We’re back, starting this week’s episode with a discussion on Interest Rate hikes, the War in Ukraine and more. In our Your Stock, Out Take segment, Aaron answers a listener question on EPAM Systems Inc. (EPAM:NASDAQ), which provides digital platform engineering and software development services to companies around the globe. The high growth software business has been significantly impacted near-term by the conflict in Ukraine – we give some details on what and how to proceed. Ryan will answer a listener question on C-COM Satellite Systems Inc. (CMI:TSX-V) which develops and deploys commercial grade mobile auto-deploying satellite-based technology for the delivery of two-way high-speed Internet, VoIP and Video services into vehicles. He provides his current thoughts on this cash rich, micro-cap which pays a 2.3% dividend – the listener wants to know if there is value once again? Just before we went live with this show, a client asked for our take on SnowFlake (SNOW:NASDAQ), which sells data analytics and management tools that run on cloud computing platforms such as Amazon Web Services – I will give you my quick thoughts. Finally, Brennan answers a listener question on Lucara Diamond Corp. (LUC:TSX), an independent producer of large exceptional quality diamonds from its Karowe Mine in Botswana. Does this profitable diamond producer offer value – he will let you know.

Welcome to my co-hosts, Brennan & Aaron.

Just before we went live with this show, a client asked for our take on SnowFlake (SNOW:NASDAQ), which sells data analytics and management tools that run on cloud computing platforms such as Amazon Web Services. For context, Snowflake pulled off the largest initial public offering ever by a software company in September 2020. The Snowflake IPO raised $3.4 billion.

Snowflake stock had retreated 22% in 2022 heading into the earnings report. The stock dropped another 18% today on the quarterly report.

While SNOW stock offers stellar revenue growth, it trades at a high multiple despite a recent correction in software stocks. That was again on display in its latest quarter – strong revenue growth, and losses narrowed but were still present.

“Snowflake’s growth at scale bests every other software company in history, but given the multiple, expectations are understandably very high,” said Deutsche Bank analyst Brad Zelnick in a report.

  1. “If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer. Very few people have enough brains to get 20 good investments.” (Munger was cautioning against portfolio diversification.)

I’m not sure if you have some things you want to discuss on the podcast. If not, here are a couple of thoughts.

War in Eastern Europe

  • Why hasn’t this had a greater impact on the market?
  • What will be the impact to global economic growth?
  • Should I hold off investing capital until there is more certainty?

Military conflicts have not been a major factor in market movements for decades. Since the fall of the Soviet Union, investors have enjoyed decades of global economic stability in which military conflicts and foreign diplomacy played a diminished role in the movements of markets.

But Russia’s invasion of Ukraine has put global relations back on investors’ minds. War in Ukraine Has Investors Thinking About a Second Cold War

There has been more global geopolitical tension now for the last several years — frictions between China and the rest of the world, China and the U.S. in particular, are not going away.


  • Russia is the third largest producer of oil – energy prices have surged.
  • The United States and its European allies said they would freeze any Russian Central Bank assets held by U.S. financial institutions, making it harder for the central bank to support the ruble. Fresh sanctions have essentially barred some Russian banks from international transactions.
  • The British oil giant BP said it would “exit” its almost 20 percent stake in Rosneft, the Russian state-controlled oil company, which was valued at $14 billion last year. And Norway’s sovereign wealth fund, the world’s largest, said it would divest itself of its Russian investments.

We might be in for a protracted battle of sanctions and soft-power diplomacy. And we could see cascading risks of further military action.

Tensions have been escalating between the United States and China, its largest trading partner in goods. Russia’s attack on Ukraine and the moves to isolate it could push Russia even closer to China.

China’s relationship with Taiwan –  self-governed island that is claimed by Beijing.

Taiwan plays a crucial role in the global supply chain for semiconductor chips that power things as diverse as iPhones and cars, and it is an important trading partner with the United States, which imports billions of dollars in electrical machinery from the island.


After analyzing the performance of the S&P 500 since 1945, UBS Global Wealth Management found that markets usually fell during the first week of key military conflicts. But in 14 of 18 cases, they rose within three months.

Bank of Canada Raises Interest Rates 25 Basis Points to 0.5%

  • How high do you expect rates to go?
  • Will this impact global economic growth / inflation?
  • Should I still purchase dividend stocks if inflation is rising?

The Bank of Canada said in a monetary policy report accompanying its January rate announcement that while it expected inflation to remain around the five per cent mark through the first half of the year, it forecast pressure would ease and annual inflation could drop to around three per cent by the end of 2022.

Where does the bank go from here?

One step up is not the last movement the Bank of Canada is likely to make this year. The governing council wrote Wednesday that “interest rates will need to rise further” amid an expanding economy and rising inflation.

CIBC chief economist Avery Shenfeld also said in a note Wednesday morning that the rate hike is the bank’s first step towards “taking some steam out of the economy.”

He projects three further rate hike increases of 25 basis points in the bank’s subsequent announcements before a “pause” at 1.25 per cent for the remainder of 2022.

