KeyStone’s Your Stock Our Take: Advent-AWI Holdings Inc. (AWI:TSX-V) and Paysign Inc. (PAYS:NASDAQ), STAR: The Stars Group Inc. (TSGI:TSX) and DOG: Secure Energy Services Inc. (SES:TSX).
This week in our Your Stock, Our Take segment we answer a listener question on Advent-AWI Holdings Inc. (AWI:TSX-V), a company which had operated for 20-years as a specialty retailer of personal wireless and wireline communication products and services for the Rogers brand. The micro-cap is set to wind up this business and trades at just under cash value. A listener asks us if this makes it a sleeper opportunity. In our second Your Stock, Our Take segment Aaron answers a listener question on Paysign Inc. (PAYS:NASDAQ), a vertically integrated provider of innovative prepaid card programs and processing services for corporate, consumer, and government applications. A listener notes that the revenue and earnings growth has been excellent this year, but the stock as fallen off of late – is it an opportunity? Our Star of the Week is The Stars Group Inc. (TSGI:TSX), an online and mobile gaming company with poker, gaming and betting product offerings. The stock was up over 38% last week after it was announced that The Stars Group Inc. (TSGI:TSX) and Flutter Entertainment (FLTR:LSE) of Ireland, reached a business combination agreement where the two companies would merge and this would be implemented through an acquisition of The Stars Group Inc. by Flutter. Our Dog of the Week is, Secure Energy Services Inc. (SES:TSX), which provides treatments and disposal services to the oil and gas industry. The company is down 38% in the last 3 months and 21% in the last week alone. We discuss what ails the stock.
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XPEL Inc. (XPEL:NASDAQ)
Price: $6.50
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Gain: 80%
Viemed Healthcare, Inc. (VMD:TSX)
Price: $5.90
Today: $9.06
Gain: 53%
Questor Technology Inc. (QST:TSX-V)
Price: $2.22
Today: $4.27
Gain: 92%
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
Advent-AWI Holdings Inc. (AWI:TSX-V)
Current Price: $1.00
Market Cap: $11.9 million
What does the company do?
Over the past 20 years, Advent-AWI Holdings Inc. has operated as a specialty retailer of personal wireless and wireline communication products and services in Canada. Recently, the company has begun a foray into the financing segment operates as a private lending company offering personal and collateral loans across the Greater Vancouver Area and the Greater Toronto Area. This is a very small area of the business.
In the past year, management made a strategic decition to wind down the core business of retail wireless products/services/accessories. The company entered into an arrangement with Rogers, its’ core retail wireless business whereby Advent’s licenses with this service provider have been shortened to end in September 2020. In the interim, the company’s active store count will be reduced to four.
As such, looking at and projecting forward the business based on the current income statement is relatively meaningless.
We can look at the company’s balance sheet.
As it currently stands, the company has net cash of $16 million and its cash (and equivalents) make up 88% of the company’s total assets. Also, as it stands, the company has cash equivalent to $1.34 per share, but the share price is $1.00. Additionally, the company’s P/B ratio is 0.6.
Even after the recent $0.15 dividend, at present, the market is priceing the stock at or slightly less than cash.
Conclusion
While this may seem like an opportunity, there are many risks as beyond 2020, Advent has no defined cash producing business. Management has stated that, “To re-position ourselves for the Internet business world, we have determined to lead Advent into a new era, and participate in new projects with better prospects for future growth and profitability.”
This is a very broad statement on what the company is looking for in terms of an acquisition.
The stock is also very illiquid – it trades by appointment. The company is cash rich, but will no ongoing business, it does not make our criteria at present. We continue to monitor it.
Your Stock, Our Take
Paysign Inc. (PAYS:NASDAQ)
Current Price: $11.55
Market Cap: $549.4 million
What does the company do?
PaySign Inc is a prepaid debit card payment solutions provider as well as an integrated payment processor that has many prepaid debit cards in its portfolio. It designs and develops payment solutions, prepaid card programs, and customized payment services. Through the platform, it provides services including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service. It manages programs for many of the pharmaceutical manufacturers with co-pay assistance products designed to maximize new patient acquisition, retention, and adherence.
Key Points:
The company is up nearly 200% in the last year and up a bit over 50% in the last six months. In May, the company had a well-received first-quarter report, with the company’s shares increasing 27% in about two weeks. Following that, the company has fluctuated wildly between $10 and $18 before settling a bit more in September in the $9.50 to $11.50 range. In the volatile August, the company was featured Zacks as a top pick.
On September 9th, the company updated its 2019 annual guidance, downward due to delays in onboarding new plasma industry programs, and since then after which the company fell to the lowest it had been since May ($9.47). Since then, the company is up 22%. In this time, PaySign has been under investigation for whether the company has violated federal securities laws and engaged in other unlawful business practices.
Recent Quarterly Financials:
- Revenue for the second quarter ended June 30, 2019 was $28.3 million, an increase of 58% over the prior year period.
- Net Income grew to $1.7 million in the second quarter of 2019, compared to $0.7 million in the second quarter of 2018.
- Adjusted EBITDA was $2.6 million in the second quarter of 2019, compared to $1.2 million in the second quarter of 2018.
