Stock Talk Podcast Episode 152 Show Notes

KeyStone’s Stock Talk Podcast Episode 152

This week, we’ve got the band back together and are looking at listener questions on no less than 4 interesting stocks.  We have three YSOT segments for your listening pleasure. The first is on Lightspeed Commerce Inc. (LSPD:TSX), a point-of-sale (POS) platform solutions provider for SMEs in the retail and restaurant industries. Lightspeed provides an end-to-end solution that integrates front-end software, back-end software, and payments. A listener asks if Lightspeed could be the next Shopify. Our second YSOT came from a listener asking us to compare two renewable stocks; Greenlane Renewables Inc. (GRN:TSX) and Northland Power Inc. (NPI:TSX). Northland is global power producer dedicated with a long history of developing, building, owning and operating clean and green power infrastructure assets and is a global leader in offshore wind. Whereas, Greenlane is a smaller niche company which provides biogas upgrading systems that are helping decarbonize natural gas. Aaron takes a look at each business and their value propositions at current prices. Finally, Brennan answers a question on Nova Leap Health Corp. (NLH:TSX-V), which provides in-home personal care services largely to seniors impacted by physical/mental issues that prevent fully independent living. Specifically, NLH focuses on non-medical and private pay “home care” services with most clients being seniors suffering from dementia. A listener asks us if recent acquisition will provide a runway for growth for Nova Leap.

Just a quick announcement – I will be a guest on Money Talks with Michael Campbell this weekend – I will talk the markets and recommend a couple of companies from our coverage universe – which companies – well, you will have to listen in to find out. That is called a teaser my friends. That’s how us professional Podcasting types do it.

YSOT #1

 Lightspeed Commerce Inc. (LSPD:TSX)

Price: $117.88

Market Cap: $16.80 Billion

What Does Lightspeed Do?

Founded in Montréal, Canada in 2005, Lightspeed is dual-listed on the New York Stock Exchange and Toronto Stock Exchange. The company is a point-of-sale (POS) platform solutions provider for SMEs in the retail and restaurant industries. Lightspeed provides an end-to-end solution that integrates front-end software, back-end software, and payments.

Recent News:

August 11^th – LIGHTSPEED ANNOUNCES CLOSING OF US$716.1 MILLION PUBLIC OFFERING.

The Company currently expects that the net proceeds of the offering will be used primarily to allow it to pursue its growth strategies. Organic and acquisition driven. There was already $603.7 million in cash with limited debt, so the company is definitely cashed up.

Fiscal 2022 Q1 Results: Great Growth.

• Total revenue of $115.9 million, an increase of 220%
• Recurring subscription revenue of $49.9 million, an increase of 115%
• Transaction-based revenue of $56.5 million, an increase of 453
• Net Loss of ($49.3) million higher than the net loss of ($20.1) million in the same period last year. After adjusting for certain non-cash and non-recurring items such as acquisition-related costs and stock based compensation, Adjusted Net Loss1 was ($6.9) million, (BETTER) or ($0.05) per share1, an improvement to (6.0%) of revenue from (7.5%).
• Adjusted EBITDA loss of ($6.0) million.

Fiscal 2022 Guidance:

Revenue of $510 – $530 million. (excellent growth from last year at $221 million)

Adjusted EBITDA loss of approximately ($35) million, or approximately (7)% as a percentage of revenue.

Valuations:

Hard to value from our perspective as the company has no historical earnings and is not expecting earnings even on an adjusted basis this year or next (according to estimates). But the market loves the stock given the growth and prospects of future profitability.

So analysts are valuing the company on sales. Currently, the EV to Sales is in the range of 55 times trailing and 23 times next year’s expected sales. That is a rich multiple.

Management has provided a ~20% EBITDA margin target long-term. If you compare that to other SaaS businesses or even Shopify for example, which generated EBITDA margins of ~22% in that last quarter, the target in not completely out of the realm of possibility. But the company remains in the negative EBITDA margin category at present and the journey from negative EBITDA margins to 20% positive is not as easy as just setting the goal – particularly in a growth-by-acquisition story that has not produced a diem of cash flow. Now they likely could produce cash flow if they slowed growth, but they are being rewarded for growth, so that is not likely a smart proposition in present market conditions. The question is what happens to the stock if the market beings to focus more on cash flow?

Conclusion:

The revenue growth Lightspeed has produced, largely from acquisitions, has certainly been impressive as has the valuation the market has placed on the stock.

The consensus from Lightspeed Commerce’s 15 analysts is for revenues of US$527m in 2022 which – if met – would reflect a major 75% increase on its sales over the past 12 months. Again, this is great growth.

However, even if management was at its long-term target of 20% EBITDA margins the stock would be trading at over 150 times EV/EBITDA. That is a great deal of optimism priced into the stock.

The growth and vision looks good, but our minimum criteria is positive cash flow and while Lightspeed show great promise, it is not their yet and with a market cap of around $17 Billion Canadian, we need to see some cash flow before we jump in.

Smart to raise capital at present – self fulfilling. Really like to see what the organic growth rate is.

YSOT #2 

Question Via Youtube:

What’s your take comparing Northland power vs Greenlane Renewables Inc which has a better future growth?

