Feb 2021 Recap – $CSW/A.to, $REPH, $ISDR, $PSD.to, $ISV.to, $IDG.to, $STC.v, $FTG.to, $XTC.to, $SYZ.to, $FRD, $FRII.to, $RELL, $MTLO.v, $DWSN

Holy cow this month was busy.


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Thoughts on Market Activity

Once a month I write in my investment journal to attempt to capture my current thoughts on the public markets. It’s not a forecast and I am not a macro guy. It is a quick snapshot of what is happening in real time and how I’m processing it.

This month I made note of Reddit and meme stock phenomenon. Also, layering on the uncertainty with covid and the lockdowns. For the first half of the month there seemed to be a record number of victory laps being taken and many are now regretful that they were not fully invested (or beyond fully invested) in tech/SaaS/WFH stocks over the last 6-9 months. On a personal note, I had never been trolled so hard from non-finance people for asking about risk when they mention hot stocks. The end of the month seen some of the market darlings (my proxy being ARK ETFs) look like they are rolling over. What I find interesting about this is that many of these companies could see their market cap drop by 60-80% and still be considered expensive by traditional financial metrics. I must admit I have had a harder time than ever staying on task and keeping on productive activities.

Posts this month

Company Updates

  • Corby Spirit and Wine Limited (tse: $CSW/A.to & $CSW/B.to)
    • Fiscal Q2 2021 released
      • Rev and gross profit down a bit vs. last year
      • Opex was down a bit as well
      • Nets out to pretty flat EBIT
      • 5% dividend
      • EV/FCF around 10
      • 12ish P/E
  • Recro Pharma ($REPH)
    • Renaissance Technologies disclosed a 5.8% position
      • interesting development thought doesn’t seem meaningful
    • Portolan Capital Management disclosed a 5.5% stake or 1.3 mil shares
      • This does not look like a meaningful position for the fund
    • management additions
      • looks like a (very) small amount of portfolio
    • amendment to credit facility
      • debt reduced to 100mil from 116mil
      • interest rate reduced by 1.5%
      • the reduced portion of the term was exchanged for $9 mil in shares of REPH
      • they now deleverd by 25mil in the last 4 month
    • Released Q4 2020
      • The quarter was below my expectations
      • They posted negative gross margin and went through about 5 mil in cash before capex or changes in working capital
      • Guidance was for stronger Q1 rev
    • Also filed an S-3 to issue up to $30mil to Aspire Capital
      • There is a limit of 6.2mil shares allowed
        • There are about 23mil shares outstanding at the moment
      • Uses volume weighted average price (VWAP)
        • Minimum price of $3.43
      • Can’t be more than $500K per day
    • I have sold my shares – the position size was not worth the headache and I need to clear my head
      • I will continue to monitor for 2 or 3 quarters as part of my feedback loop when buying or selling
  • Issuer Direct ($ISDR)
    • Polar Asset Management filed that they sold their 325k shares
      • This is about 8% of the outstanding
      • The shares have absorbed the sale really well
      • Not a material event for me given how well the business is performing
    • Announced a platform upgrade
      • Should help drive Accesswire adoption over time
  • Pulse Seismic ($PSD.to)
    • Reported Q4 2020 results
      • Better than expected
      • Rev down a little
      • Shares have been performing well YTD
  • Information Services Corp ($ISV.to)
    • QV Investors picked up some more shares in Jan 2021
      • This is the first time I’ve seen them active in ISV since 2016
    • Provided an update and outlook for 2021
      • No hard numbers were given for guidance
      • They are expecting Registry and Services to have lower volumes than normal in 2021
      • They are expecting Services to perform well
      • Technology experienced some delays but seem to be chugging along as best they can remotely
      • Trading at 9x ev/forward ebitda for a very strategic asset
  • Indigo Books & Music ($IDG.to)
    • New president announced
      • Leading the “Living with Intention” and transforming the business model
      • He has experience in different types of retail and managing brands
    • Reported Q3 results
      • Did better than I expected given all the covid lockdowns over the holiday season
      • Keeping operating margins here may prove to be a challenge as the support programs may come off quicker than activity returns
