KeyStone’s Stock Talk Podcast Episode 153

This week, we have three YSOT segments for your listening pleasure. The first is on IBI Group Inc. (IBG:TSX), a global provider of a range of professional services, including architecture, engineering, planning, and technology solutions. With solid earnings growth and a strong backlog, a listener asks if IBI could be an acquisition target by one of the larger engineering companies such as WSP or Stantec. Our second YSOT came from a listener on CloudMD Software & Services Inc. (DOC:TSX-V). The company is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. CloudMD offers SaaS-based health technology solutions to medical clinics across Canada through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI). A listener asks if it offers value after the drop from its highs earlier in the year.  Finally, in the wake of the Big Canadian Bank earnings announced this week, Aaron answers a question on the National Bank of Canada (NA:TSX), which hit all-time highs this week touching above $100 a share after reporting solid quarterly numbers.

Great to do the show with Michael – Ryan was that last guest on the program in radio format – so, he was honored. It will continue as a weekly podcast!

We thought this week we could go over some of the topics we discussed on the general markets – next week we could even get into a couple of companies in coverage we mentioned on the show!


1) Investor Sentiment & Sectoral Shifts Continued to Show the Importance of Well Constructed Portfolio

Sentiment and sectoral shifts are always going to be part of the market. What works one year, may not necessarily work as well next year. Let’s look at some examples..For much of 2020, gold stocks performed well – heading into 2021 gold was a big theme – gold stocks have not performed well in 2021. Same with Cannabis stock – big moves at the end of 2020 and to start 2021, now correcting 30% since March. Now….1-3 years forward, those sentiments may be right, but if you had put all your money or a big part of your investment portfolio in just these two sectors, you would be down considerably.


Sentiment Shifts:

  • RISK ON TRADES  Canadian Small-Cap Portfolio Outperforms in 2020, up 88.22% –started tremendously in 2021, has pulled back since March – opportunities arising now…
  • On the FLIPSIDE of this…Canadian Income/Dividend Stocks Underperform in 2020 – outperforming in 2021 – Example: Aaron Dunn’s top-rated Canadian REIT at the 2021 Outlook, Boardwalk REIT (BEI.UN:TSX) at $34.50 is up 37% in 5-months. We see upside to $53+ from here.

HOW DO YOU ADDRESS THIS IN YOUR PORTFOLIO….we have long stressed the importance of constructing a focussed 15-25 stock portfolio – a mix between high-quality dividend growth stock, high growth undervalued and underfollowed small-caps, and US Growth and value stocks. The number of stocks is important. Holding 2-3 is too much company specific risk, holding 50+ stocks and you have bought the market, will pay too much in fees to do so and underperform. 15-25 stocks from a variety of sectors and segments – Canadian dividend & growth and U.S. growth & value gives you a great mix and the potential to beat the markets long-term.

Time horizon is also important – any investment we make is with a minimum 2-3 year period in mind. Holding for longer than 2-3 years is the goal.


2) Things we are watching in the market.

M&A Activity Picking-up – Companies Flush with Cash:

1) We expect it will pick up in the Canadian Small-Cap Space in 2021 and into 2022– we just had Photon Control (PHO: TSX) – a long-time recommendation of ours – recommended several times on here and at the Outlook – acquired for $3.60 – original recommendation $0.46 –  a 682% gain.  THE STOCK WAS IN THE $0.80 range just last year..bought for $3.60 less than a year later – great, cash-rich, cash-producing business. (**VOLATILE OVER TIME BUT THE VALUE WAS EVENTUALLY RECOGNIZED). WE THINK THERE IS MORE TO COME!

2) Financing activity has been high, debt is cheap, M&A will continue – to benefit, hold stock that offer value with strong balance sheets at reasonable prices. Larger players will discover it at some point – just like with Photon Control. It is actually quite simple. There has been a pullback in some names that we are looking at closely and will have some research on in the next month – names that could be M&A targets.

