KeyStone’s Your Stock Our Take: Information Services (ISV:TSX), Star: are Viemed Healthcare Inc. (VMD:TSX) and Electrovaya Inc. (EFL:TSX) and Dog: Canada Goose Holdings Inc. (GOOS:TSX).
This week in our Your Stock, Our Take segment we look at Information Services (ISV:TSX), a provider of registry and information management services for public data and records. The stock pays a relatively attractive 4.8% dividend and a listener who has been watching the company for a while asks if now is the time to pick up a position. This week we have two stars and the first will be no stranger to our clients as it was recommended one year ago this month. The stock, Viemed Healthcare Inc. (VMD:TSX), U.S.-based medical equipment supplier. Viemed added another 9% this week, 26% on the month and is up 90% in 2019 alone. Perhaps most importantly for our clients, it has gained 158% since our recommendation at $3.85, one year ago. Our star number two is micro-cap Electrovaya Inc. (EFL:TSX), designs and develops electrodes, separators, cells, advanced battery, and battery systems for the transportation, electric grid stationary storage and mobile markets. The stock jumped 23% this week on the back of a promising order. Finally, our Dog of the Week is a retail stock that had been a market darling since its IPO. The company, Canada Goose Holdings Inc. (GOOS:TSX), designs, manufactures, distributes and retails premium outerwear for men, women and children. This week, Canada Goose took a 31% hit in one day after it announced its 2019 fiscal results and its outlook for the current year. The stock had been trading at premium valuations and we had warned clients a number of times that any stumble or decrease in growth rate could fell the stock. Is the drop an opportunity or a sign of things to come? We will discuss.
Your Stock, Our Take
Information Services (ISV) seems to be a stable dividend payer as it handles all of the land transfer and corporate registry filings in Saskatchewan. What do you think of this company for long-term investors?
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Your Stock, Our Take
Information Services (ISV:TSX)
Current Price: $16.39
Yield: 4.83%
Market Cap: $ 286.9 million
What does the company do?
ISV is a provider of registry and information management services for public data and records. Through its Registry segment, the company is exclusive provider of the Land Titles Registry, Land Surveys Directory, Personal Property Registry and Corporate Registry in the province of Saskatchewan. ISV also provides additional services through its Service and Technology segments.
Key Points:
Recent News or Other Relevant Info (if any)
Information Services’ stock has traded roughly flat to moderately down over the past year; down about 7%.
The stock does pay a nice dividend of 4.8% and they are currently a few years into a 15-year contract with the province of Saskatchewan as the exclusive provider of registry services. The strategy is to expand out of the Registry business (which is currently about 60% of revenue) and into new markets and services.
Recent Quarterly Financials
ISV released Q1 results on May 8th. Revenue increased 6.5% to $28.6 million. EBITDA increased 2.1% to $7.4 million. Net earnings per share (EPS) increased 13.3% to $0.17 per share.
On a trailing twelve-month basis, ISV reported adjusted EPS of $1.08 which puts the valuation at about 15 times earnings.
ISV ended the most recent quarter with total debt of $19.5 million and cash of $17.6 million (net debt of $1.9 million).
Guidance for 2019 is revenue of between $129.0 and $135.0 million (growth of ~11%), EBITDA between $31.0 and $35.0 million (down ~8.1%) and an EBITDA margin between 24% and 27% (compared to 30.1% in 2018). The company expects revenue growth in 2019 to be driven primarily by the Services segments while the Registry segment continues to be a generator of stable free cash flow.
Conclusion
Information Services is a unique company and the long-term contract with the province of Saskatchewan provides them with a strong competitive advantage and source of ongoing cash flow. The balance sheet and valuation appear healthy and we like the strategy of diversifying into new markets and service offerings.