      • Having said that they are leaner then when the pandemic first hit
  • Sangoma Technologies Corp ($STC.v)
    • see post from the month
  • Firan Technology ($FTG.to)
    • reported fiscal Q4 2020
      • results were better than I expected
      • there is a fair bit of uncertainty in their market right now
      • seems cheap with what the potential could be with lots of cash
      • it looks like 2021 (and forward) defense budgets will remain
      • 2021 visibility on simulator sales is low right now and could we weighing on the share price
      • might do a formal revisit
  • Exco Technologies ($XTC.to)
    • Released fiscal Q4 2020
      • Results were better than I expected
      • Raised their dividend a bit
      • They seem to be executing well and are now trading at single digit ev/forward ebit
      • I know this isn’t SaaS or EV or crypto or anything sexy, but this company seems to be turning the corner and warrants a closer look
    • NCIB announced
      • 9.5% of total outstanding
  • Sylogist ($SYZ.to)
    • released Q1 and held a virtual meeting
      • results were in line with expectation to me
    • the core business is quite profitable
    • new CEO may be a driver for higher growth whether organic or inorganic
    • something to monitor
  • Friedman Industries ($FRD)
    • Renaissance Technologies LLC announced they own share
      • 7.72% of Friedman Industries Inc..
    • Reported Q3 2021
      • Good quarter
        • rev up a little, while tons sold (in the coil segment) was down a bit
        • gross margins way up
          • higher steel prices and sale of a steel derivatives contract
          • increased throughput
        • some equipment changes are starting to pay off
      • was bouncing around NCAV price, now at a slight premium
  • Freshii ($FRII.to)
    • Held AGM and reduction of capital for the A shares was approved
      • The NCIB starts in March and is approved for up to 10% of the public float
      • If they execute the maximum per day repurchase they will still only hit about 65% of the total approved
        • They are allowed to execute a block purchase
    • Q4 results came out
      • Business is obviously weak due to covid lockdowns
      • They maintain a strong balance sheet and have the same level of cash as they did before the pandemic began
      • They seen positive trends at the start of Q4 vs. Q3 but further lockdowns took the wind out of their sails
      • I’m expecting Q1 to be weak as well
  • Richardson Electronics ($RELL)
    • Renaissance Technologies disclosed an 8.13% position
      • interesting development
    • has performed well YTD and still trades at a discount to NCAV
  • Martello Technologies Group Inc ($MTLO.v)
    • Reported fiscal Q2 2021
      • Below expectations and shares immediately dropped about 7%
      • Negatives
        • Opex is up due to some reopening and investing in marketing
        • Organic growth lower than expected due to legacy business declining quicker than anticipated
        • Still have high cost debt
        • Share structure is not ideal
      • Positives
        • This legacy business (much of it LiveMaps that came over from GSX) is now 17% of rev
        • MSFT DEM growth sequentially
        • 96% of revenue is recurring
        • 1.49 MRR at quarter end
        • Less than 4x MRR vs peers north of 10+
        • Mitel related revenue up slightly
    • Announced $5 mil bought deal at 0.195 with a half warrant
      • Disappointed in this as I thought they didn’t need the cash immediately and would wait until there was visible organic growth (and a higher ARR multiple) before raising
      • I haven’t added or sold any material amount of shares and this remains a small position for me
  • Dawson Geophysical – ($DWSN)
    • Renaissance Technologies LLC owns 1,741,679 shares or7.42% of Dawson Geophysical Company
      • down from 1,755,263
      • not material to me

Hope everyone is staying safe.



*the author has a position in $ISDR, $STC.v, $FRII.to, $MTLO.v at time of writing

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Pizza Pizza Royalty Corp. ($PZA.to)

I intentionally included the share price after the change in tax requirements for income trusts took hold

Chart from TIKR, referral code https://app.tikr.com/register?ref=smob7c

  • Ticker: PZA
  • Market Cap: 312 mil (CAD)
  • Current Yield: 6.8%

This is a fairly straightforward idea for those looking for income (and maybe a bit of capital appreciation), though the structure is a little complex. This slide from the most recent AGM presentation will explain it better than I can.

