KeyStone’s Your Stock Our Take Mogo Finance Technology Inc. (MOGO:TSX) Our Star is Canopy Growth Corporation (WEED:TSX), & Our Dog is AutoCanada Inc. (ACQ:TSX).
This week in our Your Stock, Our Take segment we look at Mogo Finance Technology Inc. (MOGO:TSX), an independent consumer fintech small-cap that boasts a suite of innovative financial products providing solutions to help manage and improve financial health. After a solid Q2 a listener asks us if the turnaround is on and whether it is a BUY, SELL, or HOLD. Our Star of the week is Canopy Growth Corporation (WEED:TSX), a diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. The stock jumped 30% Wednesday morning following the announcement that beverage giant Constellation Brands (STZ:NYSE) returned to invest another $4 billion in the marijuana giant, bringing its total stake from 9.9% to 38%. Finally, our Dog of the week is AutoCanada Inc. (ACQ:TSX) – engaged in the operation of franchised automobile dealerships. The stock dropped 20% late last week after announcing weaker-than-expected Q2 results. Year-to-date, the stock has dropped 49%. 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, Aaron Dunn.
Your Stock, Our Take
MOGO has made what appears to be a share price turnaround. Last quarter looked good – what do you think?
- Jonezy via Twitter.
Current Price: $4.96
Market Cap: $113.7 million
What does the company do?
Mogo Finance Technology offers consumer fintech platforms boasting a suite of innovative financial products providing solutions to help manage and improve financial health. The business is built mobile first, users get access to six products including free credit score monitoring, identity fraud protection, digital spending account with Platinum Prepaid Visa Card, digital mortgage experience, the MogoCrypto account, and access to smart consumer credit products through MogoMoney. The company lists more than 650,000 members and growing – although fewer are paid users.
Key Points:
The stock is up over 30% from $3.81 in the last month. Over the last year, it has been quite volatile, trading for $3.71 in October, reaching a high of $8.00 in December, dropping back down to $4.62 by February, and then reaching as low as $2.95 in May.
Recent Quarterly Financials:
- Revenue for the quarter ended June 30, 2018 was $15.4 million, an increase of 34% over the prior year period.
- Net Loss grew to $6.1 million in the second quarter of 2018, compared to $5.3 million in the second quarter of 2017.
- Adjusted EBITDA was $734,000 in the second quarter of 2018, compared to $207,000 in the second quarter of 2017, up 255%.
This represents the eighth consecutive quarter of positive adjusted EBITDA.
Perhaps most importantly, core revenue grows 64%, excludes loan fees related to the company’s legacy short-term loan product, year over year. Subscription & Services revenue grows 105% year over year and represents 50% of core revenue.
Metric to Look at: Member Growth Rate
6-months 2018: added approximately 110,000 net members YTD – compared to 91,000 net members same period 2017. 21% increase.
Total Member Base: grown 49% from 439,000 members as at June 30, 2017 to 654,000 members as at June 30, 2018. The continuous increase in our member base reflects increased brand awareness through the company’s Postmedia marketing collaboration agreement and continuing adoption of the company’s new and existing products.
Our Take:
Earnings: Negative in every quarter
P/EBITDA: 33.44x
Fundamental Valuation Difficult
Mogo trades at approximately 2x analysts estimate of core 2019 net sales vs. the FinTech segments average of approximately 5.4x. As fundamental analysts were are loathe to use a sales multiple such as this as is does not factor in cash flow which is the ultimate weighing mechanism for equities. When in Rome however, on this basis MOGO may look undervalued.
Finally, it was announced today, Mogo’s suite of products is available in Nova Scotia and the Company’s MogoMortgage solution is now available to consumers in Manitoba, New Brunswick, Prince Edward Island and Newfoundland. With this expansion, Mogo’s full product suite is now available in eight provinces and accessible to more than twenty million Canadians. Consumers can access all of the Company’s products through the convenience of one digital account and mobile app.
Larger market opportunity is a long-term positive – MOGO is likely a long-term takeover target.
Weekly Star
Canopy Growth Corporation (WEED:TSX)
Current Price: $42.20
Market Cap: $9.31 billion
Star Performance:
The stock jumped 30% Wednesday morning to its current $42.20. Highest price the stock has seen since mid-June, when it peaked $47.76 before quickly coming back down.