In the short-term, it is not clear that the company will be able to produce growth. The guidance for lower EBITDA in 2019 is a concern. While Information Services will likely be able to sustain its dividend, we would like to see better growth over the next couple of years. I think that the company offers some value to patient income investors and you could potentially take a same position in the stock if your time horizon is 3 to 5 years or longer. We are continuing to follow the stock closely and it is on our monitor list.
Weekly Star
Viemed Healthcare, Inc. (VMD:TSX)
Current Price: $9.95
Market Cap: $ 374.92 million
Star Performance:
Viemed added another 9% this week, 26% on the month and 90% in 2019 alone. Perhaps most importantly for our clients, it has gained 158% since our recommendation at $3.85, one year ago.
What does the company do?
U.S.-based medical equipment supplier. In layman’s terms, the company places respiratory therapist inside the home to treat patients with very sick lungs. Many of these patients are unfortunately at the end stage of their life, at a time when they are most likely to visit the hospital. Our service prevents these hospital readmissions from occurring. The primary disease treated is (COPD) or chronic obstructive pulmonary disease. Viemed uses non-invasive ventilators which allows us to ventilate the patient with a mask versus forcing them to be in the bed incubated – the quality of life is better, and the healthcare costs decrease. The U.S. healthcare system has 11,000 new people qualifying for Medicare every day for the next 19 years, which is forcing the U.S. to find and embrace more cost effective value based health care solutions.
What is driving the stock?
- Q1 2019 revenue jumped 45% to $20.4 million from the comparable period in 2018.
- Adjusted EBITDA for the quarter ended March 31, 2019, totaled approximately $4.8 million up from $3.76 million in Q1 2018.
- 2019 Q2 Guidance: The company expects to generate total revenues of approximately $22.2 – $22.8 million during the second quarter of 2019 and expects slightly higher margins as the prior quarter. The mid-point of the revenue guidance represents a 45% increase over the quarter ended June 30, 2018 and a 10% increase over the quarter ended March 31, 2019.
Good current and future growth. We expect an up-listing to a U.S. exchange as well which could drive investor interest.
Conclusion:
We recently released a full update on the stock to clients including our near-term fair value which the company continues to trade below.
The potential market for the company’s Non-Invasive Vent (NIV) offering is large and, despite its growth, Viemed is only scratching the surface. In fact, the entire NIV market penetration is less than 10% of its potential.
With the stock hitting new all time highs this week and our clients seeing gains of over 155% in the last year alone, Viemed achieves the coveted status of our Star of the Week!
Weekly Dog
Canada Goose Holdings Inc. (GOOS:TSX)
Current Price: $45.94
Market Cap: $2.718 billion
Dog Performance:
On May 29th, Canada Goose Holdings had a sharp drop when markets opened from $66.63 to $51.85, down 22%. The stock ended the day at $45.94, down a total of 31% for the day.
What does the company do?
Canada Goose Holdings Inc. is a Canada based company which designs, manufactures, distributes and retails premium outerwear for men, women and children. Its products are sold through select outdoor, luxury and online retailers and distributors. Canada Goose is famous for those all so popular parkas one sees across the country.
The company operates its business thought two business segments namely, Wholesale and Direct to Consumer (DTC). Through its wholesale segment the company sell to retail partners and distributors in countries. The company’s Direct to Consumer segment is comprised of sales through its e-commerce sites and retail stores. Through DTC segment, it sells online to customers in Canada, the United States, the United Kingdom and France.
What is driving the stock?
The company released its FY 2019 results in the morning of May 29th. While looking mostly positive, with strong growth over 2018 and a decent outlook, the company had been trading lofty multiples and we had warned clients a number of times that any stumble or decrease in growth rate could fell the stock.
Financial Results
FY 2019 compared to FY 2018
- Revenue was $830.5 million compared to $591.2 million, up 40%.
- Net income was $143.6 million compared to $96.1 million, up 49%.
- On a diluted per share basis, $1.28 compared to $0.86, up 49%.
- Adjusted EBITDA of $223.4 million compared to $154.5 million, up 45%.
