Category Archives: Company Analysis

High Arctic Energy Services $HWO.to

This isn’t my first go around with High Arctic. See here.

Background

This idea is quite simple. A number of years ago High Arctic was an early mover in PNG. They built strong industry connections and have benefited from having above average utilization and profitability for a company in their industry. They have used the cash that has been built up to purchase assets in distress. Here is a brief summary of activity since the downturn in 2016

  • In 2016, they purchased assets on the cheap from Tervita for $42.8mil. This is the Concord Well Servicing assets.
  • They also invested in their rental fleet in 2016 to the tune of about $10mil.
  • In 2017,  they entered into an agreement with a major PNG customer for ownership of some rigs in PNG. They will operate the rigs under a 3 year exclusive agreement. This will give them better revenue visibility for 2 of the rigs in PNG.
  • In 2018 they acquired the shares of Power Energy Holdings (Powerstroke assets).
  • Bought Saddle Well Services in August 2018, increasing exposure to southeast Alberta.
  • In April 2019, they announced that they have purchased snubbing assets from Precision Drilling for $8.25mil.

As you can see this is a much larger company than it was a few years ago. Their discipline with the balance sheet has allowed them to purchase assets and grow their customer base in the midst of a downturn. The company has done everything in their control to survive and be a bigger company once activity returns. On the Q1 2019 call, they indicated that activity in Q2 was better than expected.

Chart Dump

Since this post was short, here are some charts.

*net cash doesn’t include the acquisition of the Precision Drilling assets for $8.25mil

Summary

Similar to my other energy ideas. This is really a bet on business activity returning coupled with investor sentiment. There is also a 5.8% dividend yield as well. Current valuation is about 4x EV/EBITDA and I am betting that the EBITDA is temporarily depressed.

 

Thanks,

Dean

Disclosure: the author is long shares of HWO.to at time of writing.

Leave a comment

Filed under Company Analysis

McCoy Global $MCB.to

Continuing from the post where I said I was sniffing around the energy services names I took a look at McCoy Global. I’m no stranger to McCoy and owned it a few times in the past. The most recent post is from early 2012. I ended up selling in mid 2013 and early 2014.

Background

McCoy is a leader in threaded connections in well casings. They have exposure to onshore and offshore markets. Despite listing in Toronto, they do most of their business internationally.  About 5% of their revenue is derived from the WCSB.

McCoy has worked to remove the high cost manufacturing form their book of business, they outsource as much as possible now. Focusing on supply chain as they have become a global business has been a priority; especially given their size, their geographical exposure and large business customer base.

Current State

Their current backlog was only 9.9mil in Q1 2019, down from 15mil at the end of 2018. 7.2 mil of orders came in April 2019 and this gives confidence that they will survive this lean environment. Their top line has bounced back somewhat after the lows in 2016, but is very far below previous cycle peaks. As you can see McCoy has done what they can to control opex costs.

Valuation

At $0.63 (from a few weeks ago) McCoy has a market cap of just over $17mil and an EV of $12mil. See the valuations below.

Management compensation is reasonable and the board owns 3%. It could be better, but I’ve definitely seen worse in O&G. Several large institutions own significant stakes in McCoy.

McCoy has also continued to invest in R&D and building a suite of products that uses data to ensure the best possible connection and monitoring for the customer. I’m expecting a couple new products by the end of 2019.

Given the ever increasing well complexity (which lend well to McCoy’s products), diverse geographical exposure, off-the-grid size of the business and modest valuation; I feel that McCoy has substantially more upside than downside.

Are you finding any value out there?

 

Thanks,

Dean

Disclosure: the author is long MCB.to at time of writing.

Latest Investor Presentation

2 Comments

Filed under Company Analysis

Vigil Health Solutions (cve: vgl)

I wrote this post just before the most recent quarter was released. Not much changed from a valuation standpoint than what is written here.

 

I’ve recently taken a position in Vigil Health Solutions. Of course, I didn’t discover this idea on my own, I stole it from others. Quality Small Caps wrote is up here and this company has been profiled on the MicroCapClub (you should join if you haven’t already). The Quality Small Caps write-up is quite detailed, I suggest you read it.

Background

Vigil develops and markets hardware and software solutions that guide care of and monitor residents in senior living communities. They focus on non-invasive monitoring for residents with dementia.

There are obvious demographic tailwinds with this one. The addressable market is growing quite fast and Vigil provides a high value service with a monthly recurring cost.

They are quality focused and not the cheapest product on the market. They differentiate themselves by focusing on integrating the monitoring system (door, phone, etc) with analytics that will trigger alarms to the relevant parties. For example, if a resident leaves his/her room at 2am when he/she normally doesn’t then the staff are notified and can intervene and ensure the resident is returned safely to their room. They also offer cloud based analytics.

