KeyStone’s Stock Talk Show, Episode 197.

After a week off to attend one of our biggest conferences of the year, we are happy to be back with you this week kicking of February or Brennan likes to call it, his month of love. We will look back at our presentations at the World Outlook Financial Conference in Vancouver and the weekend that was. I will take a small excerpt from my speech and discuss 2022 and current broader market valuations from a historical perspective. Brennan hits the mailbag to answer a YSOT question on Atlas Engineered Products Ltd. (AEP:TSX-V), a profitable, growing Canadian Small-Cap  that is acquiring and operating profitable, well-established operations in Canada’s truss and engineered products industry. From a current valuation and growth perspective, there is a good deal to like about the business. Brennan goes over the details. Aaron will be doing an educational segment on EBITDA versus net income. Finally, Brett will give a summary of the trouble facing the now former 3rd richest man in the world Gautam Adani and his companies the Adani Group, which have been accused of Fraud by the short seller Hindenburg Research.

I welcome my cohosts – Aaron, and the Killer B’s – Brennan and Brett.

Myself and Brennan will be seen tomorrow, Wednesday February the 8th (which could actually be today dependent on when the show is dropped) ringing in the opening bell on the TSX or Toronto Stock Exchange – pretty cool event we taped over the weekend at the World Outlook Conference.

Great to see people again in person – shake hands with literally hundreds of clients and speak in from of a crowd of just under 1,000 rabid and engaged investors (1,000s now watch it online).

Diverse set of views from the speakers – ranging from predictions of WW3 to the next bull run already starting.

Broader North American Market Valuations

In a small subsection of my talk at the World Outlook Conference, I looked back on 2022 and the market collapse – citing high valuations are one of the reasons the market dropped. Here is a brief snippet from that section including where the markets sit today in valuation terms historically.

#2 is sky high valuations – We have not seen this referenced quite as often as a reason for recent declines, but it is a drum we have been beating for several years.

It has been difficult for us to find growth at a reasonable price for nearly three years – we are starting to approach better times in this regard, but patience will be key. This is when real money can start to be made in a well positioned portfolio.

Current valuations: One metric we like to look at is the Schiller PE – is a more reasonable market valuation indicator than the regular PE ratio because it eliminates fluctuation of the ratio caused by the variation of profit margins during business cycles.

This is the Schiller over the past 20-years. The ratio reached is highest point in November of 2021, in the range of 38.6, which would be 48% above the average PE of the last 20 years – 26.

This was the highest ratio in the past 20-years and was eclipsed literally once since its was being tracked (over 100 years) during ***CLICK*** the dot come madness in 1999 at roughly 44.

Where are we now?

Valuations Today:

  • Shiller PE: 30.3.
  • Shiller PE is 16.7% higher than the recent 20-year average of 26.1.
  • Far better than in the range of 38 hit in November of this past year – which was 47% above the average PE of the last 20 years.
  • However, it is instructive to point out that the Shiller PE is still 75% above its all time average of 17.3 – indicating we are not nearly historically cheap.
  • The current valuations are superior to any period in the last 2-4 years. (outside of the Pandemic Flash Crash). – but risk remains elevated.


How did we reach this level of insanity in terms of valuations? – I don’t have enough time to really drill down to the how, but we can start with a combination of easy money, extended poor government and Federal bank policies and a lack of focus on valuations – all brought on FOMO and speculative excess.

But fortunately, as I pointed out throught my talk, in Canada, we have some great minds to solve all of our problems for us…including this gem is on task right now!


Surely, we can just ask Justin if now is a great time to buy stocks.

Just as soon as he solves the very puzzling toast issue.

The Adani Group


What I understand is that from a Short Sellers perspective, the Adani Group is a decent bet even if the allegations are wrong as it was trading at high multiples and growth was funded largely by a $30 billion borrowing binge, making it one of the most indebted companies in India…at a time when debt servicing cost have rocketed higher. If you can impact the companies ability to access financing in some way, you inhibit growth and with less growth, it will not grow as fast which will shrink the multiple investors are willing to pay for the stock – this is even if the fraud alleged in the report is false.

Relying on his longstanding partnership with India’s powerful leader, Narendra Modi – as I understand, many of the projects and developments awarded were basically in lock step with the  governments own key development areas.


The now former 3rd richest man Gautam Adani and his companies, the Adani Group have been accused of Fraud by the short sellers Hindenburg Research, does the short report have merit or is it just sensational short sellers?  The Indian-based group headed by Gautam Adani is comprised of seven core companies Adani Enterprises, Adani Transmission, Adani Total Gas, Adani Green Energy, Adani Power, Adani Ports, and Adani Wilmar. Two of which are in India’s Nifty 50 Index and 6 are in the MSCI India Index. The inclusion of them in these commonly used indexes means if you hold an Indian-based fund or emerging global fund including ETFs there is a high probability the fund holds or had held one or more of the Adani Companies.

On the date of the report, January 24th,  the Adani group’s combined value was roughly $218 billion US and has since fallen over 50% to $106 billion.

As short seller reports commonly do and this report is no different they provide a large number of reasons why the company is overvalued or in this case fraudulent as well. Before we get to the fraud, Hindenburg first states the companies are purely overvalued based on price multiples, we are inclined to agree with this as four of the companies had price-to-earnings multiples in the hundreds of times. As well, as citing liquidity concerns due to high debt.