The public shares (Pizza Pizza Royalty Corp) give you access to 76.5% of the Royalty Limited Partnership, the remaining 23.5% is owned by PPL.

PPL, a private operating company, was amalgamated with Pizza 73 Inc. under the OBCA pursuant to articles of amalgamation dated July 24, 2007. The registered and head office of PPL is located at 500 Kipling Avenue, Toronto, Ontario, M8Z 5E5. PPL is the successor to a corporation initially incorporated in 1967. PPL operates the Pizza Pizza and Pizza 73 quick service restaurant systems using the Pizza Pizza Rights and the Pizza 73 Rights as permitted under the Licence and Royalty Agreements. PPL owns Class B and Class D Units representing an effective 23.0% interest in the Partnership at December 31, 2019.

From the most recent MD&A and AIF:

As of September 30, 2020, PPL indirectly held an effective 23.5% interest in the Company (December 31, 2019 – 23.0%) by holding all Class B and Class D Units of the Partnership. PPL has the right to exchange one Class B or Class D Unit indirectly for that number of Shares equal to the Class B Exchange Multiplier or Class D Exchange Multiplier, respectively, applicable at the date of such exchange, as described under “Royalty Pool Adjustments”.
The Class B and Class D Units are entitled to receive monthly distributions established by PPRC’s board of directors. A monthly distribution is paid to both PPL and PPRC on a pro rata ownership basis, with PPRC’s ownership held through its Class A and Class C limited partnership units of the Partnership.

When I calculate earnings to shareholders and payout ratio, I am including the distribution to PPL from the Partnership on Class B and D shares. I am using fully diluted shares in my per share calculations.

The multiplier is reviewed annually based on the number of new stores in the system. There was no change for 2021 in the multiplier.

Additional Background

Pizza Pizza was founded by Michael Overs in the 60s. He owned it until he passed away in 2010. PZA went public as an income fund (remember those?) in 2005 and has Governance Agreement with the Overs Family.

They purchased Pizza 73 in 2007 for $70.25mil with a combination of debt, shares, cash and an earn out. At the time Pizza 73 had 48 restaurants, of which 41 were added to the royalty pool upon closing. Upon closing 62.4 mil in system sales added or about 5.6 mil of net royalty revenue (at 9% royalty fee). Those that were around in 07/08 will remember how strong the Alberta economy was due to the oil boom.


Pizza Pizza has a strong presence in Ontario with over 500 stores and Pizza 73 has a strong presence here in Alberta with nearly 100 stores. The formats are pretty similar.

Restaurant Count (pre-covid)

Slow and steady store count growth was the name of the game until 2019.

The company underwent a review of existing restaurants and closed more than typical in 2019. They were ready to be a more efficient operation in 2020 just in time for covid.

System Performance

Going back to 2011, system sales have been trending upward. For the most part SSS was slightly positive until 2017/18 (and of course in 2020).

The majority of the earnings are from Pizza Pizza, but Pizza 73 does contribute a meaningful amount.

Monthly Distributions

Pizza Pizza GP, as managing general partner of the Partnership, has adopted a policy to distribute the Partnership’s available cash to the maximum extent possible. Such distributions will be made to partners of record holding Partnership Securities of their share of available cash as set out below. Distributions will be made within 15 days of the end of each month and are intended to be received by the Company prior to its related dividend to shareholders.

As an owner of the Royalty Corp your share of the earnings were flattish from 2015 both nominal and per share. Of course, all these earnings were returned to shareholders.

You can see stability in distribution and payout. Interesting that the share price moves around so much.

