenue growth in the range of 80% to $5.6 million US, it continues to lose over a million dollars on a quarterly basis. Quite frankly, it is just not worth $85 million, not with the current numbers.
Breaking Data is not the worst business on the TSX-Venture, not by a long-shot. But with its current revenue base, it was not worth the $80 million investors were paying for the stock earlier this year. It is not surprising to see the stock down 18% this week and over 60% on the year – making it our Dog of the week.
Star of the Week
Covalon Technologies Ltd (COV:TSX)
A company we have highlighted in both our annual Breakthrough and Cash Rich Small-Cap Reports.
The company saw its share price jump 90% this week, after the company announced it had it has won a series of competitive contracts in the Middle East with an estimated sales value of $100 million over a three-year period.
What Does Covalon Do?
Covalon Technologies Ltd. researches, develops and commercializes new healthcare technologies. Covalon’s patented technologies, products and services address the advanced healthcare needs of medical device companies, healthcare providers and individual consumers. Covalon’s technologies are used to prevent, detect and manage medical conditions in specialty areas such as wound care, tissue repair, infection control, disease management, medical device coatings and biocompatibility.
Primary growth in – IV Clear vascular access dressings and the company’s ColActive Plus advanced wound care dressings.
What has been driving the share price?
The aforementioned estimated $100 million contract – it’s that simple. This announcement is the near-term driver.
Of course, the company’s growth generally was very strong in 2017. Revenues revenues jumped to $27 million from $6.5 million in 2016 and the share price jumped in tandem. However, the stock had dropped nearly 50% from the $7.65 range it has spiked to early this year where it had gotten well ahead of its underlying cash flow at the time.
Driving the stock lower was a Q1 that was relatively positive but lacked the tremendous growth the company posted in 2017.
Total revenue rose to $6.4 million from $5.6 in the same period of the prior year.
Q1 net income was down slightly to $523,345 or $0.02 per share, on a diluted basis, compared to a net income of $543,110 or $0.03 per share for the three months ended December 31, 2016.
The market had feared growth rates may stagnate near-term. The $100 million contract announced this week helped allay those fears.
Valuations
The stock trades at around 60 times trailing earnings – which is expensive. The new contracts will help provide some of the growth necessary to backfill earnings and support a premium multiple, but it is important to note that, while $100 million is a large number, it is spread over 3-years. We like the management group and see both revenue growth and accretive acquisitions as a very strong possibility over the next year – you are being asked to pay a large premium for those possibilities at present. The stock is on the higher end of the valuation scale but we would not be surprised to see it touch all recent highs once again. It will be volatile. At present, we rank it as a HOLD.
