This week in KeyStone’s Stock Talk Podcast we discuss our upcoming DIY Investment Seminars, we have two Your Stock Our Take: Quarterhill Inc. (QTRH:TSX) & Mogo Inc. (MOGO:TSX), and our Dog of the Week is The Green Organic Dutchman Holdings Ltd. (TGOD:TSX).
This week in our Your Stock, Our Take segment we answer 2 listener questions. The first company, Quarterhill Inc. (QTRH:TSX), formerly known as Wi-LAN Inc., develops and operates a patent licensing business, provides of intelligent transportation systems, and operates a software service provider. Quarterhill recently reported a strong quarter, but the company has reported inconsistent results over the past half decade. A listener asks us our take on the stock.
Our second question was in reference to Mogo Inc. (MOGO:TSX), a financial technology company which services include free credit score monitoring, identity fraud protection, digital spending account, credit services like loans, cryptocurrency trading – via its app.
Finally, our Dog of the Week is, The Green Organic Dutchman Holdings Ltd. (TGOD:TSX), which produces and distributes cannabis and related products and Hemp related products – primarily, as it’s name would suggest, organic cannabis products, including organic dried cannabis, cannabis oils and edibles, fresh cannabis, and seeds for medical applications. Formerly a high flying stock, the company has seen its share price drop 10% in the last week, 23% in the last month, and 67% in the last 52-weeks. Is the drop an opportunity or a cautionary tale? We discuss.
The New Way to Build Your Portfolio
By now you may have heard of KeyStone’s DIY Stock Investment Seminars – KeyStone’s Ryan Irvine and Aaron Dunn have been holding them to sold out crowds across the country for 4-years now and literally helped 1,000s of Canadians build simple 10-25 stock portfolios with our easy-to-apply portfolio strategy. Each seminar has unique topics but the successful core strategy remains the same. If you are not familiar with our seminars let me give you a brief intro on our upcoming Fall 9-city tour – and extend our special “Early Bird” and “VIP” ticket offers. The seats sell out fast, so we encourage you not to delay.
More examples – Real profit from the buy recommendations – Fall 2018 DIY Seminar Recommendations Included;
XPEL Inc. (XPEL:NASDAQ)
Price: $6.50
Today: $11.08
Gain: 70%
Viemed Healthcare, Inc. (VMD:TSX)
Price: $5.90
Today: $8.50
Gain: 44%
Questor Technology Inc. (QST:TSX-V)
Price: $2.22
Today: $4.62
Gain: 108%
Week 1:
- October 8th – Oakville – Hilton Garden Inn (2774 South Sheridan Way)
- October 9th – Markham – Hilton Conference Centre & Spa (8500 Warden Avenue)
- October 10th – Kitchener/Waterloo – Inn of Waterloo (475 King Street North)
Week 2:
- October 15th – Kamloops – Coast Kamloops hotel & Conference Center (1250 Rogers Way)
- October 16th – Victoria – Coast Victoria hotel & marina (146 Kingston Street)
- October 17th – Langley – Sandman Signature Langley (8828 201 Street)
Week 3:
- October 22nd – Vancouver – UBC Robson Square campus (800 Robson Street)
- October 23rd – Calgary – Radisson Hotel and Conference Centre (6620 36th St. NE)
- October 24th – Edmonton – Varscona Hotel on Whyte (8208 – 106 Street)
Your Stock, Our Take
Quarterhill Inc. (QTRH:TSX)
Current Price: $1.79
Market Cap: $213 million
What does the company do?
Quarterhill Inc is engaged in acquiring technology companies working in the internet of things. Some of the companies acquired are Wi-LAN which develops and commercializes patented technologies, international road dynamics which is a provider of intelligent transportation systems, and viziya which is a software service provider. Its segment consists of Technology, Mobility, Factory, and Corporate.
Key Points:
The company’s share price is up 22% in the last 3 months and is up 28% year-to-date, somewhat recovering from when 12 months ago when the stock was trading for $1.96.
Much of the increase in the last 3 months came following the release of the company’s strong Q2 results on August 8th compared to the previous year, resulting in an increase of 11% over two weeks.
Recent Quarterly Financials:
- Revenue for the second quarter ended June 30, 2019 was $25.6 million, an increase of 353% over the prior year period.
- Net loss fell to $4.5 million in the second quarter of 2019, compared to $7.9 million in the second quarter of 2018.
- Adjusted EBITDA was $12.9 million in the second quarter of 2019, compared to a loss of $4.0 million in the second quarter of 2018.
Our Take:
P/E: 10.5x
EV/EBITDA: 5.2x
Current Ratio: 2.61
Cash Ratio: 1.98
Net Cash: $77.3 million
Quarterhill’s second quarter displayed significant increases in revenue and adjusted EBITDA, the nature of the company’s WiLAN business is one of continued lumpiness. The company holds a strong balance sheet, with $77.3 million in net cash and strong liquidity ratios, as well as potential cash inflow from a lawsuit over damages and infringement against Apple.
Acquisition Mission Statement
“Quarterhill’s emphasis is on seeking out acquisition opportunities at reasonable valuations that provide a foundation for recurring revenues, predictable cash flows and margins, and profitable growth..”
