KeyStone’s Stock Talk Show, Episode 222.

We have a great show for you this week. Brennan will start by talking the ever-fascinating topic (particularly for average investors) of yield curves. But seriously, as fears grow over a wobbly economy, talk of the yield curve—especially when it becomes inverted—grows, because it has often been seen as a chief predictor of a recession. Brennan will let you know his take on the yield curve and how it might be predictive of what is to come over the next year in the markets   In our YSOT segment, I will answer a viewer question on VitalHub Corp. (VHI:TSX), a software consolidator focused on the healthcare vertical. Its primary products include electronic medical records (EMR) and patient flow solutions. In a weaker small-cap tech market, the viewer asks if the company’s results are flying under the radar and if the stock may be a long-term opportunity.  Brett will answer a viewer question on Nuvei Corp (NVEI:TSX) which he has answered 2 questions about on past shows. The company is a provider of payment technology solutions to merchants and partners. The stock is down 37% year to date, and about 87% from its pandemic high. The company just issued lower guidance which hit the stock hard and Brett let’s you know if the drop make Ryan Reynolds favourite stock a BUY, SELL or AVOID.

Let’s get to the show – my co-hosts the killer B’s, Brett, and Brennan.

Aaron has once again packed up his Winnebago, jammed the family in it, and made his pilgrimage to the Wonderful World of Disney – never fear, he will be back next week with a fresh set of Mikey Ears and his wallet a lot lighter having been pillaged at the happiest place on earth.

I am back, from a Scandinavian adventure of sorts – we travelled through Denmark, Norway, and Sweden – saw a ton of Fjords, more Fjords and endless castles.

It was good times. A beautiful area of the world.


  1. Bicycles everywhere – shocking. 50% of the population bikes to work. Amazing.
  2. Went to Tivoli Gardens – which is Copenhagens answer to Disneyland – not really, but Walt Disney did take inspiration from the 180 year old park to built Disneyland. We also saw Rick Astley in concert there – by chance. Brennan has been singing – Never gonna give you up, never gonna..blah blah blah, around the office ever since.
  3. Norway – went to a zoo/amusement park/water park which was really quite awesome.
  4. And…of course the countless castles…many were very cool and some dated back to the 1, amazing history. However, after you see the 52nd castle, my eyes do start to glaze over. We were at castle 52, I believe, when my daughter, asks me to look a chair in one of the rooms. I had seen a lot of chairs, and was less than enthused, but she insisted that I would like it, so I went with her.

Brett is going to put up an image of this very ornate chair in the ornate castle and, as is typicaly the case, my daughter was correct, the chair really did speak to me. It was known as the “Trouser Wetting Chair” – no word of a lie. Chair was from 1673. I am going to read from the info that was on a plaque beneath the chair.

The Yield Curve

Slide #1

Aaron discussed the yield curve in February of this year due to the U.S. Treasury yield curve going inverted but seeing that the Yield Curve continues to be inverted and is currently at its lowest level since 1981 – I thought that I would go into what this means and explain how the yield curve has historically performed in relation to the business cycle.

Slide #2

What is the yield curve?

Yield Curve – Shows the relationship between bond yields and maturities.

So generally:

  • Shorter-term yields tend to represent what investors believe will happen to central bank policies in the near future.
  • Longer-dated maturities represent investors’ guess at where inflation, growth and interest rates are headed over the medium to long term. (Term Premium)

So, the reason the yield curve tends to be upward sloping is because long term bond investors are being compensated with this Term Premium for the greater uncertainty of growth and inflation risk of holding a bond long term.

And I have taken the U.S. treasury Yield Curve from February 2017 to show you what a “normal” upward sloping yield curve looks like. So as you can see here, the shorter the maturity of the bond, the lower the interest rate, and when we get all the way up to the 10-30 year bonds, they have yields at around 2.5%-3.2%.

However, in 2023 we have seen this “normal” sloping yield curve go “inverted”, and here is a visual representation from Cara McDaniel Economics on Youtube to show you how the yield curve has fluctuated since February of 2017.

So you can see here that on February 10, 2023, the yield curve has gone inverted as bond investors are demanding a premium for short term bonds, and that long term investors are likely anticipating inflation and long-term rates to decline as the economy slows due to short term rates being elevated.

Slide #3

And as of Monday, August 14th, 2023, this is what the yield curve looks like… Its still inverted.