US Mid-Cap Tech Valuations Concerning:

We are watching some tech names closely. Valuations in the cohort are concerning. While we see concerns with big tech valuations, we continue to be very happy with our holdings in Alphabet (GOOG:NASDAQ)Microsoft (MSFT:NASDAQ), and Cybersecurity giant Fortinet (FTNT:NASDAQ) and continue to like all those names long-term. We have concerns with some of the lesser-known names with $5-$50 billion market caps that produce revenue growth, but zero cash flow and will be really vulnerable in a correction. While the 3 big-tech names above are not cheap, we maintain a buy on Alphabet for example which trades at just over 30 times earnings – earnings which will grow 55% this year. We are concerned with the valuations of some mid-cap lesser know names – avoiding most at this stage.

3 Underfollowed Small-Caps:

HealthTech related stocks were hot as heck earlier this year – anything to do with telehealth and the digitization of healthcare services surged, many getting ways ahead of their underlying fundamentals – there has been a pullback – which is an opportunity –  one basically unknown name (literally no analyst coverage) is…


IBI Group – IBG.(IBG:TSE)Tom Mercer (Client)

I would like to get your take on IBI Group – IBG.

I have a 40-year background in transportation engineering which is an area that IBI is well known for. I have been impressed by how they have developed a niche transportation business line that is being adopted by some prominent clients. With this in mind, I think that IBI could be an acquisition target by one of the larger engineering companies such as WSP or Stantec.

Like most, if not all, engineering consulting firms their financial performance can be lumpy, however, I believe that their future performance can be maintained at an above-average level.




IBI Group Inc. (IBG:TSX)

Price: $10.82

Market Cap: $338.602 Million

What Does IBI Group Do?

IBI is a global provider of a range of professional services, including architecture, engineering, planning, and technology solutions. It focuses on the physical development and ongoing management of urban environments. Its expertise is categorized into three practice areas: Infrastructure, Buildings, and Intelligence.

Q2 2021 Results:

  • Net revenue increased 13% to $113.2 million and was 4% higher than the preceding quarter with 7.6% organic growth.
  • Net income in Q2 2021 increased to $8.3 million ($0.22 per basic and diluted share 23% higher than Q2 2020.
  • 9% Adjusted EBITDA1margin
  • Net debt1to Adjusted EBITDA2 multiple of less than 1 times

2021 Guidance:

IBI increased its 2021 net revenue guidance to approximately $435mm (from ~$422mm), which implies 10.6% y/y growth. On a YTD basis, IBI has achieved net revenue growth of 13.0% y/y. T 


Q2/21 backlog was a record $604mm (+17% y/y) and net debt-to-TTM-adjusted EBITDA declined to 0.9x (vs. 1.1x in Q1/21).

As the listener points out, IBI’s quarterly numbers can be lumpy, but it trades at about 15 times next years earnings estimates and 13.5 times 2022 estimates – which is relatively reasonable. Estimates are for 11-12% revenue growth for 2021 and a modest 3% level of growth in 2022 – but this is not factoring in acquisitions which are a potential. Earnings in 2022 are expected to growth 17% which is solid – but not spectacular. We think IBI is a solid business and while we do not expect high growth – 30-50%+, with a strong backlog, the wind at its back in terms of potential infrastructure spending and a decent balance sheet it appears poise to offer above market levels of growth near and mid-term. It is an interesting, well run option and could potentially be a takeover target for a larger firm in the space.




Your Stock, Our Take

National Bank of Canada (NA: TSX)

Current Price: $100

Market Cap: $33.7 billion

What does the company do?

National Bank is the 6th largest bank in Canada. The company offers banking and financial services primarily in Quebec and Toronto.

Key Points:

National somewhat flies under the radar relative to the other big 6 Canadian banks which include Royal, TD, Scotiabank, BMO and CIBC. National is certainly less diversified that the other big 6 banks, all of which have operations throughout Canada and in some cases internationally.

However, in spite of flying under the radar, National has been the top performer in the group over the last 5 years. The banks have all released their fiscal Q2 results so now is a good time to do a review.