But, overvalued companies are nothing unique. The fraud in this case is what has caused such an uproar for domestic and foreign investors.

I’ll link the full Hindenburg report and Adani’s response in the description, but will be going over a few of the key points that I view as the stronger ones.

First off, the report claims that the Adani group’s insider ownership is too high. For India, a public company has a maximum of 75% insider ownership, Hindenburg claims that Adani is in excess of 75% using shell companies and/or funds within Mauritius to hide the ownership of the shares. If you haven’t heard of Mauritius you’re not alone it’s an island nation off the southeast coast of Africa, commonly used as a tax haven. On its own, a fund operating within a tax haven is not the problem its the fact the funds almost exclusively own Adani companies and therefore should be considered promoters or insiders which would push insider ownership past the legal threshold.

You might be wondering why insider ownership is bad since we have said before we look for insider ownership in companies we recommend. The issue is when you get to such high levels of ownership it can allow for the manipulation of the stock price and can significantly impact liquidity.

In Adani’s 413-page response to the Hindenburg report, the company claims that they are not related companies and won’t comment on ‘public’ traders.

Second, Hindenburg accuses Vinod Adani, Gautam Adani’s brother of heading a shell company structure to obscure the inflow and outflow of capital into the Adani Group, allowing the Adani Group to boost reported earnings. The network of public and shell companies allows for the group to move money between the various entities to do things like to prop up the valuation or extract money from the public companies into the hands of the Adani family or friends under the guise of services or products.

Adani Group’s response to this is more or less the transactions were at arm’s length, which means the transactions were at fair value. As well the company dismisses the need to know the sources of funds of the private entities.

The third major point I’ll go through, is the connection with the Indian government and taxpayers’ funds. The Group has been accused of import-export scams multiple times. Of which Hidenburg claims that the Group would inflate values of exports to obtain tax credits from hitting export quotas. As well citing a case where Adani paid bribes to multiple levels of government to illegally export.

The Adani Group’s response was that the matters were settled in the courts and found false.

There have since been protests calling for action of state investment into the Adani Group. The shares have also had circuit limits imposed, which put a limit on the amount the stock price can change in a day.

I’ll open it up to the rest of you guys if you have any comments.



Question from – Rex via email on Atlas Engineered Products

Atlas Engineered Products (AEP:TSX-V)

Price: $0.93

Market Cap: $53.2M


Atlas Engineered Products designs manufactures and sells engineered roof trusses, floor trusses, and wall panels. The company also distributes a range of various engineered wood products for use by builders of residential and commercial wood-framed buildings. These include single family homes, townhouses, multi-story wood-framed residential buildings, commercial buildings, and agricultural structures.

The company’s strategy is focused on profitability and organic revenue growth within its current markets, and the pursuit of a roll-up acquisition strategy to consolidate similar companies operating in the truss and engineered wood products industry across Canada.

Operational Updates:

Slide 2

The company has made 7 acquisitions since going public in 2017. With the most recent acquisition On February 28, 2022, when Atlas acquired Hi-Tec, located on Vancouver Island which manufactures roof trusses and sells engineered wood products.

The shares of Hi-Tec were acquired for $5.8 million in cash plus a working capital adjustment ($454K). The land and buildings of Hi-Tec were also acquired by the company for the appraised value of $3.25 million in cash. Atlas financed the Hi-Tec Acquisition with a term loan for $5.8 million and a mortgage for $2.4 million. During the 2021 fiscal year, Hi-Tec earned revenues of just over $5.0 million, net income before taxes of just over $1.0 million, and a normalized EBITDA of $1.25 million, resulting in a normalized EBITDA margin of 25%.

Slide 3

Recent Financials (Q3 2022):


Q3 22Q2 22Q1 22Q4 21Q3 21Q2 21Q1 21Q4 20
Net Profit$3.1M$1.6M$1.6M$2.5M$2.8M$1.6M$0.05M$0.4M


  • Revenue growth was relatively flat, coming in at $17.6M in Q3 2022.
  • Adj. EBITDA was $5.2M, up 12.6% from $4.6M in Q3 2021.
  • Net income increased 12.1% to $3.1 million or $0.05 per share compared to net income of $2.8 million or $0.05 per share for Q3 2021.
    • The increase in adjusted EBITDA and net earnings was primarily due to the increase in revenues, improvements in gross margin, and the new acquisition of Hi-Tec.
  • Balance sheet had $12.9M, with $15.9 million in debt and leases, providing a net debt position of $3.0 million. Balance sheet is very healthy with net debt to EBITDA multiple well under 1x.
  • Trades at 6.2 times earnings which is attractive.

Slide 4

Call with Hadi, the CEO and found of Atlust, just over a year ago in December 2021:

What can de-rail the story into 2022? “IF DEVELOPERS SHUT THE LIGHTS OFF. If interest rates increase above 4% it would affect them. Money is so cheap right now”

Considering when we had this call, interest rates were at 0.3%… And look at where we have seen them go over 2022…. Above that 4%..


I like Atlas engineered products as a business and the stock has done very well over the last 2 years. The CEO seems like a straight shooter, the company maintains a healthy balance sheet, it trades with low valuations and has been acquiring accretive businesses. But my overhanging fear with the story are the comments from the CEO during our call just over a year ago whenhe said “money being very cheap and interest rates going above 4% could potentially disrupt the business’ growth”. With this potentially disrupting the growth path in the near term, we would remain on the sidelines at this moment in time.

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