KeyStone’s Your Stock Our Take: Hamilton Thorne Ltd. (HTL:TSX-V), STAR: The Alkaline Water Co. Inc. (WTER:TSX-V), and DOG: Eastwood Bio-Medical Canada Inc. (EBM:TSX-V).
This week in our Your Stock, Our Take segment we take a look at Hamilton Thorne Ltd. (HTL:TSX-V), which provides precision instruments, consumables, software and services to the Assisted Reproductive Technologies (ART) and developmental biology research markets. The company has performed well over the past 3-years growing revenues from the $10 million range to over $30 million annualized. The stock is flat to slightly negative over the past 52-weeks and a listener asks us our take on the current valuation multiples for the stock- is it a BUY/SELL or HOLD.
Our Star of the Week is The Alkaline Water Co. Inc. (WTER:TSX-V), producer of premium bottled alkaline drinking water. The stock is up 43% in the past week after announcing that they had partnered with Centuria Foods to expand its CBD infused product portfolio.
Finally, our Dog of the Week is, Eastwood Bio-Medical Canada Inc. (EBM:TSX-V), markets and distributes natural health products in North America and Asia. The stock is off 10% in the last week and 50% year-to-date. Is the drop an opportunity or a sign of things to come? We discuss.
Your Stock, Our Take
Hamilton Thorne Ltd. (HTL:TSX-V)
Current Price: $1.04
Market Cap: $128.8 million
What does the company do?
Hamilton Thorne Ltd is engaged in providing precision instruments, consumables, software and services that reduce cost, increase productivity, improve results and enable breakthroughs in Assisted Reproductive Technologies and developmental biology research markets. The company markets its products and services under the Hamilton Thorne, Gynemed and Embryotech Laboratories brands, through its growing sales force and distributors. The company’s customer base consists of fertility clinics, university research centers, animal breeding facilities, pharmaceutical companies, biotechnology companies, and other commercial and academic research establishments.
Key Points:
The company has fluctuated between $0.85 per share and $1.25 per share over the last 12 months, with a low in December 2018 and a high in April 2019. Overall, despite the large fluctuations, the company’s shares are only down 10% from $1.15 from 12 months ago.
On August 13th, the company acquired Planer Ltd. significantly expanding product offerings in incubation, cryo-preservation, and lab monitoring, as well as providing a direct sales and support platform for their whole portfolio of products in the UK. The consideration consisted of both $7.3 million in cash and a value of US$1.2 million in issued shares.
The company’s revenues continue to increase year-over-year. However, the company’s profitability levels have been variable.
Recent Quarterly Financials:
- Revenue for the second quarter ended June 30, 2019 was $8.0 million, an increase of 10% over the prior year period.
- Net Income grew to $100,179 in the second quarter of 2019, compared to a loss of $133,092 in the second quarter of 2018.
- Adjusted EBITDA was $1.6 million in the second quarter of 2019, compared to $1.5 million in the second quarter of 2018.
Revenue was positively impacted in the first quarter of 2019 by acquisitions and is expected to continue to be positively affected. Laser sales rebounded in the second quarter from a decline in the first quarter. Sales are expected to grow as a new product line is adopted and regulatory clearance is achieved. The company plans to focus more on recurring revenues by putting more efforts into the sale of accessories, consumables, software, and services.
Our Take:
P/E: 43.3x
EV/EBITDA: 15.0x
Current Ratio: 2.61
Cash Ratio: 1.51
Net Cash: $3.3 million
The company continues to grow its revenues year-over-year as it adds value through acquisitions, including its most recent acquisition of Planer Ltd. The company holds a strong balance sheet position with $3.3 million in net cash and a current ratio of over 2.6. Its history of volatile profitability is, however, a concern, and is likely a part of its volatile share price over the last year. The company needs to be able to consistently turn its growing revenues into both cash flow and bottom line earnings to create longer-term value for shareholders. The profit growth will be dependent on the underlying market, and being able to keep costs down leading to stronger gross margins.
Weekly Star
The Alkaline Water Co. Inc. (WTER:TSX-V)
Current Price: $2.66
Market Cap: $68.78 Million
Star Performance:
The stock was up 43% last week after some positive news.
What does the company do?
Alkaline Water Co Inc. is engaged in the business of distributing and marketing bottled alkaline water for retail consumers in different sizes under the brand name Alkaline 88.