Risks/Items of Note

  • There are some very confusing change in control measures that prevent a potential take-over
  • Rent a facility and purchase food from the Overs family
  • Independent board members don’t own many shares (22,000 total)
  • CEO doesn’t own many shares (11,600 total), but the MIC does list that an associate of his owns 500k shares
  • Ontario was in a strict lockdown starting in December and that may weigh on results in the near term
  • Reopening may take way longer than anticipated, don’t look at Canada’s vaccination rate compared to other G7 countries
  • Many of the franchisee’s and customers are utilizing government support that may go away soon or go away sooner than business activity returns to normal
  • People may not like pizza today as much as they did yesterday
  • Valuation could drop
  • High inflation would be bad for consumers and hard for franchisee’s to pass on costs

What needs to happen to make money

This isn’t your high growth SaaS company with infinite TAM. Though capital appreciation may be not be the main driver of returns, there are still ways to make money on PZA. Here are some items that will be a driver for future returns.

  • distributions need to remain constant or increase
  • additional restaurants can be opened
  • SSS growth or at least no decline


As a shareholder your yield based on using the last couple of months payout ratio and today’s price is 6.8%. I would assume that the distribution will get bumped higher as stability returns and the economy reopens. The last two quarters the payout ratio was under 100%. As well, the shares are cheaper than they were in 2015 both on an absolute basis and relative to revenue. One could paint a picture where the valuation and the distribution improve from here.

This operation screams of stability to me. In a world with negligible interest rates, this may fit as a good alternative if you can stomach some share price volatility.

Anyone else look at PZA or other restaurant stocks?



*the author does not have a position in PZA at time of writing

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FAX Capital – $FXC.to

Very simple idea here.


From their site:

FAX Capital (TSX:FXC) is an investment holding company.  We are a permanent capital vehicle, allowing us to take a true long-term approach to investing, providing the foundation to maximize compounding and to hold quality investments indefinitely.  We have full flexibility in our investment mandate, allowing us to invest in public and private companies, across the capital structure, and in a wide variety of industries.  We are active owners, working collaboratively to augment already strong management teams, leveraging our experience in business building and capital markets expertise.  We have a deep and demonstrable track record of value creation, both as operators and as investors.

The company was an old gold mining shell that raised the majority of the capital in late 2019 at $4.50. Fax Investments supplied 120mil and a further 70mil was provided by outside capital. The subordinate voting shares issued where also given a 2 year founder warrant which Fax Investments didn’t get. Directors and senior officers participated in 553,667 or 3.56% of the issued shares.

Voting control for this company is controlled by Fax Investments which is controlled by the Driscoll family. Fax Investments owns 63% of the outstanding shares (which includes all the multiple voting shares). The Driscoll family is most known for Sentry Investments which was sold to CI for 780mil. They managed to build up to 19bil in assets before the sale (1997-2017).

The goal was to be fully invested in 12-18 months from when they raised capital in late 2019.

The ideal portfolio allocation is 60-80% in 10-15 public companies, and 20-40% in private companies. At Sept 30, 2020 about 50% of assets where in cash.


The Executive team

  • CEO is Blair Driscoll (son to John Driscoll)
    • takes no salary
    • he is also the President and CEO of Fax Investments
  • CFO Edward Merchand
  • General Counsel Ryan Caughey


  • The Board is chaired by John Driscoll (78)
    • He is on the board of some other public companies and seems well connected
  • Lead Independent Director is Frank Potter (83)
  • Blair Driscoll (38 – same age I’ll be this year in case you are wondering)
  • Edward Jackson (63) – independent
  • Paul Gibbons (62) – independent
  • Independent board members combines own 105,000 shares (0.2.%) and about 95,000 founder warrants

Investment Team

  • Marc Robinson – Managing Director
    • most recently was he was the sole portfolio manager of LDIC North American Small Business Fund which returned 17% annually from mid 2016 to April 2019
  • Nickolas Lim – Managing Director
    • most recently from Hamblin Watsa Investment Counsel, a subsidiary of Fairfax and Brookfield Asset Management
  • Authi Seevaratham – Associate
    • was an analyst Cambridge Global Asset Management
  • They committed a minimum of 2% of the offering
  • LTIP based on 6% annual CAGR
  • There is no management fee
  • The investment team owns 179,000 shares subordinate shares, 186,000 founder warrants and has further exposure via restricted and performance shares

Investment Principles (from their website)

  • Will invest with a long-term view;
  • May invest in both public and private companies;
  • Will take a concentrated approach to portfolio construction (which is initially expected to include 10-15 target companies);
  • May invest across the capital structure, tailoring its investments, where appropriate, to the needs of portfolio companies including through equity, debt and/or hybrid securities;
  • Will invest in high-quality businesses or those that have the potential to be high-quality businesses;
  • Will work for continuous improvement in the performance of portfolio companies through active ownership and the leveraging of its industry experience, business contact network and financial strength; and
  • Will seek to promote and encourage best-in-class governance practices in the portfolio companies.

