I have a couple of posts in the hopper for some companies that have not been mentioned here before. I am, however, struggling to articulate my thoughts in a succint manner for them. Rather than let the site go stale, I’ll provide a quick update on an existing holding, Velan Inc ($VLN.to).
Velan was most recently mentioned here in August of 2020. Shares were trading around $5.50. Since then the shares have moved to the $7.50 range or a gain of 30% (give or take) compared to 45% for the Russel 2000, 22% for the Nasdaq, 11% for the TSX, and 36% for the TSX Venture (wait what the Venture goes up?).
Updates since August 2020
Released their Q2 fiscal 2021 (ending Aug)
as expected this was a rough quarter due to impact of covid
though revenue was weak, order booking were decent especially given the environment
Announced board changes
appointed an independent chair of the board
chair of the audit committee is also independent
Continued execution of V20 plan
they sold a plant in Montreal as part of the V20 plan
no easy feat in a pandemic
reorganized operations to be more nimble and serve the customer better
lower margin, more commoditized valves were moved to India were costs are cheaper
did not seem to be a material event
Released Q3 2021 (ending Nov)
rough top line compared to last year
costs being managed well
bookings strong and backlog is highest since 2012
the nice thing is that this is fairly broad based demand
I was on the call and was the only person to ask questions, a good indicator that Velan is not being followed closely
What needs to happen to make money
Valuation has moved up from 0.65x NCAV to nearly 0.80x NCAV. So I think it’s safe to say that expectations are quite low. In order for the gap to NCAV to continue to close, I think the follow must happen:
bookings need to stay strong
they can’t continue to post losses after covid lockdowns go away and wage subsidies stop
at the very least the gross margin needs to be stable
board changes need to be permanent
Velan has been executing on what they can control. The V20 plan and board changes speak to what the future of this business could be in a few years.
The company is somewhat derisked with the build in backlog and continued execution of the V20 plan. Although the shares moved up, I still think Velan presents a decent risk/reward. I purchased some additional shares recently.
A dividend, buyback or strong results in H2 calendar 2021 could move this from trading based of assets to being valued on earnings.
Anyone else looking at Velan or other NCAV companies?