KeyStone’s Stock Talk Podcast Episode 54 – Summary
KeyStone’s Your Stock Our Take: C-COM Satellite Systems Inc. (CMI:TSX-V): WesternOne Inc. (WEQ:TSX), Dog: Aurora Cannabis Inc. (ACB:TSX).
This week in our Your Stock, Our Take segment we look at C-COM Satellite Systems Inc. (CMI:TSX-V), a dividend paying micro-cap stock which develops, manufactures, and deploys commercial grade mobile satellite-based technology for the delivery of two-way high-speed internet, VoIP, and Video services into vehicles. This is a stock we owned years ago and sold after a strong return. The company just reported a strong quarter of growth and a listener asks us our thoughts on the stock. Our Star of the week is WesternOne Inc. (WEQ:TSX), a provider of construction heat services and aerial equipment rentals to businesses in the construction, infrastructure, film, and television industries in Western Canada. The stock jumped 31% this week after reporting the business would be sold to United Rentals for a base cash purchase price of $120 million. Finally, our Dog of the week is Aurora Cannabis Inc. (ACB:TSX), a leading producer and distributor of medical cannabis in Canada and internationally. The stock dropped 27% in the past week, and is hardly alone in the Cannabis segment that has taken its lumps following legalization mid last week in Canada. 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.
This past week continued the sell-off in Cannabis stocks we witnessed post legalization.
It appears to be a case of “buy on rumour, sell on the new”. I might be more inclined to believe the sell-off is more about the fact that the industry just became real. Going forward, from an investor perspective, it becomes put up or shut up. In other words, start posting real cash flow to justify your valuations, or you will not have a place in most portfolios.
Your Stock, Our Take
C-COM Satellite just reported great results – is the growth story back.
- Martin Miran
Your Stock, Our Take
C-COM Satellite Systems Inc. (CMI:TSX-V)
Current Price: $1.18
Market Cap: $43.9 million
What does the company do?
The company is a leader in the development, manufacture, and deployment of commercial grade mobile satellite-based technology for the delivery of two-way high-speed internet, VoIP, and Video services into vehicles. C-COM has developed several proprietary mobile auto-deploying antennas that deliver broadband over satellite into vehicles while stationary virtually anywhere where one can drive. More than 7000 C-COM antennas have been deployed in 103 countries around the world.
Key Points:
On June 21st, the company announced that it had successfully tested its new antenna systems for the next generation of mobile satellite communications. Following this announcement, the stock jumped up 8% before dropping back down 5% the following week.
On September 12th, the company announced that it has signed a 5-year contract totalling US$2 million with a Russian VSAT satellite communication operator. In the week following this announcement, the stock had risen 9% and since the announcement has risen a total of 19%.
The company’s most recent financial results were released on October 15th. In the ten days since this release, the stock has risen 6%.
Following some tough years with the mining and energy sectors in significant downturns, the company reported strong growth once again in its last quarter.
Recent Quarterly Financials:
- Revenue for the third quarter ended August 31, 2018 was $4.0 million, an increase of 71.0% over the prior year period.
- Net income grew to $641,930 in the third quarter of 2018, compared to $130,183 in the third quarter of 2017, up 393.1%.
- Adjusted EBITDA was $867,053 in the third quarter of 2018, compared to $372,204 in the third quarter of 2017, up 133.0%.
Our Take:
P/E: 23.6x
P/EBITDA: 23.6x
Current Ratio: 15.54
Cash Ratio: 11.42
Current Assets make up 99.6% of Total Assets
Cash and Equivalents make up 73.2% of Total Assets.
Net Cash: $15.4 million – or 35% of its market cap in cash.
Little to no debt.
The balance sheet is great but the growth has been spotty over the past 5-years. The current trailing valuations are not exactly cheap for a micro-cap stock, but if the company can continue to post profitable growth anywhere close to the third quarter, the multiple will move lower and the stock will look more attractive. It pays an attractive dividend which yields over 4%. At present, the stock is a hold but if we see continued contract wins and further quarters as profitable as Q3, we would look closely at the stock once again.
