Stock Talk Podcast Episode 302 Show Notes

You are listening to KeyStone’s Stock Talk Podcast – Episode 302

Great to chat with you again. This week, we kick off the festivities with a look at an article I authored this week on a tale of two Small Cap M&A Stock Strategies – comparing the successful, measured approach of KeyStone recommendation Firan Technology (FTG: TSX) which has gained 700+ percent vs. the aggressive, equity diluting strategy of a company we passed Simply Solventless Concentrates (HASH: TSX-V), which, well, has not. In our YSOT segment Brennan looks at Lakeland Industries (LAKE: NASDAQ), manufactures and sells industrial protective clothing and accessories for the industrial and public protective clothing market worldwide. We have interviewed Lakeland a few times but not recommended it. The stock has struggled this year, down 50%. Brennan let’s you know if it is an opportunity. In our Star & Dog segment. Brett reports on two interesting businesses. The Dog, Hims and Hers Health (HIMS: NYSE), a retail investor favourite dropped 31.6% to start the week – Brett let’s you know why. On the flipside, we are very happy to report our “Star” of the week is recent KeyStone Small-Cap recommendation, Groupe Dynamite (GRGD: TSX). The stock has jumped ~50% in the last week after the company reported strong earnings and increased guidance. Clients will be updated shortly with our current rating. To close out our show, Aaron will look at the art of Dividend Growth Stock Investing.

Let’s get to the show – I welcome my cohost, Mr. Aaron Dunn, and the killer B’s, Brett and Brennan.

Poll Question

Firan Technology (FTG: TSX) vs. Simply Solventless (HASH: TSX-V) – A Tale of Two Small-Cap M&A Stock Strategies

This segment juxtaposes the responsible acquisition strategy of Firan Technology Group Corporation (TSX: FTG) with the more recent aggressive, dilutive approach of Simply Solventless Concentrates Ltd. (TSX-V: HASH), illustrating how their respective paths have impacted shareholder returns. We have interviewed management at both small cap companies. One we have recommended and owned for a decade, the other we took a hard pass on. 

General thoughts on Small/Micro Cap M&A Strategies – Aggressive vs. Measured.

Businesses that use a “M&A” as their primary growth driver walk a fine line. For every massive success story like the Boyd Group, a serial acquirer of auto repair shops recommended by KeyStone in 2008 at $2.30 which today trades above $200.00, there are ten Dye & Durham’s (DND: TSX) or Lightspeed Commerce’s (LSPD: TSX) – decent business that executed poorly on an aggressive growth-by-acquisition strategy. The are also countless roll up “stories” that niver even get out of the starting gate and end up destroying investor capital.

Unfortunately, the microcap market is also littered with failed or failing M&A strategies, including a recent example which I will touch on next week in Part 2 – Simply Solventless Concentrates Ltd. (HASH: TSX-V), the company provides an excellent foil for the more measured and successful M&A strategy of Firan Technology Group Corporation (FTG:TSX).

The strategy of growth by acquisition can be a powerful accelerant for a company’s expansion, but its success hinges critically on execution and financial prudence. While an aggressive, debt-fueled, and highly dilutive approach can lead to rapid scale, it often comes with significant integration challenges and shareholder value destruction. Conversely, a measured, responsible strategy, often characterized by strategic debt utilization and minimal share dilution, tends to yield more sustainable and rewarding long-term gains.

Growth-by-acquisition in reality.

While sexy in theory, growth-by-acquisitions can be a risky strategy, with many high-profile examples of mergers and acquisitions failing, often spectacularly. The reality is, a significant number of acquisitions fail to meet expectations, with estimates ranging from 70% to 90%. Common reasons for failure include poor integration, overpaying for the target company, overestimated synergies, cultural clashes, and a lack of strategic alignment.

KeyStone’s preferred growth strategy.

A mix of measured M&A funded by cash flow, cash on hand, or reasonable debt. Always with an eye towards continued organic growth.

As an example from KeyStone’s Canadian Small-Cap Research of an affective M&A strategy – enter Firan Technology Group Corporation (FTG:TSX)

The business: a North American manufacturer of high-technology printed circuit boards and illuminated cockpit products for aerospace and defense.

M&A strategy: a disciplined and accretive growth-by-acquisition model. FTG has pursued an opportunistic and measured M&A strategy to expand its capabilities, customer base, and market reach, all while maintaining a strong balance sheet and prioritizing shareholder value through minimal equity dilution.

FTG’s Acquisition Timeline (Last 10 Years) – FTG also acquired Young Electronics & Filtran Micro Circuits in 2004 & 2010 respectively

2016: 

•  PhotoEtch (Fort Worth, Texas): Acquired to expand customer base and product offerings. FTG successfully transitioned operations into existing facilities, closing the PhotoEtch site.
•  Teledyne PCT (Hudson, New Hampshire): Similar to PhotoEtch, this acquisition aimed to expand product lines, with operations moved into FTG’s Chatsworth facility.