Their currently disclosed investments

Here is slide from their most recent presentation showing the thesis behind their public company investments. They have also purchased a controlling interest in Carson, Dunlop & Associates, their first private purchase. The purchase of Carson, Dunlop & Associates is expected to close in Q1 2021.

ISC is a familiar name that was discussed here.

I have also followed Hamilton Thorne for about 5 years and really respect the management team and business.

Points hasn’t performed great since their initial purchase given the pandemic, but subsequent adds have done well relative to the index.

People Corporation is being bought by Goldman Sachs.

Their book value growth has grown over the last year. It has outpaced the TSX Composite while having lots of cash dragging down performance. I have tried to track their purchases (and addition purchases) of their disclosed investments. They are on average beating the TSX by a fairly wide margin.


Closed end funds typically trade at a discount. How much of a discount depends on many things (share structure, ownership, liquidity, the market’s perception of the operators, etc). There are a couple of peers that I think are relevant for Fax. I will let the reader decide if these peers are relevant.

Here is a graph of Price to NAV

  • Onex is huge and may not be a great comparable
  • Pender growth has done well and should be recognized for their performance on book value growth
    • They currently have about 4% in cash
  • URB.A has the largest discount and has for a long time
  • PNP was hard to find information on so take the valuation with a grain of salt
  • CYB has 20% of NAV in Edgepoint
    • Edgepoint funds manage to beat their benchmark fairly consistently

Structural costs that I don’t have

It’s tough for anyone to outperform the market over a long period of time. There is no doubt that the investment team that is allocating capital is more connected, intelligent and resourced than I am. However, there are some additional costs that FXC has that I don’t. Some additional frictional costs to the structure are:

  • fees paid to directors – this was 300k in 2019
  • salaries paid to execs and investment team
  • they have to disclose purchases
  • termination agreements with CEO and CFO
  • some positions are not overly liquid

Other Relevant Links

YT vid they did with Dhalla Wealth Management

Investment Thesis/How to make money

In my opinion, there are a few ways to look at investing in a closed end fund or something similar to FXC.

  1. You are looking to allocate capital to strong allocators for a long period of time based on NAV growth. It can reduce risk in a portfolio if (despite the hurdles) the NAV grows quicker than if you put the money to work by yourself.
  2. It diversifies (and potentially lowers volatility) into other businesses or sectors that you can’t analyze or don’t have access to (private businesses). This can have merit as well if you are looking to diversify “style” or “investment strategy”. I am guilty of struggling to pay up for high quality businesses with strong management and it has cost me dearly.
  3. You are comfortable with the structure, team, investments, etc. but you feel the discount to NAV is too large. FXC (and others) will buy back shares if they feel the discount is too large. There are of course restrictions and can also be self-defeating as it reduces liquidity in what is already an illiquid company. FXC has bought back some shares at a discount.

At this point, I’m not sure which one this is for me at this point. I like the companies they own and that they are able to partner with the businesses. With my cash position climbing, I was fine taking a small position. Hat tip to Graham for the idea and the help.

Risks/Things to get comfortable with

  • NAV could drop
  • NAV may not climb as quick as the market does
  • Price to NAV could widen
  • There could be some friction between the investment team and management
  • FAX Investments controls the voting decisions

I think incentives are aligned enough for me to be comfortable. No one wins if NAV declines. I’m operating under the assumption that deploying the cash could be a decent catalyst to close the discount to NAV.

Anyone have any opinions on FXC or the other companies mentioned?



*the author has a (small) position in $FXC.to at time of writing.

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