Their service scales up from very basic to quite comprehensive, allowing them to compete on most (if not all) projects.

The sales cycle is long and much of the bookings are part of new facility construction which leads to quite lumpy revenue.

Management

There’s limited information on the management team in the filings, so here’s all I’ve been able to dig up:

  • Troy Griffiths – CEO
    • has been CEO since 2005 and with the company since 1998
    • started out as COO of Vigil’s predecessor
    • compensation last year was $128k in salary with $250k in total comp
    • own 820,000 shares or over 3 times his salary
  • Nicola Chalmers – CFO
    • has been with Vigil since 1998 as CFO
    • compensation last year was $82k salary and $120k total comp
    • owns 167,000 shares or roughly her annual salary
  • Steven Smith – VP R&D
    • has been with Vigil since 2006
    • $117k salary and $156k total comp
    • owns 1.1 mil shares or more than 3x his total comp last year

The team seems to be experienced in the business, is incentivized with common share ownership and gets compensated reasonably.

The variable part of their compensation is based on both financial and business performance. This is something you don’t always see in the Canadian microcap space and is really nice to see.

Board

For a company this size Vigil has a small but quite respectable board. Non-executive directors are compensated by mix of fees and options. Total compensation ranges from $25-41k per year.

  • Troy Griffiths – CEO
  • Greg Peet – Chairman
    • was CEO and Chairman of ALI Technologies which was acquired by McKesson Corp in 2002
    • owns 4.9mil shares
    • principal at GrowthPoint Capital
  • Ian Power
    • several senior positions
    • director of Pender Growth Fund
    • owns 15,000 shares
  • Lindsay Ryerson
    • VP and GM of Telematics at Vecima
    • owns 10,000 shares

Financials

See below for a quick look at the income statement. TTM rev at 6.3 mil, Ebit of 0.5 mil and ebitda of 0.5 mil.

The top line and bottom line have been growing. You can see that they have a strong backlog and bookings. Backlog is almost 4 mil.

They also have a large portion of their revenue based on recurring service and maintenance work. This portion should fetch a high multiple.

Valuation

At $0.50, the market cap is around 9.3 mil and the EV is 6.7 mil. See below for relevant valuations.

Not particularly cheap from a profitability standpoint. But I believe that this is a growing business and should see some operating leverage in the future.

Risks

Here are the risks that I can identify.

  • Liquidity for your personal portfolio. I am blessed to have a small amount of money. If you are responsible for a large amount of capital, it may be difficult to build or unwind a position.
  • Product/service risk for Vigil. There is a chance that despite a large and growing market, customers may seek solutions that Vigil does not compete in. Namely, the low priced and more commoditized portion of the market. Of course, Vigil may be able to adapt. Vigil’s average deal size is around $70k and the facility costs are usually over $10 mil. Go/No-Go decisions are not likely based on the Vigil solutions alone and it’s not a large portion of the cost of the facility.
  • Execution (most notably for a microcap). Many microcaps have the executive teams wearing multiple hats. They regularly have to bounce between long term strategic and day-to-day tactical decisions. That leads to increased importance on specific individuals.
  • Price volatility. Given the long sales cycle, dependent on facility completions and modest valuation, one can paint a scenario where the share price of Vigil could take a hit.
  • There may be concern of reimbursement (medicare/medicaid) risk. I don’t believe that this is a significant risk for Vigil. Given that they participate in the facility build out, they are not exposed to the typical reimbursement risk (at least, not to my knowledge).

Other Things of Interest

  • Wayen Enright owns 2.7 mil share or about 16% of the outstanding. I can’t find much about him online.
  • I’ll be attending the AGM next week

Overall, I think Vigil is a decent bet at these prices. They have a secular tailwind, strong and incentivezed management team, a board that compliments the business and a modest valuation.

Feel free to comment.

 

Thanks,

Dean

*disclosure: the author is long Vigil (cve: vgl) at time of writing.

11 Comments

Filed under Company Analysis

Caldwell Partners (tse: cwl)

I recently took a small position in Caldwell Partners and I thought I would would do a post on why I bought. Just to be clear, it’s quite a small position relative to my other holdings. As usual, I stole this idea from others (h/t Gerry Wimmer and DeepDiscount).

I view Caldwell as a position that has good risk/reward profile and will make a nice addition to a portfolio that’s primarily driven by faster growing (and more expensive companies).

Background

Caldwell is an executive search firm that specializes in finding the highest levels of management and operations across many geographies and functions. They have been slowly expanding the number of partners over the years.

The numbers

At $1.20 Caldwell has a market cap of 24.5 mil and an enterprise value of 8.1 mil. Yeah lots of cash. It trades at about 6.5x ebit and 2.2 ev/ebit. That’s statistically quite cheap. One would expect a slow growth (or no growth) business for those prices. They also pay a dividend that is yielding 6.7%.

