KeyStone’s Stock Talk Podcast Episode 56

 

KeyStone’s Your Stock Our Take: Dream Industrial REIT (DIR.UN:TSX), Star: Questor Technology Inc. (QST.V), Dog: Reliq Health Technologies Inc. (RHT:TSX-V).

 

This week in our Your Stock, Our Take segment we look at Dream Industrial REIT (DIR.UN:TSX), a high yield Canadian REIT or Real Estate Investment Trust. It owns about 221 industrial properties across Canada equal to 20 million square feet of gross leasable area. The REIT is paying just under 8% and a listener asks us if it is a good investment at current prices? Our Star of the week is Questor Technology Inc. (QST.V), from or Canadian Discovery Small-Cap Portfolio, an environmental Cleantech company that focuses on clean air technologies that safely and cost effectively help eliminate greenhouse gas emission reductions. The stock jumped 39% after receiving some positive news at the US mid-term elections. Finally, our Dog of the week is Reliq Health Technologies Inc. (RHT:TSX-V), which develops innovative mobile health (mHealth) and telemedicine solutions for the community-based healthcare market, and has seen its stock drop 69% in the last 30-days after it announced that it has decided to restate certain financial information reported for the quarter ended March 31, 2018. Is it a Dog or an opportunity?

 

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Now, let’s dig into the show.

 

 

 

Your Stock, Our Take

 

Our take on Dream Industrial REIT (DIR.UN)

 

  • Michael Creedon from Facebook.

 

Your Stock, Our Take

 

Dream Industrial REIT (DIR.UN:TSX)

 

Current Price: $9.98

Market Cap: $1.096 Billion

 

What does the company do?

 

Dream Industrial is a Real Estate Investment Trust. It about 221 industrial properties across Canada equal to 20 million square feet of gross leasable area.

 

Key Points:

 

  • Overall there wasn’t anything that made me really excited about the company when I was doing my analysis.
  • There are a few keys things that we look for when analyzing a REIT.
  • We want to see that cash flow is growing on a per unit basis, that the asset quality is higher, the debt levels are reasonable and also that they are covering their income distribution with free cash flow and a margin of safety which is represented by the payout ratio.
  • The first thing I see is that cash flow per unit has declined this year compared to last year. In the quarter, cash flow per unit was down 10% and year to date it is down 6%. That’s not a good sign for us because growing cash flow is what will drive the unit price higher long-term.
  • One way we can analyze asset quality is by looking at same asset growth which for Dream Industrial is up marginally year to date (about 1.7%) and basically flat in the quarter.
  • The company’s debt levels look reasonable and its payout ratio is in the mid 80% range which is also reasonable.
  • However, one thing I will say about the payout ratio is that it has increase over the last year as a result of the lower cash flow per unit.
  • Anything above 90% would start to look risky to us.

 

Our Take

 

The company pays a nice yield of 6.8% but I wouldn’t chase yield. We would prefer a company that had a smaller yield and growing free cash flow so that they could raise the distribution in a sustainable manner.  Companies with high yields increasing payout ratios could be heading to a position where they would one day have to cut the dividend. We are not saying this is where Dream Industrial is heading and I don’t think necessarily think it’s a bad company but it isn’t something that I would rush out to buy or recommend.

 

 

 

Weekly Dog

 

Reliq Health Technologies Inc. (RHT:TSX-V)

 

Current Price: $0.36

Market Cap: $41.3 million

 

Dog Performance:

 

On March 1st, the stock traded for $2.46. Since then, the stock is down 85%. The stock is down 69% over the past 30-days and is down 13% in the last week. It currently serves as another cautionary tale on investing in hype and promised growth over actual strong cash flow.

 

What does the company do?

 

Reliq Health Technologies is a healthcare technology company that specializes in developing innovative software solutions for the community care market. Reliq’s iUGO care platform supports care coordination and community-based healthcare. It The iUGO care platform integrates wearables, sensors, voice technology, and intuitive mobile apps and desktop user interfaces for patients, clinicians, and healthcare administrators.

 

What is driving the stock?

 

On October 16, 2018, Reliq Health announced that it has decided to restate certain financial information reported for the quarter ended March 31, 2018.

