KeyStone’s Your Stock Our Take is Vigil Health Solutions Inc. (VGL:TSX-V), Our Star is TWC Enterprises Limited (TWC:TSX), & Our Dog is Roots Corporation (ROOT:TSX)
This week in our Your Stock, Our Take segment we look at Vigil Health Solutions Inc. (VGL:TSX-V), which provides a software and hardware platform solution to assist in the care of and monitor residents in senior living communities. Is it a BUY, SELL, or HOLD – we’ll tell you. Our Star of the week is TWC Enterprises Limited (TWC:TSX), Canada’s largest owner and operator of golf clubs. The stock jumped over 20% mid-week after it announced the sale of its rail and port operations based out of Skagway, Alaska, to Carnival Corporation for US$290 million. Finally, our Dog of the week is Roots Corporation (ROOT:TSX), the iconic Canadian retailer of apparel, leather goods, accessories, and footwear for men, women, and children. The stock dropped by as much as 12% on Wednesday after its Q1 2018 results came in lighter than expected. But the outlook for 2018 remains positive. Is it a Dog or an opportunity?
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Now, let’s dig into the show.
I welcome back my co-host, KeyStone’s VP and Senior Analyst, and a man so inspired by Washington Capital Alex Ovechkin’s post Stanley Cup celebrations, he has been doing “Keg Stands” in the office each time a KeyStone top pick has a big day. Welcome back Aaron.
The great thing is – you have been doing a great number of “Keg Stands” of late.
Your Stock, Our Take
Maria in Calgary – I have a true micro stock for you today. What is your take on Vigil Health Solutions?
Vigil Health Solutions Inc. (VGL:TSX-V)
Current Price: $0.60
Market Cap: $10.69 million
What does the company do?
Vigil Health Solutions Inc. develops and markets a technology platform combining software and hardware to provide solutions that guide care of and monitor residents in senior living communities. This includes a unique non-invasive monitoring system for residents with dementia, who do not equate pushing a button with getting help. Vigil is focused on selling to the North American senior housing market.
An aging population and a growing need for dementia care is expected to accelerate senior housing growth in the next two decades.
Recent Quarterly Financials:
Revenue similarly can fluctuate from quarter to quarter depending on the number of facilities commissioned.
Q3 revenue for the three-months ended December 31, 2017 increased 5% to $1.79 million from $1.70 million in the same period of 2016. Project revenue made up 64% of total revenue; the remaining revenue came from follow on sales to existing customers. These sales include service and maintenance billings and replacement products including wireless devices and communication equipment. The gross margin percentage was 52% for the three months ended December 31, 2016 and 2017. Operating expenditures were $717,000 compared to $652,000 for the three months ended December 31, 2016. The majority of the increase was research and development contracting costs followed by increased staffing and stock option expense.
Earnings before income taxes was down to $210,000 compared to $279,000 for the three months ended December 31, 2016. The decline in earnings reflected higher research and development expenses and a $42,000 drop in foreign exchange gain. Net earnings and comprehensive earnings were $141,000 or $0.008 per share compared to $260,000 or $0.015 per share.
First off, the stock is a true micro-cap and would only be a consideration for high risk investors who have an appetite for more volatile thinly traded stocks.
Valuations: The stock has suffered greatly over the past year and is now off over 50% from its highs. Despite this drop, Vigil continues to trade at 25 times its earnings over the last 12-months. This remains a premium multiple.
Coming out of Q3 fiscal 2018, management stated that they were pleased to post three consecutive quarters of record bookings which is a positive indication for future quarters’ revenues.
The company’s growing bookings over the course of the past three-quarters will lead to new sales alone powering Vigil to revenue in line with last fiscal’s record revenue.
This is a positive, but will still produce a year of basically zero revenue growth.
The increased bookings over the course of the past three-quarters is a positive sign for a more positive Q4. We monitor the stock as it has long-term potential but are not buyers at present.