What does the company do?
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. Canopy Growth operates ten cannabis production sites with over 2.4 million square feet of production capacity. The company has operations in nine countries across five continents.
What is driving the stock?
This week, Alcohol giant Constellation Brands (NYSE:STZ) returned to invest another $4 billion in the marijuana giant, bringing its total stake from 9.9% to 38%. The overwhelmingly positive news caused the broader basket of pot stocks to surge by double-digit percentage points with Aphria and Aurora Cannabis stock flying 20.5% and 19.5%, respectively.
Canopy also released its financials after-hours on the 14th.
Financial Results
2018 Q1 compared to 2017 Q1
- Revenue was $25.9 million compared to $15.9 million, up 63%.
- Adjusted Gross Margin was $11.1 million compared to $8.7 million, up 27%
- Net loss was $91.0 million compared to $9.2 million
- On a diluted per share basis, a loss of $0.40 compared to a loss of $0.06
- Adjusted EBITDA was a loss of $22.5 million compared to a loss of $3.9 million.
From a revenue perspective, the growth was great – the continued losses are expected. Having said this, the current financials are not the story, until we see legalization and the resulting sales this Fall.
Conclusion:
Current Ratio: 6.84
Cash Ratio: 5.04
Net Cash: $37.6 million
D/E: 0.51 (not including recent large investment from Constellation Brands)
Canopy Growth’s revenue growth and adjusted gross margin shows very impressive growth. With the upcoming legalization of recreational cannabis, these growth numbers can be expected to become even larger in the coming quarters.
While Canopy Growth’s production capacity is best-in-class, it is difficult to predict whether it will be able to keep its expenses down enough to have its large revenue growths turn into profits. Investors liked its growth numbers, its investment partner and outlook, however, which makes Canopy Growth our Star of the Week!
AutoCanada Inc. (ACQ:TSX)
Current Price: $11.67
Market Cap: $320.3 million
Dog Performance:
Late last week, AutoCanada dropped 20% from $14.68 down to $11.67. Year-to-date, the stock has dropped 49% from $22.97 down to the current price of $11.67.
What does the company do?
AutoCanada Inc. through its subsidiaries is engaged in the operation of franchised automobile dealerships. The company offers automotive products and services, including new vehicles, used vehicles, and vehicle parts. It currently operates 68 franchised dealerships, comprised of 27 brands, in eight Canadian provinces as well as Illinois, USA.
What is driving the stock?
The large dip going into August 10th was prompted by the release of the Company’s quarterly financial statements showing significant losses and drops in profitability. The last major dip the company experienced in May also followed a release of its financial statements.
Financial Results
Q1 2018 compared to Q1 2017
- Revenue was $880.6 million compared to $894.9 million, down 2%.
- Net income was a loss of $41.3 million compared to a gain of $25.0 million.
- On a per share basis, a loss of $1.51 compared to a gain of $0.91.
- Adjusted net income was a $15.0 million compared to a $15.5 million, down 4%.
- On a diluted per share basis, $0.55 compared to $0.57, down 4%.
- Adjusted EBITDA of $13.2 million compared to $30.7 million, down 57%.
- On a diluted per-share basis, $1.40 compared to $0.81, up 73%.
- Dividends declared were $0.10 per quarter consistently for the past 2 years.
From AutoCanada MD&A
The U.S. market has clearly entered a correction period which most analysts believe will last about two years. The extent of the correction is uncertain but during previous cycles the market declined at least 3% per year and 5% plus per year was common. The Canadian market is holding at slightly under the record sales of the last year but is also poised for a slight correction.
Conclusion:
P/E: Negative YTD earnings, so not meaningful.
P/Adjusted Earnings: 7.48x
P/EBITDA: 3.98x
Current Ratio: 1.10
D/E: 2.43
The most recent quarterly financial resulted showed decreases across the board in every profitability measure from last year. It also had its first quarter with net losses since Q3 2016, with its losses being greater than the gains of the previous 3 quarters combined. Same store revenue has dropped 5% as well. Overall, there were many concerning signals reported, causing investors to significantly lower valuations of the company, resulting in its 20% drop making it our Dog of the Week.
