Category Archives: Company Updates

Redishred Quick Update – $KUT.v

It’s been a minute since I update Redishred. You can view my original post here. The share price has performed reasonably well, although it has underperformed the TSX over the last 5 months.

Here is KUT relative to a couple of indexes and the most talked about disruptor.

Update

Since posting the company has purchased American Security Shredding. Highlights of the transaction:

  • Price $5.15 mil including potential earn outs of $3.4 mil for a total potential price of $8.55 mil
  • Revenue of $4.1 mil in 2020, run rate revenue of $4.6 mil USD
  • 32-35% adjusted EBITDA margins (a bit higher than KUT currently) or $1.4 – $1.6 mil
  • Using full earn out the transaction is valued at 1.8x rev and 5.7x ebitda

They have also announced and closed a bought deal with the month of December. They raised $8.6 mil at $0.88 per share. This equals about 12% dilution. The raise was clean with no warrants and insiders participated in about 5% of the raise.

Profitability Expectations

My estimate (with stable paper prices) is that KUT can generate $12-13 mil in EBITDA (aka bullshit earnings) as a steady state run rate. I think the most they would be comfortable leveraging the balance sheet is 4x EBITDA. Being overly conservative and removing the entire cost of American Shredding, I believe they KUT has about $25 mil available for acquisitions. This of course doesn’t include any additional earn outs that have to be paid for the Richmond or Atlanta acquisitions. It also doesn’t include any cash generated in the mean time.

Per Share Numbers

Most of the roll-up strategies seem to fail or the share price underperforms investors expectations. Focusing on per share numbers is critical for a company like KUT.

Though the consolidated numbers are growing the per share numbers are not growing as fast. There are a few reasons why I think the per share numbers will grow fast enough to warrant a position.

  • The pandemic is masking the overall profitability of the business to some degree.
  • The amount of incremental dilution required to move the needle goes down as corporate location store count goes up. The leverage ratios remain stable, while the dollar amount grows.

Valuation

At today’s price you are getting KUT for 8-9x EV/2022 est EBITDA. I think they have some additional operating leverage tied to reopen as well they are cashed up and likely to continue the cadence of acquisitions.

Anyone care to comment on KUT?

Thanks,

Dean

*long KUT at time of writing

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Dec 2021 – $PSD.to, $ISV.to, $STC.to & $SANG, $XTC.to, $VLN.to, $PZA.to, $KUT.v

Hoping everyone had a happy holiday season. I’m looking to become a little more active on the blog in 2022. The only resolution I have made (which is really a task I have been procrastinating on for 3 months) is to get back on Twitter and have it be a productive use of my time.

TIKR

TIKR recently announced the end of the free version. I have made the switch over to the paid premium version.

Thoughts on Market Activity

Nothing constructive to add. I have been fairly busy rotating some capital during the last month of 2021.

Developments on Companies Mentioned

  • RediShred Capital – $KUT.v
    • Acquired American Security Shredding
      • 5.15 mil USD on closing and up to 3.4 mil USD in earnout over 3 years or up to 8.55mil USD total or about 5-6x ebitda
      • American Shredding actually has slightly better ebitda margins than KUT
      • These earnouts are a really smart way of deploying capital as it reduces the current capital needed so KUT can scale into the integration and have a larger EBITDA run rate to borrow against, thus reducing the need to do a share issuance
    • Announced bought deal at 0.88 and closed within the month
      • Clean raise with no warrants
      • A little over 10% dilution

*Long $PSD.to, $STC.to, $VLN.to, $KUT.v at time of posting

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October 2021 Update – $REPH, $PSD.to, $ISV.to, $STC.v, $FTG.to, $VLN.to, $SYZ.to, $FRII.to, $RELL, $URB/A.to, $KUT.v, $DWSN

TIKR

I use TIKR to quickly look through ideas and check comparable companies. Would recommend. Referral code below.

https://app.tikr.com/register?ref=smob7c

Thoughts on Market Activity

Nothing really eye opening here. Lots of inflation talk out there. Markets near all time highs.

What I’m Reading

  • I’ll be on the platform in another 5 weeks for a powerlifting meet. I’ve been focusing on training and building my garage gym.

Posts this month

  • MCR Update
  • O&G Activity – USA

Developments on Companies Mentioned

  • Recro Pharma – $REPH
  • Pulse Seismic – $PSD.to
    • Reported Q3 2021
      • Results were good
      • They have paid off all the long term subordinated debt
      • Issued a special dividend of 0.04
      • Started regular quarterly dividends of 0.0125
    • Announced NCIB for up to 10% of float
    • Here is the companies latest presentation
  • Information Services Corp – $ISV.to
    • CEO is leaving at end of Jan 2022 for personal reasons and the current CFO will become CEO
  • Sangoma Technologies Corp – $STC.v
    • They have graduated from the venture to the TSX starting Nov 1, 2021
  • Firan Technology – $FTG.to
    • Reported Q3 2021
      • Still seeing slow grind higher in activity in commercial aerospace
      • Current and immediate near future valuation looks fair, upside looks to be if activity gets back to pre-pandemic levels in the next couple of years
  • Velan – $VLN.to
    • Reported fiscal Q2 2022 and held a conference call
      • No questions on the call
    • Results were good
      • They look to be turning around from an operational standpoint
    • CEO transition
      • I wasn’t expecting this though I’m not surprised
    • I continue to hold my position
  • Sylogist – $SYZ.to
    • Small acquisition
      • Valuation and earn out look to be quite reasonable although somewhat small top line in the context of their entire business
      • Still I think it shows that they continue to focus on M&A as promised
  • Freshii – $FRII.to
    • Announced acquisition of Natura
      • 9.6 mil EV
      • 19 mil in ttm rev
        • 0.5x ttm sales
      • Buying 60% for 5.7mil with some additional earnout based on performance in 2022
      • Right to buy the remaining 40% through Q1 2025
  • Richardson Electronics – $RELL
    • Reported Q1 fiscal 2022
      • Revenue was way higher and the highest in 11 years
      • Demand seems strong
    • I continue to monitor
  • Urbana Corp – $URB/A.to
    • The company bought 600k shares privately from EdgePoint
    • The NAV has been above $7
  • RediShred Capital – $KUT.v
    • Filed a preliminary base shelf prospectus
      • Up to 25mil for 25 months once effective
  • Dawson Geophysical – $DWSN
    • Though I stopped following DWSN closely they announced that the Wilks Brothers LLC wants to purchase them for $2.34 per share
    • And the Attorney General of Louisiana released this
    • This will be interesting to watch

Long – $PSD.to, $VLN.to, $FRII.to, $STC.v, $URB/A.to, $KUT.to

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