TWC Enterprises Limited (TWC:TSX)
Current Price: $12.81
TWC is engaged in golf club operations under the trademark “ClubLink One Membership More Gold”. TWC is Canada’s largest owner and operator of golf clubs with 53.5 18-hole equivalent championship and 3.5 18-hole equivalent academy courses at 41 locations in Ontario, Quebec, and Florida
TWC is also engaged in rail and port operations based in Skagway, Alaska, which operate under the trade name “White Pass & Yukon Route”.
The stock was trading for $11.00 on June 6th and is trading for $13.25 a 20.5% gain. On June 7th, the stock traded for as high as $14.00, marking a 27.3% increase in 26 hours before stabilizing around $13.25 on June 8th.
Chart for last 12 months
Chart for last 5 years
Driving the Stock
On June 6th, TWC announced it had entered into a purchase and sale agreement to sell the “White Pass & Yukon Route” rail and port operations based out of Skagway, Alaska, to Carnival Corporation for $290 million USD (or between $210 million and $220 million after deducting debt and other liabilities).
Earnings/Growth (Q1 2018 compared to Q1 2017)
– Revenue was $23.54 million compared to $24.35 million, down 3%.
– Net loss of $7.3 million compared to net loss of $3.49 million
– Adjusted net loss of $10.08 million compared to adjusted net loss of $9.2 million.
– Adjusted EBITDA of $575,000 compared to $1,380,000, down 58%
The sale is a huge cash injection for the business – however, there is $288 million in debt already. It will likely leave the company with limited net debt. The business itself lost over $11 million before income taxes in 2017 with negative topline growth.
The sale is a nice boost near-term, but with its core business golf generally facing negative growth in North America for almost a decade, we do not see a great long-term fit for the company as an investment. It is a new day for the company with an unlevered balance sheet – we will monitor management’s plans moving forward.
Dog of the Week
Roots Corporation (ROOT:TSX)
Recent Price: $11.30
Roots Corp provides a portfolio of apparel, leather goods, accessories, and footwear for men, women, and children. Its merchandise includes genuine leather, such as jackets, bags, and luggage; kids clothing; and leather, linens, and accessories.
One month ago, the stock was trading for $13.50 and closed the week in the $11.30 range, down 16%.
The stock dropped by as much as 12% on Wednesday after its Q1 2018 results came in lighter than expected. Revenues were $51 million with an adjusted net loss of $0.11 per share. Analysts had expected an adjusted net loss of $0.09 per share and $54.1 million of revenues.
Explanation of earnings miss: Roots faced a major ice storm across approximately 80% of its store network in mid-April.
Chart Since November 2017
Were the results really that bad?
Earnings Growth (Q1 2018 compared to Q1 2017)
- Positive: Revenue was $51.0 million compared to $48.2 million, up 5.8%
- Positive: Same-store sales, a key industry metric, increased 6.4 per cent over the same quarter of its last fiscal year, nearly double the 3.3 per cent rate in the first quarter of 2017.
- Negative: Adjusted EBITDA was a loss of -$3.1 million compared to a loss of -$1.7 million in Q1 2017 – a significant increase.
Mixed bag – some positives, some negatives. The share price drop seems to be based largely on the expectation that Q1 2018 would be stronger coming off a very strong Q4 2017 for the company.
Retail can be fickle and lumpy at the best of times and these are not the best of times for Bricks and Mortar retail.
Roots said it remains confident about achieving its full-year target of between $35 million and $40 million of adjusted net income and between $410 million and $450 million of sales for fiscal 2019.
- Trades at about 30 times trailing reported earnings.
- Projecting $38 million in “adjusted earnings” – 12-13 times adjusted earnings – relatively reasonable.
The company still must deliver on these numbers, but the growth for Roots has actually been relatively strong over the past 3-years. Generally, we are not big fans of retail and we are cautious regarding Canadian retailers expanding in the US as Roots continues along that path.
If it hits its earnings targets in 2018, shares may recover. But the 16% plus drop in the past month, makes it our Dog of the Week.