See below for the income statement

There is top line growth with some operational efficiencies being gained.

See below for geographical mix.

Canada has been flat to slightly up while the US has been consistently growing.

See below for some quick analysis by geography. Note the different axis min/max and Europe is starting from a relatively low base.

The last quarter was particularly strong in Europe, we have seen this before.

 

Positive Comments

The news release from the latest quarter had positive comments that indicates that momentum may continue.

“This was an outstanding quarter, bringing the firm to a new high-water mark for revenue,” said John Wallace, chief executive officer. “Our search teams throughout our geographic regions drove strong growth in both search volume and the value of assignments, despite pressure from foreign currency rates. We are especially pleased with the quarterly profit of our UK operations. With the largest level of new bookings and revenue in a single quarter in our history, we are positioned well for the fourth quarter. The significant increase in volume and our sustained focus on strategic additions to our partner team is creating search execution support needs, for which we will continue to hire in the fourth quarter.”
Wallace continued: “There is a lot of positive momentum inside our firm right now – our updated brand has been very well received since its debut, and we are excited about the recent expansion of our Agile Talent offering with the launch of our Value Creation Advisory Solution. We have an exceptional team of talented professionals at every level, all working towards a common goal – to provide value to our clients and shareholders – and it shows.”

Risks

I think the most obvious risk that came to my mind was LinkedIn taking away market share in executive search. Anecdotally, I would have expected this to have been a bigger impact on lower and mid level managers and not senior leaders in important roles. One would think that LinkedIn could actually be leveraged as a tool by Caldwell. I would think that given how important the roles are in the organizations that quality of candidates matter more than anything. I see the Caldwell brand as particularly important.

The other big risk that I can think of is the economy. Less hiring equals less need for Caldwell’s services. One does tend to get nervous after 9 years in a bull market.

These risks are not going away, so you will have to get comfortable with them if you take a position. For me, I will control these risks by limiting exposure to Caldwell.

Management

  • CEO – John Wallace. He jointed in 2008 and has previous experience in another executive search division of Hudson Highland Group. John owns about 20% of the shares.
  • COO & CFO – Chris Beck. Joined in 2013 as CFO. Recently appointed COO as well. Also has experience at Highland Parnters (which is a division of Hudson Highland Group).
  • Total compensation seems a little high, but much of the total compensation is based off performance bonuses.
  • Both of these gentlemen have employment agreements in place.
  • I think a key metric to think about is revenue per partner, which has been trending in the right direction.

Board

  • The board is comprised of 5 members with 4 of them being deemed independent.
  • The Chair of the board is not the CEO of the company.
  • The board is comprised mostly of corporate directors.
  • Many of the board members are also on the board of other public companies.
  • Almost all board meetings had full attendance in 2017.
  • Compensation is a mix of fees and shares. Average 2017 compensation was $40k/director.
  • I did some digging on the board members and there seems to be pretty good mix of strategic, operations and public market presence.

Summing it Up

I think a starter position is warranted. I would be willing to add with continued confidence in operational leverage or other positive news. Caldwell is nice because you get paid to wait.

Disclosure: the author is long Caldwell Partners at time of writing.

2 Comments

Filed under Company Analysis

Aveda Transportation and Energy Services $AVE.v

Another energy related name….

I own things that aren’t energy related, but the recent downturn has brought some interesting opportunities forward. The market seems to be fixated on when Tesla will be able to remove all fossil fuels from our transportation needs and when machine learning will replace everyone’s job.

In the meantime, the broader oil and gas market has stabilized and activity is returning to more normal levels. Costs have been rationalized from contractors, service company’s and producers and the cost per barrel has dropped. While the rig count has bottomed, it remains well off historic highs. Many WCSB companies are once again complaining about crew shortages going into the drilling season.

Enter Aveda

Aveda Transportation and Energy Services Inc. is a Canada-based company engaged in the transportation of products, materials, and equipment required for the exploration, development and production of petroleum resources, including rig moving, heavy haul and hot shot services, and the rental of equipment associated with oilfields operations. The Company carries on its oilfield hauling activities in Canada and the United States under the name, Aveda Transportation and Energy Services; carries on its rental operations under the name, Aveda Rentals, and carries on specialized transportation services under Aveda Heavy Haul. Its rental operations include the rental of tanks, mats, pickers, light towers, well-site shacks and other equipment necessary for oilfield operations. It has presence in the Western Canadian Sedimentary Basin and in the United States, principally in and across the states of Texas, North Dakota, Pennsylvania, Oklahoma and West Virginia.

Their operations are strongly tied to oil and gas activity, particularly in the US. Entering the recession the company was able to do over $150 mil in revenue. They have recently eclipsed that with their Q3 2017 numbers.