Our Take:
P/E: 144x
P/EBITDA: 86x
Current Ratio: 1.23
I’m not sure what is considered debt on the balance sheet
The company has seen fantastic growth over the last 2 years, and its recent positive performance can be seen reflected in the stock price over the last year. The more recent volatility, however, may indicate that the market is having a difficult time placing a value on the stock. To us, the current valuations (144 times earnings and 86 times EBITDA) are far higher than we feel are appropriate, given its current growth and business, and while it looks like a good business that has benefitted from the recent economy, the stock price will have to be substantially lower before we consider it a good investment decision.
Weekly Star
The Stars Group Inc. (TSGI:TSX)
Current Price: $27.86
Market Cap: $8.015 Billion
Star Performance:
The stock was up 39.58% last week on positive news.
I want to point out here that in mid 2018, the stock peaked at around $50 per share, where it descended to a two-year low in August of 2019 to around $17 per share.
What does the company do?
The Stars Group Inc. is an online and mobile gaming company with poker, gaming and betting product offerings. These products are offered both directly and indirectly under owned or licensed gaming brands, and the company also owns several live poker tour and events brands. The firm’s primary sources of revenue are its online gaming businesses.
The company owns the familiar online gambling platform – PokerStars.
The company has three segments based on geography: International, United Kingdom, and Australia. With the majority of revenue coming from the international segment.
What is driving the stock?
On October 2nd, 2019, it was announced that The Stars Group Inc. (TSGI:TSX) and Flutter Entertainment (FLTR:LSE) of Ireland, reached a business combination agreement where the two companies would merge and this would be implemented through an acquisition of The Stars Group Inc. by Flutter.
Under the terms of the combination, The Star Group shareholders will be entitled to receive 0.2253 New Flutter Shares in exchange for each TSG share. Valuing the Stars Group at about $9 billion.
In additional news, in May the Stars Group and FOX Sports announced plans to launch FOX bet, the first of its kind national media and sports wagering partnership in the U.S.
Financial Results
Q2, 2019
- Revenue increased 54.9%, to $638 million in Q2, 2019, from $412 million in the same quarter last year.
- Adjusted EBITDA increased 40.7% to $237 million compared to $168 million for the same quarter last year.
- Adjusted Net Income was up 4.7% to $137 million from $131 million for the same quarter last year.
Conclusion:
Looking at the twelve trailing month figures, revenue and Adjusted EBITDA have been increasing steadily period over period, but Adjusted Earnings have been flat. So profit hasn’t been really translating to the bottom line here.
Looking at the company’s valuation multiples after the announced deal, the stock is trading at a P/E of around 16 times & the EV/EBITDA multiple is around 14.5 times.
The company is also quite levered with a debt-to-equity ratio of over 1 and net debt of about $5 billion.
There is definitely some enthusiasm behind the story, online betting is becoming increasingly popular and the company’s deal with FOX is promising.
I think the merger is positive for The Stars Group as the company has been increasing revenue and EBITDA, but this growth hasn’t been hitting the bottom line. With this being said, Flutter is targeting the company after The Stars Group share price reached a two-year low and they may be optimistic that the merged company’s economies of scale will be able to increase profit on the bottom line.
Overall, the recent merger announcement has caused the share price to increase and has allowed the company to claim the coveted status of our Star of the Week.
Weekly Dog
Secure Energy Services Inc. (SES:TSX)
Current Price: $4.41
Market Cap: $696.7 million
Dog Performance:
The company is down 38% in the last 3 months and 21% in the last week alone.
What does the company do?
Secure Energy Services Inc provides treatments and disposal services to the oil and gas industry. Fluid and solutions are provided through an integrated service and product offering that includes midstream services, environmental services, systems and products for drilling, production and completion fluids, and other specialized services and products. Through the processing, recovery, and disposal division, Secure delivers processing, storing, shipping, and marketing of crude oil, and oilfield waste disposal and recycling. Additional services and products include equipment and product solutions for drilling, as well as water management and pipeline integrity. The majority of the revenue for Secure’s services is derived from the United States and Canada.
What is driving the stock?
The spike after the drone attack last month aside, crude energy prices have trended lower over the last 6-months – dragging secure and the sector with it.
The stock’s share price appears to be following a very similar shape of the average North American company in the Energy Sector, but on the more negative side. In particular, the company began losing more share price than the average energy sector company following its July financial quarterly release, which while having decent EBITDA growth, featured stagnant revenue and net losses (which hasn’t occurred since Q2 of last year).
Financial Results
Q2 2019 compared to Q2 2018
- Revenue was $138.9 million compared to $141.2 million, down 2%.
- Net loss was $1.7 million compared to a loss of $6.9 million
- On a diluted per share basis, a loss of $0.01 compared to a loss of $0.04
- Adjusted EBITDA of $35.0 million compared to $31.2 million, up 12%.
- On a diluted per-share basis, $0.22 compared to $0.19, up 16%.
Secure’s outlook for oil and gas activity for the second half of 2019 is conservative due to ongoing macro-economic factors in the Canadian energy sector. The company has been shifting towards its midstream business over the past two years. This is because the company has noticed a trend of producers outsourcing midstream work.
Conclusion:
P/E: 36.75
EV/EBITDA: 5.80
Current Ratio: 1.65
PP&E makes up 77% of Total Assets.
D/E: 0.57
Secure Energy Services highlights many of the problems that we have with the energy sector, where however it operates as a company, it is very vulnerable to overall economic trends in its sector. If a sub-par company-specific quarter aligns with a downturn of the greater economic environment, the stock price suffers significantly. That is what we are seeing with Secure. Being down 50% in the last half year, and 10% last Friday, Secure Energy Services earns the title of our Dog of the Week.