The decision to restate followed a review conducted by the company’s auditor and Audit Committee, wherein it was determined that the timing and certainty of receiving the revenue invoiced to clients is substantially unclear, due to clients’ issues with securing reimbursement from the payor.

The material changes to be included in the restatement will affect the Company’s revenue and are projected to increase the Company’s loss and comprehensive loss for Fiscal Year 2018. In addition, the Company’s Board of Directors have taken the position that no revenue will be reported for Q4 of fiscal 2018 until revenue collection issues are resolved.

 

Financial Results

 

2018 Annual compared to 2017 Annual (ended June 30th)

  • Revenue was $2.3 million compared to $184,000, up 1,136%.
  • Net loss was $13.8 million compared to $2.5 million, up 461%
    • On a diluted loss per share basis, $0.14 compared to $0.04.
  • Adjusted EBITDA was a loss of $4.7 million compared to a loss of $2.6 million.
    • On a diluted loss per-share basis, $0.05 compared to $0.04.

 

 

Conclusion:

Negative earnings and EBITDA

Current Ratio: 23.27

Cash Ratio: 18.45

Net Cash: $9.8 million (79% of Total Assets and 18.45x Total Liabilities)

Little to no debt

 

Reliq announced that they “decided” to restate their financials – given the fact they are now forecasting zero revenues for Q4 – without the restatement it appears investors would have a great case of fraud against the company. Not decided, they were forced.

 

When they announced this the company also reported they fired their “Chief Visionary Officer” – can I just say what is a Chief Visionary Officer???

 

On January 11, 2018 – Reliq Health Technologies Inc. reported that December 2017 was the Company’s first month of profitability.

 

“We are excited to announce that we now have over 6,000 patients live on our iUGO Care platform,” said Dr. Lisa Crossley, CEO of Reliq Health. “The onboarding of patients is starting to accelerate as we move forward with our roll out to over 40,000 patients with the three current contracts in Texas.

 

Strangely, enough for the next quarter the company reported a scant $878,205 and a ($922,362) loss and in the last quarter $1.13 million and a ($3,872,678) loss.

 

We understand there was stock compensation costs in the losses, but the business was cash flow negative and had a market cap beyond $248,600,000 – with barely $1.1 million in quarterly revenues.

 

The company was promising tremendous growth going forward and investors were paying up for promises and contract potential. This is a high risk strategy, particularly if everything does not work out to plan – in this case it has not and investors have lost 85% since its highs and 69% over the past 30-days.

Those type of losses make Reliq a cautionary tale and our Dog of the week!

 

 

 

 

Weekly Star

 

Questor Technology Inc. (QST.V)

 

Current Price: $3.52

Market Cap: $93.158 million

 

What does the company do?

 

An environmental Cleantech company that focuses on clean air technologies that safely and cost effectively help eliminate greenhouse gas emission reductions.

 

What is driving the stock?

 

The share price surge was in reaction to Colorado’s (Questor’s primary market) Proposition 112, the initiative that would have dramatically increase oil and gas drilling setbacks from homes, businesses and waterways. This week it was defeated at the US mid-term elections. The day after, the stock surged.

 

Why? – the markets hate uncertainty and any action that would have or could have curtailed drilling activity such as this would be a potential negative for Questor. With this uncertainty and potential inhibitor of growth removed, the market is free to focus on the fundamentals of the business which are strong.

 

Q2 2018 Financial Results

 

Three Months Ended June 30, 2018

 

Revenue in the second quarter of 2018 was $5.7 million, an increase of 46 percent from the same period in 2017.

 

Earnings jumped to $1.7 million or $0.07 per share from $959,023 or $0.04 per share in the same period of last year.

 

Conclusion:

 

Questor was actually recommended at our Fall 2018 seminars just over a month ago in the $2.22 range – the stock has surged 58% since then. We expect the company to announce Q3 2018 results in the next 10-days. Our clients will be updated on the stock with a full rating, analysis of the quarter and our outlook going forward at that time. The 39% jump on Colorado’s voting down of Proposition 112, make Questor are Star of the Week!