See the income statement charts below…

Why I like it

  1. The idea is simple (like the author)
    1. The company is a cyclical and I believe the bottom is in for this cycle.
    2. Recent mention of higher opex in Q3 is indicative of activity levels.
      1. the company believes that many of the increased costs (example lodging) will be passed onto end users as budgets refresh in 2018.
  2. Easy capital allocation decisions
    1. Aveda will use 3rd party contractors to service the customer if they are unable to get some of their equipment to the site.
      1. this represents over 30% of consolidated revenue for Aveda and is very low margin (typically 1-3% gross margin). Aveda has equipment that was previously idled during the downturn to bring back online to capture some of this lost opportunity. See chart below.
      2. It should be noted that 3rd party contractors will always play a role in Aveda’s value proposition to customers, just a smaller role moving forward.
    2. They have also identified gaps in their equipment portfolio to dedicate capital towards, this being hoisting equipment.
    3. They have a pretty levered balance sheet, which means paying off debt with cash generated by the business will help derisk the thesis and improve the valuation.
  3. Recent addition to the management team.
    1. Ronnie Witherspoon recently joined the team and my impression is that he is a strong operator. The company has used the recent downturn to capture more market share.

Valuation

As with any cyclical in transition, current earnings are depressed and the valuation looks high. There are estimates of north of 20mil in EBITDA in 2018. Current market cap is just under 30mil and enterprise value is a shade over 100mil.

If the rebound materializes then I believe $0.50/share will be way too cheap for Aveda.

Other Items

Recent financing was subscribed heavily by the chairman.

AGM was held in October in Calgary and only 1 shareholder attended.

 

Dean

 

Disclosure: the author is long at time of writing.

Leave a comment

Filed under Company Analysis

Profire Energy (PFIE)

Rounding out what is my 3rd bet on the beaten down energy sector is Profire Energy. This will be a quick post to encourage further conversation.

The company makes burner management systems used in the oil and gas industry. They recently launched a new product (PF3100) that encompasses more solutions for operators. The products not only have a value proposition from a cost to operator standpoint but from a safety standpoint as well. They are a dominant player in the space.

The company is cash flow positive even during this time of much lower business activity. This is speaks to their cost structure and discipline.

The CEO owns over 25% of the company though he sold some shares to the company recently.

They are cashed up, have zero debt and 0.40/share in net cash.

Profire Investor Presentation May 2017

The author is long PFIE at time of writing.

Leave a comment

Filed under Company Analysis

Command Center – CCNI

If you have been checking the “Portfolio” tab you would have noticed that I have a position in CCNI. I’ll give some thoughts on the company and hope to instigate some discussion.

Company Description

Command Center, Inc. is a staffing company. The Company operates primarily in the manual labor segment of the staffing industry. The Company provides on-demand employees for manual labor, light industrial and skilled trades applications. Its customers are primarily small to mid-sized businesses in the wholesale trades, manufacturing, hospitality, construction, retail and auto auction industries. The Company owns and operates approximately 60 on-demand labor stores in over 20 states. In addition to short and longer term temporary work assignments, the Company recruits and places workers in temp-to-hire situations.

Some History

From 2007 to 2012 CCNI would bump around from being profitable to losing money, the recession certainly didn’t help and you can see the big drop in revenue from 2008 to 2010. The current CEO was brought in 2013 to turn around operations. And you can see the margin expansion taking place as the focus on operations took hold. Closing unprofitable branches, coaching the under-performing branches/managers, and strategically expanding location count drove margins higher.  Margins were at a record and the company was generating solid FCF. Focus shifted from day to day operations to expanding the footprint. North Dakota became 25% of revenue in 2014 and the future was looking bright.

A few things happened starting in late 2014 and early 2015 and hit margins.

  • the oil and gas industry seen the worst decline in a number of cycles
  • some of the branches (not sure exactly how many) were not taking on the correct work and focus on high margin, high value add work was lost

Management did recognize the issues and put provisions in place to right size them. In the meantime, share price suffered.

Through 2015 and H1 2016 comparable year-over-year results suffered. Investors became fatigued and some have been quite combative. Such things happen when expectations eclipse reality.

I’m not going to comment on the competency of management and what should or should not be done. Obviously, given that I have a position I feel I can trust them with my capital.

Today

The last 3 quarters we have started to see operational improvements and better communication to shareholders. Recent (small) acquisition is delivering as expected and is an example of what the cash can be used for to grow the business.

CCNI now trades at around 8x FCF without any margin expansion. The CEO has clearly stated that he feels that 2017 will see higher revenue and margins. The low multiple and cash generating ability of the business will open up options to increase shareholder value.

Given the risk/reward profile, I think CCNI is worth buying under $0.50.

Feel free to comment.

 

Thanks,

 

Dean

 

*the author is long CCNI at time of writing

5 Comments

Filed under Company Analysis