Weekly Star
WesternOne Inc. (WEQ:TSX)
Current Price: $2.14
Market Cap: $35.1 million
Star Performance:
Between October 19th and October 22nd the stock jumped 31% from $1.61 to $2.11, and is up 39% in the last week. The stock is up 41% year-to-date.
What does the company do?
WesternOne’s principal business platform is WesternOne Infrastructure Services, a leading provider of construction heat services and aerial equipment rentals to businesses in the construction, infrastructure, film, and television industries in Western Canada.
What is driving the stock?
On October 22nd, the company announced that its equipment rentals and heat business would be sold to United Rentals for a base cash purchase price of C$120 million on a cash free, debt free basis.
“Following careful review of this transaction by the Special Committee in consultation with our external financial and legal advisors, we believe it is the best option for WesternOne and its shareholders.” said Peter Blake, CEO of WesternOne. “The midpoint of the range of anticipated proceeds to ultimately be paid to shareholders exceeds the 20-day volume weighted average share price by approximately 42% which represents an attractive result for our shareholders.”
This sale would result in the wind-up of operations and the liquidation of assets not being sold in the transaction.
Financial Results
Q2 2018 compared to Q2 2017
- Revenue was $17.9 million compared to $14.1 million, up 27%.
- Net loss was $7.2 million compared to $12.2 million.
- On a diluted per share basis, loss of $0.44 compared to loss of $0.74.
- Adjusted EBITDA was a loss of $0.6 million compared to a gain of $1.2 million, down 150%.
Conclusion:
P/E: negative earnings
P/EBITDA: 3.09x
Current Ratio: 2.94
Cash Ratio: 1.09
D/E: 7.23
The big story here is the company’s sale of its operations and coming liquidation. Assuming the transaction goes through, shareholders will receive a premium on what the market was at the time of announcement, and market price has risen to approximately match this value. Again, assuming the transaction is voted through, the company’s fundamentals have less to do with its current share price and possibly have more of an effect on United Rentals, the company buying WesternOne’s operations. The money that will be received from the transaction, and the subsequent liquidation money will be passed onto shareholders, which has created the immediate appreciation in value in the eyes of investors, and have made it our Star of the Week.
Aurora Cannabis Inc. (ACB:TSX)
Current Price: $10.08
Market Cap: $9.666 billion
Dog Performance:
Since October 18th, one week ago, the stock has dropped 27% from $13.76 to $10.08.
What does the company do?
Aurora Cannabis’ principal business is the production and distribution of medical cannabis in Canada and internationally. The company produces and distributes dried medical cannabis and cannabis oils in Canada pursuant to the ACMPR through its wholly-owned subsidiary, Aurora Cannabis Enterprises Inc. The company also distributes wholesale medical cannabis in the European Union pursuant to the German Medicinal Products Act and German Narcotic Drugs Act, and in Italy through the January 2018 tender process.
What is driving the stock?
On October 17th, recreational cannabis became legal in Canada. It would appear that investors who were concerned about overinflated cannabis market stock price decided that was their moment of exit. Subsequently on October 18th, Aurora announced it would commence trading on the NYSE on October 23rd. We are seeing a push toward a more traditional fair value for much of the cannabis industry with legalization passing into the rear view and the “hype” factor dying down.
Financial Results
2018 Annual compared to 2017 Annual.
- Revenue were $55.2 million compared to $18.1 million, up 206%.
- Adjusted net loss was $116.4 million compared to $12.8 million
- On a diluted per share basis, a loss of $0.25 compared to a loss of $0.05.
- Adjusted EBITDA was a loss of $38.5 million compared to a loss of $7.2 million.
Conclusion:
Negative earnings after adjusting out unrealized gains.
Current Ratio: 2.86
Cash Ratio: 1.19
D/E: 0.13
This week, Aurora’s suffering was not unique in the cannabis market. All the biggest players in the market, Canopy Growth, Aphria, and Aurora, suffered similar losses this week. Cannabis legalization led to drops in the ranges of 10%-30% across the board in the cannabis industry. Aurora dropped the most percentage-wise, which is why we are focusing on it this week, but the real story this week reflects the cannabis industry as a whole, where investors are selling out of the hype and prices are moving more toward more realistic pricing based on quantifiable techniques.
With Aurora being the hardest hit big name in the sector, it has achieved the coveted status of our Dog of the Week!