Recent Financial Performance

  • For fiscal Q3, National reported adjusted EPS of $2.39 which was an increase of 43% compared to the previous year. 9-month EPS was $6.84, an increase of 55%.

Banking Comparison 

Average (not incl NA)63%59%-19%2%



 Yield3Y Growth5Y Growth



Overall, bank fundamentals look strong. We see the banks more as long-term produces of dividends and dividend growth. The banks have not been growing the dividends during the pandemic but we expect dividend growth to resume once there is more visibility in the economy. We don’t necessarily see any near-term catalysts to bank share prices.

The top 2 banks based on diversification and size are undoubtedly Royal and TD. I would consider National to be a higher risk than these two, due to the geographic concentration but still fundamentally strong and relatively conservative investment.

Investors looking for a banking stock with some growth could consider National. Those looking more for income should take into account that National pays a lower yield than any of the big 6 banks.




CloudMD Software & Services Inc. (DOC:TSX-V)

Current Price: $1.79

Market Cap: $433.8 Million

What does the company do?

CloudMD Software & Services Inc. is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet, or desktop computer. The company offers SaaS-based health technology solutions to medical clinics across Canada through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI).

  • The last time I covered CloudMD was Q1 2020 when the stock was trading around $0.60. And at that time, I highlighted the company had great growth in revenue, but was trading at expensive multiples and still losing about $1M in adjusted EBITDA per quarter. But the stock performed well on the rev growth and COVID-19 telehealth hype, causing the stock to soar to $3.40

Key Points:

  • 232 million shares outstanding as of August 25, 2021, which has doubled since 115 million on August 31, 2020.
  • The company has made several equity raises and has acquired 14 companies in the last 12 months. Some of these recent acquisitions that closed were:
    • VisionPros – digital eyewear platform – for about 4.5x sales and 45x EBITDA.
    • Oncidium – A health management company that provides services – paid about 1.85x sales and 18x EBITDA.


So, let’s see if the growth has been accretive……

Recent Financial Results: (Q2, 2021)

  • Revenue was up 460%, to $15.7 million compared to the same quarter last year.
    • The increase is primarily due to acquisition growth along with about 9% sequential organic growth over Q1 2021.
  • Adjusted EBITDA was still a loss of $700 thousand compared to a loss of $1.3 million for Q2 last year. This looks like a good improvement over last year, but in Q4 & Q3 of 2019, Adj. EBITDA was close to breakeven.
  • Net Loss Per Share (EPS) was flat at $0.03.
  • Balance sheet – On June 30, 2021, it had net cash of $21 million. But this balance would have changed from this date after closing a few acquisitions – so I expect it now has a net debt position.
  • Outlook/Guidance – With its financial performance, combined with recently completed and announced acquisitions, CloudMD is on track to achieve annualized revenue run rate exceeding $140M and positive Adjusted EBITDA in the second half of 2021.
  • Price to Sales (forward run-rate) – 3x sales which isn’t cheap in my opinion considering the HUGE revenue base and just fractionally profitable. But it is more reasonable the 6x sales when I last covered the stock.


Our Take:

CloudMD has shown impressive revenue growth through acquisition, but along the way the company has really made little improvement toward profitability and has increased its share count by over 100 million shares compared to the same time last year. Now it’s not that a company cannot issue shares to grow accretively, but it is a much harder process to do so, so I am a little concerned about this. And considering the company has no profitability, we could likely assume this dilution to continue.

With CloudMD Trading at 3x forward sales, I would still argue the company is pricey despite its impressive revenue growth, as its bottom line really hasn’t had a huge improvement since the last time, I covered the stock. And I would also argue that the company has been paying pricey multiples for its acquisitions.

Now it’s a tough one – it’s a good story and its great to see management say the company should be adj. EBITDA positive in the second half of the year, but it will be interesting to see how large this adjusted EBITDA will be. All-in-all though, I would stay on the sidelines.



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