Now in the finance industry the inverted yield curve is generally seen as an indicator of a coming recession over the next 6 months to a year.

Slide #5

How has the yield curve generally acted in the business cycle?

  • At the peak of a cycle, the yield curve tends to be Flat or Inverted because the economy is ripping, and inflation begins to become an issue, leading central banks to raise short term rates, and long term bond investors begin to anticipate for growth, inflation and interest rates to decline.
  • As the economy goes into a contraction, central banks begin to decrease short term rates as inflation subsides from the economy slowing, so the yield curve begins to steepen.
  • At the trough of the cycle, the yield curve becomes very steep because inflation is quite low and the central banks have interest rates very low to help stimulate the economy out of the downturn.
  • As we go into the recovery and up-cycle the yield curve tends to flatten as the economy heats up, inflation increases, and the central bank increases short term interest rates.

Slide #5

However there has been a lot of debate on whether the yield curve is still a good predictor of the business cycle as we have seen an inverted yield curve in unison with continued strong economic data.

And even recently, several analysts have been debating that this time it is different, with Goldman Sachs indicating this time is different because the term premium is “well below” its long-term average (or in other words investors are not being compensation for the risk of holding long term bonds), so it takes fewer expected rate cuts to invert the curve. And they argue, as inflation cools, it opens “a plausible path” to the Federal Reserve easing up on interest rates without triggering a recession. Others argue that the yield curve is simply being overly pessimistic and these expectations are priced into the yield curve.

So are we headed for a recession? Who’s to say, an inverted yield curve has given false signals in the past. But regardless, as an investor, understanding how the yield curve has generally acted in relation to the business cycle is a good piece of information to know.

Vitalhub Corp. (VHI:TSX) 

Price: $2.70

Market Cap: $117.78 Million

Company Description: VitalHub Corp. is a software consolidator focused on the healthcare vertical. Its primary products include electronic medical records (EMR) and patient flow solutions.

VitalHub provides technology to Health and Human Services providers including Hospitals, Regional Health Authorities, Mental Health, Long Term Care, Home Health, Community and Social Services. VitalHub solutions span the categories of Electronic Health Record (EHR), Case Management, Care Coordination & Optimization, and Patient Flow & Operational Visibility solutions.

The company has a two-pronged growth strategy, targeting organic growth opportunities within its product suite, and pursuing an aggressive M&A plan. Currently, VitalHub serves more than 1,000 clients across Canada, USA, UK, Australia, the Middle East, and Europe.

Second Quarter 2023 Highlights

  • Revenue increased 38% to $13.08 million from the same period in 2022.
  • EBITDA rose to of $1.97 million compared to $1.02 million in Q2 2022.
  • Adjusted EBITDA jumped to $2.97 million, or 23% of revenue, compared to $1.87 million or 20% of revenue, in Q2 2022.
  • The increase was primarily attributable to the higher recurring revenues.
  • Net income before income taxes of $742,516 for Q2 2023 compared to a net loss of $9,957 in Q2 2022.
  • The increase was primarily attributable to the significant increase in revenues from organic growth and acquisitions, and lower expenses as a percentage % of sales.
  • EPS was $0.02 per share from basically nil in Q2 2022.

Valuations: The company trades at 7.0x FY 2024 and 6x FY 2025 EBITDA vs. software consolidators on average over 14 times (albeit many are larger entities).

Our Take:

Historically, Vitalhub has funded its acquisition strategy via equity financings or selling its shares – trying to walk a tight rope creating accretion to cash flow per share, in the face of share dilution. We remind veiwers that the company has once consolidated its shares as its aggressive acquisition strategy led to a high share count. Our question now is – has VitalHub now reached critical mass whereby its free cash flow production can be recycled into strategic and accretive M&A. Estimates are for free-cash-flow to be in the range of $10 million this year. The balance sheet remains well capitalized for acquisitions with $20

million in net cash and access to a $27 million undrawn bank revolver. Management stated VitalHub continues to see solid deal flow across tuck-in and larger transactions (which are preferred).

The stock trade at around 9.3 times 2023 expected free cash flow which is not a bad multiple if organic growth can be maintained in its current 4% range, but preferably increase to the higher single digit range. We see potential in Vitalhub and continue to monitor it. We will likely interview management once again near-term.