In a note, BMO’s managing director of Canadian rates Benjamin Reitzes also forecast another 25 bps hike in six weeks.

The Bank of Canada’s next interest rate decision is set for April 13.

Oil Trading at US$110

  • How will higher energy prices impact global economic growth and inflation?
  • What percentage of an investor’s portfolio should be in energy?


Your Stock Our Take

C-COM Satellite Systems Inc. (CMI:TSX-V)

Price: $2.14

Market Cap: $86.64 Million.

Portfolio: MONITOR



Company Description:

C-COM Satellite Systems Inc. is a leader in the development and deployment of commercial grade mobile auto-deploying satellite based technology for the delivery of two-way high-speed Internet, VoIP and Video services into vehicles. C-COM has developed a unique proprietary Mobile auto-deploying (iNetVu) antenna that allows the delivery of high-speed satellite-based Internet services into vehicles while stationary virtually anywhere where one can drive. The iNetVu Mobile antenna has also been adapted to be deployable from transportable platforms. The Company’s satellite-based products and services deliver high-quality, cost-effective solutions for both fixed and mobile applications throughout the world.


C-Com’s revenues dropped 42.9% to $1.01 million from $1.77 million in its third quarter of FY2022. Revenues for the nine-month period rose 61.1% to $6.57 million from $4.08 million in in the same period of the prior year. The company posted a net loss after taxes of $157,711 or 0 cents per share. Year-to date net income for fiscal 2021 stands at $1.1 million, as compared to a net loss of $0.4 million for the same year-to-date period last year.

Growth Contract Update

On January 11, 2022, C-com announced today that it has received orders in excess of US$3 million for its iNetVu antenna systems from various customers in the US, Europe and Asia. The systems have been purchased by reseller partners, in multiple countries, and will be deployed by commercial customers in the Telecom and Energy markets for cellular backhaul, disaster management and oil & gas exploration, respectively. Management stated that, “While the worldwide pandemic has dramatically slowed down sales into many regions in 2021, it now appears that business for C-COM in 2022 is rebounding at a fast pace from around the world.”

Most of these orders have already shipped in December and January and others are expected to be delivered before the end of C-Com’s second quarter ending May 31, 2022.


2021’s gain in year-to-date profitability has led to a 5.6% increase in the company’s working capital. The Q3 2021 working capital of $23.72 million compares to $22.47 million in working capital as at November 30, 2020. C-Com continues to have a strong balance sheet with cash and cash equivalents of $16.5 million and no debt. 


After removing the roughly $0.39 per share in cash on hand, C-Com trades at over 50 times trailing earnings. We recognize that the COVID related slowdown has depressed revenues near-term and it is likely that revenues and earnings pick up over the next 12-24 months, but at present, C-Com trades at high valuations.


C-com is a solid business which continues to pay a solid dividend (at time from cash on hand) while continuing to innovate and invest in the next generation of advanced antenna products. The business owns a number of strong patents and in normalized periods can generate lumpy but solid cash flow. We expect quarterly numbers to continue to be highly volatile, but for results overall in FY2022 to show growth and be more profitable than FY2021. After removing the roughly $0.39 per share in cash on hand, C-Com trades at ~60 times trailing earnings. We recognize that the COVID related slowdown has depressed revenues near-term and it is likely that revenues and earnings pick up over the next 12-24 months, but at present, C-Com trades at high valuations. We continue to MONITOR the business for potential entry points, but the C-Com remains pricy on a trailing basis given the lumpy nature of its quarterly results. We do see C-Com as a takeover target at some point, but do not recommend purchasing based on this as it is not guaranteed and could occur in 1 or 10 years.


EPAM Systems (EPAM)


What Does the Company Do?

EPAM Systems is what we would refer to as a ‘digitalization company’. The company provides software engineering services to enterprise clients and government organizations which to implement advanced technologies like A.I. and automation. Essentially EPAM helps its clients adapt to a digitalized world and become more efficient and competitive.

Our Take

EPAM is a company that is very much involved in what’s happening in Ukraine right now. Ukraine is in fact the home to a large percentage of the company’s employees and about 50% of its productive capacity was coming out of that region.

The reason I am talking about the company today is because we do have a history of coverage on the company and many KeyStone clients continue to own a position. I have loved the digitalization theme for many years and EPAM was one of those companies that provided absolutely critical services to help businesses and society adapt to the pandemic.

Our initial coverage on the company goes back to November 2018 when we recommended the stock at about $123. It’s a fantastic story, providing critical services in a high growth market and producing substantial cash flow. We put a HOLD on the company around May of 2020 due partly to uncertainties caused by the pandemic, which included uncertainties in management’s own outlook, but also due to the fact that the valuation was much more expensive as the stock had almost doubled since our original recommendation, trading at over $210 per share.