2022-2023:  following the global shutdown of travel – huge hit to aerospace, the business responsibly played defence – built a strong net cash business and just ahead of the loosening of global restrictions, the company played offence, buying 2 businesses primarily for cash on hand.

•  IMI, Inc. (IMI) (Haverhill, Massachusetts) – IMI is a manufacturer of specialty RF circuit boards focused on the aerospace and defense markets.
•  Holaday Circuits (Minnesota based) – added US manufacturing capacity for RF and high technology product for aerospace and defense applications – combined sales of $45 million pre pandemic.

Q1 2025: 

• FLYHT Aerospace Solutions Ltd.: A significant acquisition enhancing FTG’s presence in the commercial aerospace aftermarket and expanding product offerings, particularly on Airbus aircraft. This deal reinforces FTG’s commitment to strategic, accretive growth in its core sectors.

Throughout these acquisitions, FTG has demonstrated a commitment to managing its debt effectively. For example, in its Q1 2025 results, even after the FLYHT acquisition and significant investments, FTG reported a healthy net debt of only $8.3 million. The company’s consistent generation of strong operating cash flow has been instrumental in its ability to take on debt for strategic growth and then deleverage.

 FTG’s Minimal Share Dilution:

A hallmark of FTG’s responsible growth strategy is its commitment to limiting shareholder dilution.

Over the past decade, despite multiple acquisitions, the company has largely avoided significant share issuances to fund these deals.

Weighted Average Shares Outstanding: 

• FY 2016 (year of PhotoEtch & Teledyne PCT): Approximately 24.09 million shares.
• Q1 2025 (post-FLYHT acquisition): Approximately 24.92 million shares.

This represents an increase of less than 4% in shares outstanding over nearly a decade of significant growth and multiple acquisitions, demonstrating remarkable financial discipline and a strong focus on enhancing per-share value.

 FTG’s Share Price Performance: A Testament to Responsible Growth

The long-term performance of FTG’s stock price directly reflects the success of its disciplined growth strategy. On May 15, 2015, KeyStone Financial recommended FTG as a buy at $1.35. Today, with the shares trading at $11.21, investors who followed that recommendation have seen substantial returns.

Firan Technology (FTG: TSX) vs. Simply Solventless (HASH: TSX-V) – A tale of two Small Cap M&A Stock Strategies.

Part 2…next week.

YSOT Lakeland Industries (LAKE:NASDAQ)  – Viewer Request

Lakeland manufactures and sells industrial protective clothing and accessories for the industrial and public protective clothing market worldwide. It offers firefighting and heat protective apparel, high-end chemical protective suits and limited use/disposable protective clothing, as well as high visibility clothing.

The company targets a mid-single digit organic growth rate across the business and also makes acquisitions, with 5 over the past 3 years. Trying to roll up the fragmented global fire market, now with a head-to-toe product offering.

We have interviewed management a few times now, the most recent being in April 2025 at the Planet Microcap conference in Vegas – but the stock has really been struggling this year, down 50% YTD.

And this has really been led by Trump’s liberation day tariffs, as the company either leases or owns manufacturing facilities in the U.S., but also in China, Mexico, Argentina, India, Vietnam, Romania and New Zealand…

Management noted back in April that they had built up inventory with about 10-12 months of runway before a major impact. They also moved some production into the U.S., as well as shifted critical component sourcing from China to Vietnam. And that they expect to increase prices of its products to offset potential margin impacts.

So let’s look at the financials for Q1 2026 ended April 30, 2025:

• Revenue was up 29% to $46.7 million, led by growth in its Fire Services product line due to the acquisition of Veridian acquired in December 2024 and LHD acquired July 2024.
• Gross profit margin was 33.5% compared to 44.6% for the same period last year. The lower gross margin is due to revenue mix coupled with lower margins in its acquired businesses (due to amortization of the write-up in inventory), higher manufacturing and freight costs.
• The company posted an operating loss of $(4.6) million due to a significant increase in operating expenses attributable to the acquisitions of Veridian and LHD.
• Net Loss was $(3.9) million or a loss of ($0.41) per share, compared to a gain of $1.7 million or $0.22 per share in Q1 2025.
• The company posted Adjusted EBITDA excluding FX changes of just $600K, down from $3.8M for the same period last year.

The balance sheet remains relatively healthy with net debt of $21.6M, providing a forward net debt to EBITDA multiple of 0.8x.

The company has also been pretty good and reducing its share count, but issued 1.8M shares back in Jan 2025 at a price of $23.00 per share. Which now places the company at approximately 9.5 million shares outstanding.

Looking toward FY 2026, management expected revenue of $210-$220 million, which represents growth of approximately 29% over FY 2025 and includes the Veridian acquisition.

And adj. EBITDA is now expected to be in the lower end of its $24-$29 million range, but at the midpoint represents growth of approximately 52% over FY 2025.

And looking at the valuation, this places the company at approximately 5.3x Adj. EBITDA but its trailing valuations are all negative such as its P/CFO, or P/E multiple.

