KeyStone’s Your Stock Our Take: Tidewater Midstream and Infrastructure Ltd. (TWM:TSX), Star: is Village Farms International Inc. (VFF:TSX), Dog: is Intrinsyc Technologies Corporation (ITC:TSX).
This week in our Your Stock, Our Take segment we look at Tidewater Midstream and Infrastructure Ltd. (TWM:TSX), a North American midstream energy infrastructure company in the natural gas and natural gas liquids (NGL) space. A listener asks what we thought of the company’s 2018 year-end numbers released this week? Our Star of the week is Village Farms International Inc. (VFF:TSX), one of the largest and longest-operating vertically integrated greenhouse growers in North America producing and distributing fresh, premium-quality produce – the stock is up 275% this year. But it is not cucumbers and tomatoes driving the growth, it is a foray into the rapidly emerging global cannabis market that has captured investor attention. Finally, our Dog of the week is Intrinsyc Technologies Corporation (ITC:TSX) a provider of solutions for the development of intelligent connected devices. A great balance sheet, solid revenue growth but earnings were down in the latest quarter. The stock dropped 13% on the news. Is it a Dog or an opportunity?
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Your Stock, Our Take
Tidewater Midstream and Infrastructure (TWM:TSX) recently issued financial results which look pretty good to me. Can you give me your comments on the company and whether or not the dividend is sustainable?
- John – via email.
Your Stock, Our Take
Tidewater Midstream and Infrastructure (TWM:TSX)
Current Price: $1.37
Market Cap: $465.9 Million
What does the company do?
Tidewater is a midstream and infrastructure company in the North American natural gas and natural gas liquids (NGL) space. They are involved in gathering, processing, storing and transporting natural gas and NGLs. To do this any own and operating various pieces of infrastructure in Western Canada such as gas plants, pipelines, railcars, trucks, export terminals and storage facilities.
Tidewater started trading as a public company in 2015. The strategy has been to grow by acquisition and development.
Key Points:
Recent Quarterly Financials
The company did release Q4 2018 financial results March 14th. The results did were positive with revenue growing 42% to $90.7 million and distributable cash flow per share growing 20% to $0.05. For the full year, distributable cash flow grew 21% to $0.17. The strong performance was the result of new volumes at one of the company’s gas plants and expansions at two other facilities.
Tidewater has been investing heavily in expanding its operations and growing cash flow. Obviously, this comes at a cost and we have seen the net debt increase substantially over the past year from $152 million to $393 million.
On a positive note, the company is anticipating very strong performance once again in 2019 as its two biggest growth projects come online. Management expects run rate revenue and EBITDA to increase 50% going into Q4 2019.
With respect to the sustainability of the dividend, the payout ratio is 23% of distributable cash flow which is low. The debt level is high but that should improve as the company’s growth projects come online and profitability increases. I don’t have any near-term concerns about the sustainability of dividend.
Conclusion
Tidewater is looking like an interesting story. I’ve followed the stock for several years but never issued a recommendation. Recent financial performance has been strong and with the growth expected in 2019, I am going to be looking deeper into the stock for KeyStone’s clients.
Weekly Dog
Intrinsyc Technologies Corporation (ITC:TSX)
Current Price: $1.42
Market Cap: $33.18 Million
Shares are down 13% on the week – it may be an opportunity.
What does the company do?
Intrinsyc provides embedded computing modules and product development services to enable and support a wide variety of fast-growing IoT products such as robotics, connected cameras, smart displays, augmented reality glasses, smart buildings, wearables, in-vehicle infotainment, and many others.
Financial Performance:
The company reported 2018 revenue grew 24% to US$25.7 million (CDN$33.4 million) from US$20.7 million (CDN$26.8 million). The increase in revenue was due to increased sales of both hardware products and engineering services.
However, Intrinsyc posted a 2018 net loss of US$184,536 (CDN$206,263) or US$0.01 (CDN$0.01) per share compared to net income of US$624,836 (CDN$808,382), or US$0.03 (CDN$0.03) in 2017.
The company had a write-down on an investment in a company known as StreamTV – given the financial performance to date of Stream, this was only a matter of time in our opinion – and was one of the red flags in our research on a company we see promise in.
The balance sheet is strong. Working capital as of December 31, 2018 was US$10.4 million (CDN$14.1 million) inclusive of cash and short-term investments of US$6.0 million (CDN$8.1 million). But it is down from 2019.
This is compared to net working capital of US$12.5 million (CDN$15.5 million) as at December 31, 2017 inclusive of cash and short-term investments of US$7.3 million (CDN$9.1 million).
Adjusted EBITDA rose to CND$2.46 million jumping from 161% $942,796 in 2017.
What is Driving the Stock?
Although adjusted EBITDA was up in 2018, the company reported a headline loss after a profit in 2017 and the investment in Stream was written down by roughly $1 million which is not encouraging.
Conclusion
On February 5th, Intrinsyc engaged of Roth Capital Partners, LLC (“Roth”) as a financial advisor with a mandate to accelerate strategic growth opportunities for the Company. The goal of Roth’s mandate, which has been documented by a formal engagement agreement on standard industry terms, is to enhance value for all holders of Intrinsyc common shares – there is the potential that Intrinsyc is acquired at the end of this process, but certainly no guarantee.
From a valuation basis, the stock trades with an EV/EBITDA based on 2018 numbers of 10.1 – this is not expensive, but not exactly cheap. There is the potential for a takeover, but this remains speculation but a potential higher risk opportunity.
The stocks 13% drop in the past week give it the not so coveted status of our Dog of the Week.
Weekly Star
Village Farms International Inc. (VFF:TSX)
Current Price: $18.00
Market Cap: $856.139 Million
Stock up nearly 11% this week and 27% year-to-date in 2019
What does the company do?
Village Farms is one of the largest and longest-operating vertically integrated greenhouse growers in North America and the only publicly traded greenhouse produce company in Canada. Village Farms produces and distributes fresh, premium-quality produce with consistency 365 days a year to national grocers in the U.S. and Canada from more than nine million square feet of Controlled Environment Agriculture (CEA) greenhouses in British Columbia and Texas, as well as from its partner greenhouses in British Columbia, Ontario and Mexico.
What drove the stock higher?
Alas my friends, it is not cucumbers and tomatoes driving this ship – a foray into the rapidly emerging global cannabis marketing that has captured investor attention.
The company is now leveraging its 30 years of experience as a vertically integrated grower for the rapidly emerging global cannabis opportunity through its 50% ownership of British Columbia-based Pure Sunfarms Corp., one of the single largest cannabis growing operations in the world. The Company also intends to pursue opportunities to become a vertically integrated leader in the U.S. hemp-derived CBD market, subject to compliance with all applicable U.S. federal and state laws, and has established a joint venture, Village Fields Hemp, for multi-state outdoor hemp cultivation and CBD extraction.
Conclusion
For Village Farms, it appears the Cannabis is coming. On February 8th, the company announced that Pure Sunfarms entered a supply agreement with Ontario, to supply its stores with cannabis products for the recreational market. This is Pure Sunfarms’ first supply agreement with a provincial government distributor of cannabis.
However, we caution that sales were only $1.8 million from this segment in the last quarter.
The stock is very expensive based on current EBITDA and cash flow – it trades at 307 times 2018 EBITDA.
We would expect a financing coming to fund the company’s Cannabis aspirations – in fact, if I was management I would get on that right now and take advantage of the stock appreciation and grab some much-needed capital while the getting is good.
The share price gains this week and year-to-date in 2019, make it our star of the week! But the stock itself is well ahead of the current fundamentals.