Well even EPAM underestimated the need for its services during the pandemic. Growth only accelerated and at its peak it hit a price of $720 back in November of last year. EPAM was a situation where we continued to love the business but the valuation had hit very frothy levels. At its peak, it was trading at about 80 times earnings. Of course, revenue and earnings were growing at 50% but even for EPAM we thought that this level of growth was probably unsustainable. We had put out a note at the end of 2020 instructing holders of the stock that this was a situation where if they had doubled or tripled their original investment then they could consider taking partial profits, such as selling a half position, just to rebalance the stock their portfolios and lock in some gains.

But I always loved the stock so I kept a close eye on the company as it pulled back with the tech sector since November. As of 2 weeks ago, the stock was down 35% from its highs and the valuation was starting to look more attractive. Shortly afterwards, EPAM came out with its Q4 results. The numbers looked very good and guidance for 2022 continued to be strong with revenue expected to increase about 35% and earnings per share about 25%. Management did discuss the risks of war between Ukraine and Russia but at the time, most people, including myself, thought that the fighting would be mostly confined to specific regions of Ukraine. Few people were expecting the all-out war that Russia has waged against Ukraine.


My original thoughts after the Q4 results were to wait. I did feel that at the $350 to $400 level, the stock would look attractive on a valuation basis. However, as I said, I was not expecting to see this all-out war in Ukraine. Since the invasion started, the stock price has understandably dropped substantially. It took a 45% hit on Monday, with a small amount of recovery since, and is currently trading at $220. The company also understandably withdrew its guidance for the year.

I’ve received a lot of emails and questions about whether or not EPAM offers good value at the current price. My answer right now is that there is a huge amount of uncertainty. Nobody knows how this crisis in Ukraine is going to evolve over the coming weeks. The company stated that they had a plan to move staff to safer areas. However, I would suspect that many of EPAM’s Ukrainian staff are understandably not going to want to focus on the company’s projects. Many are undoubtably participating in the defense effort in some form.

For now, we would just continue to maintain our HOLD rating on the stock.


Your Stock Our Take


Lucara Diamond Corp. (LUC:TSX)

Current Price: $0.68

Market Cap: $317 Million

What does the company do?

Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Mine in Botswana and owns a 100% interest in Clara Diamond Solutions, a secure, digital sales platform positioned to modernize the existing diamond supply chain and ensure diamond provenance from mine to finger.

Key Points:

  • In the fall of 2019, right before the outbreak of the COVID-19 pandemic, Lucara suspended its regular dividend with the announcement of a positive feasibility study for the development of an underground mine at Karowe.
  • The Karowe underground expansion project (UGP) will extend the mine life to at least 2040. The company’s Board of Directors formally approved the UGP, which has a $534 million capital cost and a five-year construction period. Mine ramp up is expected in 2026.
    • Funding with $220 million senior secured project debt facility.
    • Two equity financings were closed that generated net proceeds of $31.3 million from the sale of 55 million common shares at a price of C$0.75 per share.
  • Diamond price recovery began in the fourth quarter of 2020 and had largely improved to pre-pandemic levels by the end of 2021, owing to strengthening diamond jewelry demand against a backdrop of declining global supply.
  • The diamond market is very dynamic and has changed drastically over the last decade:
    • We are seeing lab created diamonds enter the market and grow at a significant pace (now lab created compositionally same as a mined diamond, and cheaper)
    • Rough Diamond supply is at a multi-decade low because of mine closures (Like Rio Tinto’s Argyle mine) and supply is anticipated to remain relatively low through 2027 as there are very few new diamond mines anticipated to come online through this decade.

Recent Financial Results: (Q4, 2021)

  • Revenue was $57.9 million an increase of 37% over the previous year.
    • Average price per carat sold increased to $560/carat, a 39% increase over the previous year.
  • Net income was $1.7 million, compared to a loss of $(3.9)M in Q4 2020.
  • Fiscal 2021 Adjusted EBITDA was $102.5 million.
  • Balance sheet – Cash was $27.0 million; Debt was $46.7 million.
  • Valuation basis – Trailing EV/EBITDA multiple of just 2.5 times.
  • Company provided 2022 revenue guidance of $195 to $225 million which is a slight decrease from (actual 2021 of $230.1 million).

Our Take:

Lucara and the current state of the diamond industry is fascinating to me.

First on the diamond industry. Demand is strong coming out of the pandemic due to pent up demand and consumers desire for diamond jewelry. And on the supply side we are seeing cheaper lab created diamonds – which are a perfect substitute to mined diamonds – begin to grab market share. All while mined rough diamond supply is expected to plateau through the end of this decade due to limited new diamond mines coming online.

Now with Lucara on the other hand, the company trades with extremely low valuations and has a path to growth ahead of it with its underground expansion project (UGP) which will extend the mine life to at least 2040 and is anticipated to come online in 2026.

Though the company does have work ahead of it to fund the $500 million capex of the underground project, and will likely have margins reduced in the mid-to-near term because of this expansion. Considering both the demand for diamonds, and the dwindling supply of real mined diamonds, I think that there could be a case to be made that the stock offers value in its current range. It is however a higher risk stock, the diamond industry is changing with lab-created diamonds, but it is my opinion that mined diamonds will remain a significant part of the industry through the end of this century (especially large high-quality stones such as produced at Karowe).

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