Stock Talk Podcast 63 Show Notes

KeyStone’s Your Stock Our Take: GlobalSCAPE Inc. (GSB:NYSE), Star: is North American Construction Group Ltd. (NOA:NYSE).

This week in our Your Stock, Our Take segment we look at GlobalSCAPE Inc. (GSB:NYSE), a leading developer of software for the secure movement and integration of data – the company specializes in EFT or enhanced file transfer. A listener who has owned the stock on our recommendation points out the surge in its share price over the past week – what is driving it and is there value now? Our Star of the week is North American Construction Group Ltd. (NOA:NYSE), which has seen its shares rise 35% year-to-date in 2019. NOA provides mining and heavy construction services to customers in the resource development and industrial construction sectors, primarily within Western Canada.

I would again like to welcome my Co-Host, KeyStone’s Senior VP of Research, Mr. Aaron Dunn. How are you?

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Your Stock, Our Take

GlobalSCAPE Inc. (GSB:NYSE) is a company you had recommended to us in the past – the stock jumped this past week – any thoughts?

• The Moore Family – email.

Your Stock, Our Take

GlobalSCAPE Inc. (GSB:NYSE) 

Current Price: $5.85

Market Cap: $ 105.115 Million

What does the company do?

GlobalSCAPE, Inc. (GSB:NYSE) is a pioneer in securing and automating the movement and integration of data seamlessly in, around and outside your business, between applications, people and places, in and out of the cloud. GlobalSCAPE provides cloud services that automate your work, secure your data, and integrate your applications

Develops and delivers software that delivers managed and host solutions and provides associated services for secure information exchange, data transfer and sharing for enterprises and consumers worldwide.

Stock jumped 30% last week – driving that growth…

Key Points:

Recent Quarterly Financials

Fourth Quarter 2018 Results (in thousands, except per share amounts)

• Revenue rose just under 5% to $9.28 million compared to $8.77 million for the fourth quarter of 2017.
• GAAP net income was $2.99 million or $0.017 per share compared to a net loss of $194,000 for the fourth quarter of 2017.
• Adjusted EBITDA was $4,645 compared to $1,461 for the fourth quarter of 2017

Key Points

Conclusion

In early 2018, GlobalSCAPE restructured its operations with the aim to increase revenue, reduce operating expenses, and deliver greater profitability – a simple plan, but there was doubt as to whether it could be executed on. When comparing the fourth quarter of 2018 to the same period in 2017, revenue increased 6%, operating expenses declined 43%, and a $194,000 net loss improved to $3.0 million in net income. Two of the three were successful – operating expenses decreased and profitability was up as a result. Revenues increased marginally by 6%.

The biggest part of the decrease in operating expenses was an over $1.0 million dollar decline in legal expenses. This should continue going forward.

If the company continues to keep operating expenses in line and revenue can begin to increase, the company offers good speculative value. Again, this is if the company can repeat the $0.17 in earning per share it posted in Q1 2019, the company is trading at under 9 times earnings and offers value. We would like to see higher revenue growth, but the value is attractive. 

NOTES

When combined with the shares purchased in the modified Dutch tender, we have repurchased 4,907,361 shares in 2018, reducing outstanding shares by approximately 22.4%. At December 31, 2018, there were 17,130,918 shares of common stock outstanding. Our balance sheet is strong, with $9.2 million in cash and cash equivalents and no debt.

Weekly Star

North American Construction Group Ltd. (NOA:NYSE)

Current Price: $16.36

Market Cap: $408.737 Million

Stock up nearly 35% year-to-date.

What does the company do?

The company provides mining and heavy construction services to customers in the resource development and industrial construction sectors, primarily within Western Canada. Its core market is the Canadian oil sands. Services NOA provides include site clearing and access road construction; site development and underground utility installation; construction and relocation of mine site infrastructure; stripping, heavy equipment and labor supply; material hauling; and mine reclamation.

What drove the stock higher?

The stock is up about 10% since it posted its Q4 results on Monday but the stock price has also nearly tripled over the last year growing from $6.50 per share to over $16.00 per share today. This is especially impressive considering that it has been a weak market for most resource stocks.  NOA posted very strong financial results in 2018 growing revenue by 40% and EBITDA by 61%. This momentum continued through the fourth quarter with revenue increasing 60% to $131 million and EBITDA increasing 57% to $28.4 million. In spite of very strong growth in operating earnings, the company’s earnings per share only grew slightly in the fourth quarter from $0.09 to $0.10 per share. For the year, earnings per share grew from $0.18 to $0.54 per share. With the stock trading at $16.66, the current price to earnings valuation is quite high at over 30 times.

Conclusion  

Looking at 2019, management’s outlook is extremely positive and they are expecting growth of 70% in revenue and 60% in EBITDA. They believe that they can potentially achieve earnings per share of $1.60. There are two areas of concern that I have. Firstly, the financial performance has historically been quite volatile with big fluctuations in revenue and years of no profitability. They did just complete the second year of a three-year growth plan so they may have made changes to the operating structure to drive better consistency. My other concern is the debt which currently sits at about $385 million. I think the debt leverage is high and that’s a risk going forward. But very stellar results and I like the outlook for the current year. It’s not something I would rush out a buy right away but it is an interesting story and we will look into it deeper for our clients.

The share price gains this week and year-to-date in 2019, make it our star of the week!