Northland Power Inc. (NPI: TSX)
Price: $40.70
Market Cap: $9.2 billion
Yield: 2.9%

Northland Power is a global power producer. Founded in 1987, Northland has a long history of developing, building, owning and operating clean and green power infrastructure assets and is a global leader in offshore wind. Northland owns or has an economic interest in 3.2 GW (net 2.8 GW) of operating generating capacity and a significant inventory of early to mid-stage development opportunities encompassing approximately 4 to 5 GW of potential capacity. Northland’s share price is down about 20% from its highs in February.

Greenlane Renewables (GRN: TSX)
Price: $1.60
Market Cap: $237 million
Yield: 0%

Greenlane Renewables is a provider of biogas upgrading systems that are helping decarbonize natural gas. With over 30 years industry experience, patented proprietary technology, and over 125 biogas upgrading systems sold into 19 countries worldwide. Greenland became a publicly traded company in November of 2018. Greenlane’s share price has sold off from its highs in February of this year; down about 40%.

Conclusion:

Northland and Greenlane are two very different companies and aside from both operating in the renewables space, they really are not directly comparable.

Northland is obviously the much more established company. It has a history of very aggressive development of new projects. This results in fluctuations in profitability. Over time the cash flow per share does tend to increase and the dividend should be sustainable. The debt leverage is on the high end but Northland produces revenue and cash flow based on long-term contracts so they a high level of visibility with respect to future financial performance.

Greenlane is much more speculative and development stage. Its not profitable and or cash flow positive. This would mean that it would not pass KeyStone’s investment criteria which requires profitability from current operations. The balance sheet is very strong with net cash and the revenue growth is impressive. This isn’t something that KeyStone would ever recommend but someone looking for a speculative growth stock in the renewables space could give it a more in-depth look.

Visibility would be far less from Greenlane.

YSOT #3

Your Stock Our Take

Came in from Thomas, one of our Canadian Small-Cap clients. And he wanted us to compare Nova Leap to the Healthcare company that I have been touting on the podcast for the last few weeks. (Which I am not going to say the name of). 

——————– 

Nova Leap Health (NLH:TSX-V)

Current Price: $0.74

Market Cap: $58.6 million

What does the company do?

Nova Leap is a home health care services company operating in the U.S. & Canada. The company performs a vital role within the continuum of care with an individual and family centered focus, particularly those requiring dementia care. The company’s service offerings include meal preparation, housekeeping, transportation, personal care, and medication reminders. 

Key Points:

• Mid Q2 the company closed a CAD$5.5 million private placement.
• On August 3rd, 2021, Nova acquired a New England Home Care Business for total consideration of $660K. The Target reported unaudited revenues of approximately $1.697 million, and EBITDA of approximately $155,000 for the year ended September 30, 2019. (4.25x trailing EBITDA).
• On August 4^th, 2021, Nova acquired Home Care Business in Oklahoma for total consideration if $1.1 million. The Target reported unaudited revenues of approximately $2.3 million for the 2020 calendar year. (No EBITDA but 0.5x sales)
• Management said that one area of disappointment was an additional goodwill impairment of $600K. We do have one business unit that has not met our expectations. While acquiring turnaround situations is inherently difficult, and while certain progress has been made, we felt that the time it will take to achieve our expected results warranted an impairment at this time. (Shows that not all acquisitions have been exactly successful – may have overpaid for the business).

Recent Financial Results (Q2, 2021) – All in USD

• Revenue increased 28% to US$5.1 million compared to the same period last year.
• Adjusted Net Income for the Quarter was a loss of US($243K) compared to a loss of US($72K) for the same period last year.
• Q2 Adjusted EBITDA declined 70% to US$43K from US$160K for the same period last year.
• Balance sheet – Including the recent forced conversion of some convertible debt, I have the company with a net cash position of approximately US$2.8 million. 

• Now lets get into the valuations here:
  • Trailing Adjusted EBITDA for the business was approximately US$88K. So if we consider similar EBITDA margins for the Oklahoma acquisition and add in US$155K EBITDA from the New England business, Nova Leap’s consolidated trailing results should come in at approximately US$404,000.
• With a enterprise value of approximately US$44 million and my trailing EBITDA estimates above (which includes the recent two acquisitions) I come to a trailing EV/EBITDA multiple of over 100x.
• Now I do want to note that in 2019 the company did $907K in

EBITDA and in 2020 it did $462K. But we have sort of seen the company jump up into profitability and now dip back below profitability… or at least have seen it come back to where it is just marginally profitable. To give the company the benefit of the doubt, if we projected that the company could return to its high-water market of $900K in annual EBITDA along with the additional EBITDA from its recent acquisitions, we would still be at an EV/EBITDA multiple of approximately 30x. SO I PERSONALLY BELIEVE THE COMPANY IS MORE ON THE EXPENSIVE SIDE OF THINGS RIGHT NOW.

• And to put this into perspective – I am not going to say its name for clients sake – but the healthcare company that I like is growing at similar if not better rates and is trading at about 14x 2021 EBITDA.

Conclusion:

To conclude, I like Nova. It operates in a great sector, has a net-cash position, is breaking into profitability, and making acquisitions at accretive multiples – despite management indicating that they had overpaid impaired of one of their investments (which isn’t a great sign). But right now what really pushes me away from the business is its current valuation of around 30x its potential run-rate as a business. Personally, I believe there is better bang for the buck opportunities in the small-cap healthcare sector in Canada, which of course I have been touting time and time again on the podcast.