- On a diluted per-share basis, $2.00 compared to $1.39, up 44%.
OUTLOOK AND/OR GUIDANCE FROM MANAGEMENT:
For fiscal 2020, the Company currently expects the following:
- Annual revenue growth of at least 20%
- Adjusted EBIT margin expansion of at least 40 basis points
- Annual growth in adjusted net income per diluted share of at least 25%
Conclusion:
P/E: 35.89x
P/EBITDA: 22.97x
Current Ratio: 3.02
D/E: 0.36
Canada Goose suffered a severe one day drop in share price, but in this case, it is not a case of poor performance on a relative scale – it appears to be more a cautionary tale of unrealistic near-term valuations and expectations of continued blue sky growth.
Even with the drop, the company is trading at a strong premium, which considering its consistent growth, is not surprising. Companies in Canada Goose’s position can be very susceptible to slightly missed investor expectations, where the market flips and drops the premium, which even with just a slight drop, can cause significant drops in share price. Canada Goose appears to be a great company, with consistently strong growth, a very smooth balance sheet, and a strong outlook. It just wasn’t strong enough to hold up its unrealistic expectation near-term in a very volatile industry, and that has made it our Dog of the Week.
We monitor the stock for potential entry points to clients, but the current valuations are closer to fair value near-term than significantly undervalued.
Weekly Star
Electrovaya Inc. (EFL:TSX)
Current Price: $0.255
Market Cap: $26.4 million
Dog Performance:
Between May 27th and May 28th, the stock price for Electrovaya jumped up 33% from $0.20 to $0.27.
What does the company do?
Electrovaya Inc designs and develops electrodes, separators, cells, advanced battery, and battery systems for the transportation, electric grid stationary storage and mobile markets. The company owns a proprietary Lithium Ion SuperPolymer technology, an expert in design and development of large-format prismatic (flat) battery systems and ceramic composite separator (SEPARIONTM) that can provide customers with benefits, including improved cycle life and safety. Its geographical focus is in Europe and North America. The majority of its revenue is generated from the European region.
To date, Electrovaya has sold and delivered batteries to commercial operations at 23 customer sites in the United States and Canada, with several customers making follow-up orders. The majority of customers are large corporations, including several Fortune 500 companies. These end users span all aspects of the materials handling market and include major retail, furniture distribution, cold storage, manufacturing and third-party logistics companies.
What is driving the stock?
On May 28th, the company announced it had received its first purchase order for an electric bus battery system. The modular battery system is expected to provide the 40-foot bus a range of more than 200 km and will be capable of fast charging. These busses are expected to operate 12 to 16 hours a day or more with a targeted life of at least 10 years.
Financial Results
Q1 2019 compared to Q1 2018
- Revenue was $1.3 million compared to $3.3 million, down 62%.
- Net income was a loss of $1.9 million compared to a loss of $2.7 million.
- On a diluted per share basis, a loss of $0.02 compared to a loss of $0.03 before.
- Adjusted EBITDA was a loss of $1.1 million compared to a loss of $1.4 million.
Conclusion:
P/E: Negative Earnings
P/EBITDA: Negative Earnings
Current Ratio: 0.17
Negative Shareholders’ Equity – Total Assets are $2.6 million while Total Liabilities are $14.6 million.
Electrovaya is operating in a lithium ion battery industry. Lithion ion batteries are used currently in electric cars and other vehicles and devices that are attempting to shift away from “fuels” and more towards rechargeable electricity. Unless a newer battery technology is found, lithium ion batteries will continue to be more and more wildly used. Electrovaya had a breakthrough in the past week with its first purchase order for its electric bus battery system. This is what lead to its jump in share price. While the purchase order is promising, and could lead to more and more contracts and revenues flowing into the company, as it stands the company is not profitable, and until it is profitable, it does not meet our minimum criteria for recommendation. Nevertheless, its milestone first contract and its subsequent increase in share price has made it our Star of the Week!
