KeyStone’s Stock Talk Podcast Episode 165
We’re back baby – from the OC, or more specifically the annual Roth Conference at the Ritz Carleton which hosted approximately 450 public companies and thousands of analysts. We will briefly talk about what came from our interviews at the event. We will also talk the launch of our March/April Webinars – our first of 2022. In our Your Stock, Out Take segment, I answer a listener question on NamSys Inc. (CTZ:TSX-V), which provides software solutions for currency management and processing for the banking and merchant industries principally in North America. Brennan will answer a listener question on Converge Technology Solutions (CTS: TSX), a North American Hybrid IT solution value-added reseller (VAR) focused on delivering advanced analytics, cloud, cybersecurity, and managed services offerings as well as the provision of hardware and software products and solutions to clients across various industries and organizations. Finally, Aaron will twiddle his thumbs.
Position Your Stock Portfolio Post Pandemic – New opportunities for 2022 & Beyond.
- All you need to know is to effectively structure a winning stock portfolio and, most importantly, the right stocks to put in it.
- The Stealth Tech Crash & the Buying Opportunity – Half NASDAQ listed stocks have lost 50% of their value from 2021 highs – which to avoid & which great tech stocks now offer long-term value!
- 2022 Outlook: Current Risks, Opportunities, and the 5 Most Asked Questions from Investors – What is the likelihood of a crash or major correction in the near future? What are the key risks and opportunities in the economy and stock market today? How do I manage the risks of rising interest rates, inflation, and supply chain issues? Is it better to invest now or wait? What is KeyStone’s best piece of advice for investors today?
- KeyStones’ Simple Portfolio Building Plan – how to build a simple 15-25 growth & dividend growth stock portfolio designed to enrich you, not your advisor.
- Hot Topics & Post Pandemic Opportunities in 2022:
- Technology: Cloud, AI, automation, digitization, and cybersecurity.
- Infrastructure Assets
- Cash Flow Rental Properties – Industrial and Apartment REITs
- Infrastructure Development
- Dividend Growth Stocks
- Special Situation and Select Commodities
- Speculative Areas – Cryptocurrency, NFTs, and Meme Stocks.
- 6-8 Great Stocks You Can Buy Today – KeyStone’s top SaaS tech, top REIT, top healthcare, top FAANG, top gold-related, top energy-related, top dividend growth stock, and more.
- Live 30-40-minute Q&A Session: Ryan Irvine & Aaron Dunn – Answer your questions on stocks and strategies.
Listener Susan – asks us our thoughts on profitable micro-cap NamSys Inc.
NamSys Inc. (CTZ:TSX-V)
Price: $0.85
Market Cap: $23.19 Million.
Portfolio: MONITOR
Rating: MONITOR
Company Description:
With roots that date back to the late 1980s, NamSys provides software solutions for currency management and processing for the banking and merchant industries principally in North America. The company offers Cirreon Smart Safe, a cloud-based digital platform for managing networks of smart safes; Cash in Transit Logistics that manages routes scans barcodes, and captures signatures digitally; and Deposit Tracking for tracking digital deposit data and transmits real-time updates.
Recent Financial Results:
Q4 revenue in the three months ended October 31, 2021, increased 3.0% to $1.27 million as compared to $1.24 million for the corresponding period in 2020. The company continues to see growth in its SaaS offerings and benefits from this model as the services are paid monthly. SaaS revenues grew 3.7% $1.26 million. Net income was $322,000 just slightly below the preceding period at $329,000.
Revenue from operations for the twelve months ended October 31st, 2021 For the YEAR – revenue was $4.98 million as compared to $4.75 million in fiscal 2020. Net Income before tax for fiscal 2021 was $1.73 million as compared to 2020 where, eliminating the one time termination cost of the Long Term Bonus Plan, results in net income before tax for 2020 of $1.50 million.
BALANCE SHEET
NamSys HAS A STRONG BALANCE SHEET – Cash on hand was $2.55 million and short-term investments were $2.01 million – limited to no debt.
VALUATION
On a trailing 12-month basis NamSys has posted $0.046 in earnings and trades with a PE of 18.47. Given the company’s revenue growth rate was just under 5% last year, this valuation appears appropriate. If we factor in the roughly $0.167 per share in cash, the company’s PE ex cash is 14.84, it becomes somewhat more interesting as a potential takeover target.