Sounds great in theory, but if executed poorly, it is just meaningless words on a page. Case in point – A couple years ago, Quaterhill acquired another public company – International Road Dynamics – we had just recommended. Our clients benefitted greatly from the transaction – so we thank Quarterhill for that. The acquisition came at an 80% premium to where the shares had been trading just 2-month earlier. Now we thought International Road Dynamics was undervalued, after all, we had just recommended it. But we did not see it as 80% undervalued near-term. Quarterhill paid around 13 times EBITDA which was a huge premium to the history average – a great company, but not bought at a great price – poor execution.
We could stomach lumpy quarterly revenues if the overall annual trend was upwards. Unfortunately, that has not been the case in the last 4-years for Quarterhill. Over the last 4-years.
| Total Revenue | 77,401 | 134,711 | 92,876 | 102,855 |
The variability in cash flow is even higher. While the trailing multiples on the stock appears attractive, the lack of guidance moving forward, lack of annual revenue and cash flow growth and inconsistent execution in the company’s stated “growth-by-acquisition” strategy give us enough reason to just monitor the stock. Based on recurring cash flow, the company is still not undervalued.
Weekly Star
Your Stock, Our Take
Mogo (TSX: MOGO; NASDAQ: MOGO)
Current Price: $4.35
Market Cap: $118,659,574
What does the company do?
Mogo is a financial technology company. They provide an app that provides various personal financial services to its users. These services include free credit score monitoring, identity fraud protection, digital spending account, credit services like loans, cryptocurrency trading, and others. The way this works is people can sign up to a free app through which the company is able to offer both free and paid services. Currently, Mogo has about 900,000 users signed up to its app.
Key Points:
We’ve actually been following Mogo for a while. Its an interesting company. We spoke with the CEO at the LD Micro Conference in Los Angeles last year. Of course, there is a big potential opportunity in offering innovative, app-based financial products. Mogo, along with other similar fintech companies, are targeting largely younger users, Millennials and now Gen Z. However, one of the differentiators for Mogo is that they do have strong revenues which we can use to start to analyze the company.
Recent Quarterly Financials:
- In the company’s most recent quarter, total revenues increased 14% to $16.3 million.
- Service and subscription revenue increased 68% to $8.3 million.
- Adjusted EBITDA was $1.6 million (10% of total revenue), an increase of 116% from the prior year.
- Adjusted net loss was $5.2 million, the same as the comparable period in 2018.
- Revenue growth in the quarter was driven by a 32% increase in active members and an increase in average core revenue per member of 6% to $78.
I do see Mogo as an interesting company with a future. They are expanding their product offerings and trying to innovate. The problem for me here is that in spite of strong revenue growth, they are still not making any money. We are always stressing to investors the importance of sticking with profitable stocks because these companies are proving a workable business model. It does appear that the company is close to turning a profit but in my conversation with the CEO, profitability wasn’t a near term priority. Time will tell if this is the correct strategy. The stock has not done much in the last 2 years and has been quite volatile. We will continue to follow Mogo but we aren’t ready to recommend it to investors yet.
Weekly Dog
The Green Organic Dutchman Holdings Ltd. (TGOD:TSX)
Current Price: $2.45
Market Cap: $675 million
Dog Performance:
TGOD is down 11% in the last week, and down 22% in the last month, and has been on what is mostly a steady decline for the last 6 months ago, when it traded for $5.48, from which it is now down 55%.
What does the company do?
The Green Organic Dutchman Holdings Ltd. (TGOD:TSX), produces and distributes cannabis and related products and Hemp related products – primarily, as it’s name would suggest, organic cannabis products, including organic dried cannabis, cannabis oils and edibles, fresh cannabis, and seeds for medical applications. Geographically, it generates the majority of its revenue from Europe.
It remains unclear if the products are, in fact, exclusively produced or sold to Dutch men…as the name would suggest.
What is driving the stock?
The main story here is what we see from many of the cannabis companies that are not best-in-class in terms of cost efficiency: the company’s losses continue to grow as it tries to grow its revenue and the company’s path to profitability is becoming harder and harder to see. For the most part, the company’s news releases have been positive, but with increasing operating losses and cash flow losses, the market is losing confidence in the company. This includes Aurora Cannabis as a shareholder, who on September 4th, sold off its remaining 28.8 million shares of TGOD, representing 10.5% of outstanding shares of the company.
Financial Results
Q2 2019 compared to Q2 2018
- Revenue was $2.9 million compared to $0.
- Net loss was $16.6 million compared to $8.5 million.
- On a diluted per share basis, $0.06 compared to $0.04
- Adjusted EBITDA of $333 million compared to $254 million, up 31%.
- On a diluted per-share basis, $0.13 compared to $0.12, up 8%.
Conclusion:
Negative Earnings
Negative EBITDA
Current Ratio: 4.66
Cash Ratio: 2.12
Net Cash: $66.3 million
TGOD is struggling as a cannabis company with name recognition not making a strong case through its financial statements for a profitable future. It continues to rapidly issue shares to raise money, giving it a strong net cash position, but with growing operating losses as well as growing cash flow loss while still creating minimal revenue, there is concern for shareholders over when the value is supposed to return to the stock. Aurora Cannabis, one of Canada’s largest players in the cannabis market, recently sold off its shares, further reducing shareholder confidence. We currently do not recommend any companies in the Canadian cannabis space, and TGOD is not around the top of our list if we were to change that stance.