Conclusion

• Lakeland is an intriguing, recessionary resistant business, with mid-single digit organic growth while it plans to continue rolling up the Fire Market (up to 2 acquisitions a year).
• CLICK The business is currently facing some tariff headwinds, but management has put in place plans to mitigate tariffs and continues to guide FY 2026 revenue and Adj. EBITDA growth of 29% and 52%, respectively (driven by acquisitions).
• CLICK The company pays a dividend, but management noted that they would prefer they didn’t have it and do not expect to grow it.
• CLICK So overall, growth remains good this year, the business appears cheap on Fwd Adj. EBITDA, but tariffs remain a risk. Q1 2026 was weaker, but there should be sequential improvement in margins as the year goes on which we will continue to monitor.

Hims and Hers Health (HIMS:NYSE) – Dog of the Week

Our dog of the week is Hims & Her Health symbol HIMS on the NYSE which operates a telehealth platform that connects consumers to licensed professionals. The company offers a curated range of prescription and non-prescription products on a subscription basis with a focus on personalized healthcare.

HIMS has been a retail favourite and has had a generally good return, coupled with a high degree of volatility. But today it fell 31.6% to $43.92 at the time of writing. Clearly, a massive pullback.

The pullback is due to Novo Nordisk symbol NVO on the NYSE, the creator of Wegovy, abruptly ended its agreement to provide the weight-loss drug to HIMS. The deal allowed HIMS to sell Wegovy-branded drugs on its telehealth platform.  The deal was struck just this April, not long after the GLP-1 drug was removed from the drug shortage list by the FDA, which removed the ability for generic compounders to produce Semaglutide.

Novo Nordisk ended the agreement due to concerns about knock-off versions of its drug, Wegovy. The release claims, HIMS has failed to adhere to the law, which prohibits the mass sales of compounded drugs under the false guise of “personalization,” putting patient safety at risk. Further, the company is concerned about the counterfeit drugs being manufactured by unauthorized foreign suppliers in China.

The degree of pullback is really due to the fact that the GLP-1 craze has been a major boon for HIMS. The company has been using the popular weight loss drug as a growth driver for its other products as well, as HIMS can cross-sell its other products to the weight-loss subscribers. Increasing the revenue generated on a per-subscriber basis. So not only is there a direct hit from the loss of drug, but the an indirect hit from a marketing and cross-selling view.  The company put the capital into a Super Bowl ad this year to advertise its weight-loss treatment. Which actually highlighted being formulated in the USA, which may not be the case at least anymore.

Overall, affordable weight loss has been the biggest selling point to consumers.

In the last quarter, the average revenue per user grew by $29 to $84 year-over-year, which the company attributed to subscriber uptake of its GLP-1 offering alongside product mix. GLP-1 has been the driver of the company.

HIMS has CEO issued a statement on the contract end  “We refuse to be strong-armed by any pharmaceutical company’s anticompetitive demands that infringe on the independent decision making of providers and limit patient choice. “

But for now, HIMS is our Dog of the Week.

Groupe Dynamite (GRGD:TSX) – Star of the Week

Our Star of the Week is a company in coverage, Groupe Dynamite, symbol GRGD on the TSX, which is a growing women’s fashion retailer. The company caters to the needs of Gen Z and millennials through its brands GARAGE and DYNAMITE. The company operates 297 stores across Canada and the US as well as online. The company was founded in 1975 and became a public company in 2024.

The stock has skyrocketed  44% since reporting its fiscal Q1 on June 17th, and is now trading at $23.82.  We recommended the company in February at a price of $16.11.

So why did the stock surge on earnings?

First off, we need to recognize the environment not just Groupe Dynamite has been in, but the whole apparel industry. The industry is more exposed to US tariffs than other industries, and is generally weathering poor consumer sentiment. This has been appearing in earnings, for example, Aaron highlighted last week Lululemon’s cut guidance, which resulted in a significant decline in the stock. But generally, retail and apparel companies have not had a great macroenvironment to operate in. Which is why we saw Groupe Dynamite fall at the beginning of the year and sharply on the Trump tariff announcement.

But, with the Q1 earnings, we can see the underlying fundamentals remain strong for the company.

• Revenue up 20% to $226.7 million
• Same store sales growth of 13.0%
• Operating income growth up 16.2% to $44.3 million.
• Adjusted EPS up 8.7% to $0.25 from $0.23 in the prior year.
• As well a non-financial metric to highlight is a reduction of by more than 50% of China receipts into the US as a response to tariffs, which is a major concern by the market at this time.

Further, the company raised its same-store sales growth guidance range to 7.5% to 9.0%, while holding the EBITDA margin range. Which is shows the continued expectation of momentum for the rest of the year.

Generally, a great quarter with improved outlook, in a broadly poor environment caused this quick snap to the upside.

For our clients, we will be updating the company in full in the near future, but for now it is our Star of the Week!