Alkaline88 is a premier 8.8 pH balanced bottled alkaline drinking water enhanced with trace minerals and electrolytes.
Its only operating geographical segment is the U.S. and the company sells its product to convenience stores, natural food products stores, large ethnic markets, and national retailers.
What is driving the stock?
On August 28th, 2019, the company announced that they had partnered with Centuria Foods to expand its CBD infused product portfolio with the launch of CBD-shots, tinctures, capsules and powders packs.
With this partnership, Centuria will be the company’s exclusive supplier of water-soluble Phyto cannabinoid-rich hemp oil.
On top of this, on August 8th, 2019, the company reported record operating results for Q1, 2020.
Financial Results
Q1, 2020
- Revenue increased 28.8%, to $10.15 million in Q1, 2020, compared to $7.88 million in the same quarter last year.
- EBITDA was a loss of $4.73 million compared to a loss of $0.833 million for the same quarter last year.
- Net loss was ($0.12) per fully diluted share in Q1, 2020, compared to a net loss of ($0.04) in Q1, 2019.
Conclusion:
The CEO announced in the quarterly release that sales growth guidance for the remainder of the company’s 2020 fiscal year will remain strong. The revenue guidance for 2020 is expected to come in at $46-50 million, which would be an increase of approximately 50% year over year.
The CEO further proclaimed that this guidance figure going forward does not include any sales of its hemp-derived CBD infused products. So, given this, revenue growth may be even stronger.
Looking at the valuation multiples, since the company’s twelve-trailing-month (TTM) net income and EBITDA are negative we have to look at the P/S multiple which is approximately 2x – which doesn’t appear to be pricing the company extremely high.
The company is also levered with a debt-to-equity ratio of .433. and a net cash position of $400K which is a positive.
There are definitely some positives behind the story, but in our opinion, it is still too early to invest in the company. Although it has been able to grow revenues rapidly, the company has yet to break into profitability and has little differentiation among competitors as it is essentially a marketing play.
So, in conclusion, the stock has risen considerably over the last few weeks due to the agreement with Centuria, positive Q1 financial results and fiscal 2020 guidance. Allowing the company to claim the coveted status of our Star of the Week.
Weekly Dog
Eastwood Bio-Medical Canada Inc. (EBM:TSX-V)
Current Price: $2.68
Market Cap: $1.85 million
Dog Performance:
Shares are down 10% this week and have been cut in half, down 50% year-to-date in 2019. The stock is down 68% from its highs in the $8.50 range one year ago.
What does the company do?
What does Eastwood do – markets and distributes natural health products in North America and Asia. The company is a licensed distributor of the Eleotin® line of products, which include formulations based on natural ingredients that are presented in tea or capsule forms. The Eleotin® products include natural remedies for certain metabolic disorders such as blood glucose disorders, hypertension and obesity, and can be used as a dietary supplement. To date, over seventy (70) of the company’s licensed products have secured Health Canada product license numbers.
What is driving the stock?
We do not see anything truly company specific driving the drop. Generally speaking, from a cash flow basis – given there is no cash flow and no near-term path to significant cash flow, the company was trading at unsustainable.
Conclusion
One year ago, Eastwood had a market cap of over half a billion dollars – and the shares traded above $8.00. At the time, the company released several press releases stating they essentially did not know of anything material that was driving the stock – nothing was ever released that should have given rise to a half a billion dollar valuation for Eastwood at that time, from our perspective.
Today the business produced sales of just $318,644 in its last quarter and lost $291,776. The market cap is still a hefty $185 million with limited sales and negative cash flow.
The positive here is that there has been growth in sales from $71,731 in Q2 2018 to the $318,644 we referenced above in Q2 of this year but again, the revenue base is very small. While the company calls itself primarily a North American natural health company, Canadian sales accounted for just 13.2% of Q2 sales and US sales accounted for even less at 10.7%. Sales to Asian provide the bulk of the business at 76.1% for the latest quarter. To be frank, Eastwood has some very large, well run competitors in the natural health space and with just $708,258 in cash on hand to grow – it faces an uphill battle in North America.
It’s lack of profitability and sky-high valuations based on negative cash flow, ensure that Eastwood does not meet our minimum criteria for investment. The drop in the past week and year, make the company our Dog of the week.