CONCLUSION
NamSys is a quality, profitable cash-rich micro-cap. The business has seen annual growth each year for 10-years which is an excellent track record. However, the growth has not been spectacular taking annual revenues from approximately US$1 million in 2012 to US$4 million (CAD$4.98 million) in 2021 and leaving the company still ranking as a very small business in the public arena.
Additionally, the core business operates to assist the physical cash cycle. It is used by retailers, cash in transit companies, and banks. The platform appears solid and is primarily SaaS-based. While physical cash is not going away near term, we see a mid to long-term declining cycle, and servicing a business within a downturn concerns us.
On a trailing 12-month basis NamSys has posted $0.046 in earnings and trades with a PE of 18.47. Given the company’s revenue growth rate was just under 5% last year, this valuation appears appropriate. If we factor in the roughly $0.167 per share in cash, the company’s PE ex-cash is 14.84, it becomes somewhat more interesting as a potential takeover target.
Again, the company is an admirable micro-cap that may have some value as a takeover target given its strong balance sheet and history of profitability. The low growth and declining end market give us reason to rank it as a MONITOR at present.
Your Stock Our Take
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Converge Technology Solutions (CTS: TSX-V)
Current Price: $10.72
Market Cap: $2.1 Billion
What does the company do?
Converge Technology Solutions Corp. is a North American Hybrid IT solution value-added reseller (VAR) focused on delivering advanced analytics, cloud, cybersecurity, and managed services offerings as well as the provision of hardware and software products and solutions to clients across various industries and organizations.
Since October 2017 the company has completed 28 acquisitions.
Key Points:
- The company announced 3 acquisitions in 2022 so far:
- On March 1, 2022, CTS announced that it had acquired 1CRM Systems Corp. 1CRM’s software operates in the cloud and on premise, with the ability to handle daily task management, marketing automation, sales and opportunities, order management, client service and project management in a single system.
- On February 9, 2022, CTS announced that it had acquired German-based organization Visucom GmbH. Which has been a trusted supplier of professional screens, interactive blackboards, loudspeakers, cameras, projectors, displays, and media controls for education and public sector clients since 1987.
- On January 10, 2022, CTS announced that it had acquired PDS Holding Company, a Delaware corporation, which is focused on fueling digital transformation.
- On December 8, 2021, CTS announced it gained approval to increase its ABL credit facility from $190 million to $300 million in an agreement with a syndicate of banks led by CIBC.
Recent Financial Results: (Q4, 2021)
- Revenues were up 74% to $505 million, compared to the same period last year.
- Adjusted EBITDA increased to $34.7 million, an increase of 48% from Q4, 2020. (Adjusted EBITDA margin was just under 7%).
- Adjusted EPS was flat at $0.12, compared to the same period last year.
- The company has a great balance sheet with a net cash balance of $228.8 million or $1.07 per share.
- And trades with a trailing EV/EBITDA of 22x and a trailing P/E of 35 times.
Our Take:
Converge has been growing at an aggressive pace as it consolidates in the fragmented value-added reseller (VAR) space – posting a CAGR of 132% from 2017-to-2021. In 2018 Converge started a multi-year strategic growth plan pushing to make between four and six acquisitions per year in both North America and Europe. And management continues to have an aggressive growth strategy, targeting a pro-forma revenue run-rate of $2 billion and a $100-$200 million adjusted EBITDA run rate heading into 2022.
Since we last covered the stock on the podcast back in Q2 2020, the company has really turned around its financial position. Where at that time the company had a net debt balance of $207 million, a net debt-to-adjusted EBITDA multiple of approximately 5 times and about 100 million shares outstanding.
Where now, the company maintains a healthy cash rich balance sheet, continues to post stellar growth numbers fueled by acquisition, and still posted organic growth of approximately 9.6% in 2021 – which is pretty good. But considering the company’s low EBITDA margin of under 7% and valuation multiples of 22 times EV/EBITDA and P/E of 35 times, does the company offer value? I would personally argue that it trades near fair value in the near term…. but if it can continue to execute on its growth strategy by making accretive acquisitions while not over-levering its balance sheet, I think long term the stock could offer some value despite its more premium valuations at present. But nonetheless, we would maintain a monitor rating on the stock at this time.