Slide 1

We’ve had a couple of questions come in on Nuvei again, we’ve done two previous segments this year but since it’s been in the spotlight it’s a good time to look at it again.

Nuvei Corp is a provider of payment technology solutions to merchants and partners. The solutions provided are mobile payments, online payments, and In-store payments.

The stock trades under the symbol NVEI at roughly $22.00 Canadian on the TSX and $16.31 US on the Nasdaq now down 37% year to date, and down about 87% from its pandemic high.

When I did a segment on Nuvei in March the stock was at about $56 so it’s dropped roughly 60% since then.

So what has changed?

Slide 2

So leading up to our initial talk on Nuvei at the start of the Year it reported its Q4 and fiscal 2022 earnings causing the shares to jump, but since then it had two major overnight declines following both the Q1 and Q2 earnings. Q2 caused the stock to fall by roughly 40% overnight.  Just by looking at the price and nothing else, we can assume the market was unimpressed by the earnings. Of course, we want to look into the reason because the market can over or under-react to specific metrics.

As well just a bit of an aside Ryan Reynolds’ promotion of the company took place in April, which just shows you can’t jump into a stock because a promoter says you should.

Slide 3

So looking at the Q2 earnings which were reported last week,

Total payment transactions increased by 68%, but only 23% was organic as the company conducted the acquisition of Paya earlier this year.

The transaction volume increase led to increased revenue by 45% to $307 million, of which 20% was organic growth that wasn’t related to cryptocurrency.

However,  GAAP net income fell substantially to $11.6 million from $35.1 million last year, and non-gaap income which notably removes share comp and acquisition-related expenses fell 22% to $58.1 million from $74.7 million.

Adjusted EBITDA did increase year over year by 19% to $110.3 million however as the company took on significant debt with its acquisition of Paya it went from interest income to significant interest expense which of course is removed from EBITDA which is why you have EBITDA growth while net income shrunk. So year-over-year EBITDA is not a quality metric in this case as you had a structural debt change where you realize much of the benefits of acquiring Paya but not the associate finance costs so it’s not creating a strong picture of the underlying operations which is the main selling point of an EBITDA metric. Going forward it will be better, it’s just when a structural change occurs like taking on a large amount of debt it will alter metrics differently and you need to be aware of why some metrics show growth and others don’t.

So, overall the quarter was not great, with growing revenue which is expected with the current valuations but shrinking income which is ultimately what matters.

Slide 4

However, moving to the guidance the company has lowered expectations across the board. Stating that their previous growth expectations were too aggressive, and that implementation will take time as well as a loss of a large customer.

The result is revenue growth is expected to be between 16 and 20% for fiscal 2023. The resulting adjusted EBITDA was lowered to $417 to $432 million, previously $456 to $477 million.

Comparing the two guidances adjusted EBITDA expectations for the year decreased by 9% just over the last quarter. That is concerning when the company’s valuation is relying on growth.

The company does have long-term targets of 15% to 20% annual revenue growth and 50% adjusted EBITDA margin which it is well off at this time at roughly 36%, so if they are able to hit the margin expansion target it could potentially add value but this latest guidance puts these targets into question.

Slide 5

So just a quick look at the valuations.

The company’s GAAP PE is absurd at 122 times, making it effectively meaningless as a metric.

Non-GAAP trailing PE is much more reasonable at about 9 times, but remember that the non-GAAP earnings are removing significant costs in the form of share compensation, and I will comment that they do have an outstanding NCIB actively buying back shares, which is a personal pet peeve when of mine when they remove share compensation and are buying back shares as the net effect is very similar to just paying higher salaries which wouldn’t be removed from adjustments but I digress.

Lastly, adjusted EV/EBITDA is 9 times on a trailing basis and 8 times on a forward basis, significantly lower than the last time we looked but still not overly cheap.


Slide 6

Debt is still a concern, albeit they are paying it down but it needs to be actively watched and incorporated into valuation.

The decreased growth expectations are what rattled the market, disillusioning investors from a high growth story.

Ryan Reynolds may be a great actor but that does not make him a great investor, don’t follow celebrity investing advice or paid promoters in general.


For now, I would stay away, if management is able to begin to hit or move towards its long-term target margin it could be more appealing if the valuation is reasonable at the time, but right now it is quite far off what is needed to be investible.



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