Tag Archives: FTG

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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July 2021 Update – $OSS.v, $REPH, $PSD.to, $STC.v, $FTG.v, $XTC.to, $VLN.to, $RELL, $SVT, $FXC.to, $MCR.v

TIKR

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

They have created a global screener which is great. I recommend playing around with it. Lots of data.

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

Thoughts on Market Activity

Not much to report. The fear of runaway inflation seems to have cooled off to some degree at least for the short term. The delta variant (and uncertain vaccine effectiveness), vaccine hesitancy, staggered global reopening, and the summer doldrums have let to some choppiness over the last month.

My personal underperformance continued this month and for the full quarter. The main culprits are overweight positions in Sangoma Technologies and Viemed. The remainder of the portfolio has outperformed the indexes on the aggregate. Both will have news out soon and it will be nice to get an update.

What I’m Reading

I have been focusing on some more leisure time with family and strength training. Looking for book recommendations.

I am continuing my social media break (mainly Twitter). I continue to only use the app to check DMs. I’m convinced there is value in the app, but I will need to get better at cultivating a timeline that is valuable or considering any time on the app as entertainment and limit it accordingly.

Posts this month

None – sorry ☹

Developments on Companies Mentioned

  • OneSoft Solutions – $OSS.v
    • Share price has been weak lately
      • I think investors are getting impatient and looking for some very material announcements regarding revenue growth and getting to break even
  • Recro Pharma – $REPH
  • Pulse Seismic – $PSD.to
    • Big quarter
      • Rev up to 19 mil
      • Biggest quarter in several years
    • Paid off a bunch of debt
      • Paid of high cost subordinated debt
      • Paid back some of their revolving facility
      • At end of June they only have 4 mil in debt left
  • Sangoma Technologies Corp – $STC.v
    • Provided a business update for Q4
      • Rev of 167 mil
      • Ebitda to exceed 30 mil
      • This bodes well for integration of Star2Star
  • Firan Technology – $FTG.to
    • Reported Q2 fiscal 2021
      • A little weaker than I expected
        • Toronto facility had higher than normal absenteeism due to Ontario gov having a program to increase paid time off
        • Other locations also down
        • Tough simulator comps for this year
      • A bit of currency headwind
    • Still monitoring
  • Exco Technologies – $XTC.to
    • Reported fiscal Q3 with an easy comp last year
      • Outlook was positive
      • Expect capex to exceed $40mil in 2021, which means almost $15mil in Q4
        • Continued to see increased capex in 2022 and likely 2023
      • They set out some 5 year targets
        • 10% rev growth
        • Higher EBITDA and Net Income as well
        • $1.90 EPS in 2026 with no acquisitions
        • New programs, market growth, and market share gains
  • Velan – $VLN.to
    • Reported q2 fiscal 2022
      • They guided for a weak quarter but it was still weaker than I expected
        • Supply chain issues
      • Backlog highest since 2012 and working capital is ramping to meet demand
      • Continuing to hold and give them a couple more quarters to execute before drawing conclusions
  • Richardson Electronics – $RELL
    • Very strong fiscal Q4
      • Guidance was also strong
      • Sounds like lots of opportunities across the 3 different business lines
      • Will be interesting to see if they maintain this momentum
    • Received a patent for wind turbines
      • This is the ULTRA3000
      • A direct one for one replacement of GE batteries and chargers and can be installed with no modifications
  • Servotronics – $SVT
    • Noted this in the 10-K – The Company determined that its previous disclosure regarding management’s evaluation of the effectiveness of internal control over financial reporting was inaccurate as such evaluation was not based on a suitable, recognized control framework in accordance with Exchange Act Rule 13a-15(c).
    • Gotta love microcaps
  • FAX Capital – $FXC.to
    • Nothing new to report but trading at about 0.77x book which is a discount to peers
  • Macro Enterprises – $MCR.v
    • Gate City bought another 2.7% of the company
      • Now owns 15.3% of the outstanding

Feel free to reach out.

Dean

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Firan Technologies Update – $FTG.to

The last time I did a write up on FTG was July last year. Since then shares are up about 90% which is well ahead of the TSX. Shares really took off at the end of April/start of May 2021 on the back of heavy volume. Of course, I don’t own shares. However, this is well behind AMC, GameStop and pretty much all crypto (which I also don’t own). Rather than mulling over not buying shares a year ago, I’m going to take another look at FTG and walk you through some of what I do when monitoring a company.

Update

Covid was not easy on this business from a operational and a product demand standpoint. The defense portion of the business looks stable as it’s supported by government funding and not likely to be cut during a downturn. Commercial aerospace demand was the obvious point of uncertainty. All the large manufacturers have cut production and look to take a few years to return to pre-pandemic levels. On top of this the company had a few covid specific flare-ups at a couple of facilities that led to some production stoppages.

This doesn’t sound like a recipe for the shares to nearly double, but the market is forward looking and perhaps this was all factored into the price previously. When things looked the most uncertain was when the risk to the business was at a low. Of course, government support has helped them manage the pandemic.

Outlook

The outlook has moderated as the vaccine rollout looks to be taking hold. Yes there are the variants, but they (so far) have not derailed the hard work of getting needles into arms. Boeing and Airbus are still expecting lower production in 2021 and into 2022. Despite the reopen in the US and Europe, many coutries are still in the middle of their vaccine rollout.

Valuation Looking Ahead

It’s easy to look at a price chart seeing FTG double in price and assume that you’ve missed the move. I know I have a very hard time looking at each business with both eyes open and judging the offer from Mr. Market at that point in time without anchoring to what I could have purchased shares for previously.

Though shares have done well, the company is not expensive on an absolute basis. They never trade at SaaS level multiples, but looking at historical valuations there is still room for some multiple expansion.

I think using previous multiples with some discretion is a reasonable way to judge upside to downside ratio. All this data is available via TIKR.

Downside

For downside, I’m using price to tangible book and enterprise value over est 2022 revenue. This is using 110 mil in rev and about 50 mil in tangible book value. For reference, 2019 revenue was 112 mil and is about 97 mil currently.

FTG doesn’t trade much below 0.5-0.6 ev/rev unless we look way back to 2012-2014 when the business wasn’t as profitable and had less facilities. I’m going to use 0.5 ev/est. 2022 rev as one downside scenario.
In addition to the ev/rev, I’m going to utilize price to tangible book as the other downside scenario. 2020 was the cheapest the business traded for a long time based on this metric. I’m going to use 1.35x the last stated tangible book value as the other downside scenario.

Upside

For the upside, I’m going to focus on two measures of profitability, EBITDA and FCF. I’ll EV/est 2022 EBITDA and price to pre covid FCF to take into consideration the balance sheet (at least to some degree). The reason I’m using 2022 ebitda is I believe that the income statement predictions are a little more thought out by analysts than the cash flow. Using historical data and the forward estimates, I think the use of 14 mil in ebitda is reasonable. For cash flow, I’m using pre-covid numbers of about 9 mil. This doesn’t include working capital adjustments. As well, FCF doesn’t include the Colonial Circuits acquisition made in 2019.

Though FTG has traded higher than 6x ev/ebitda, it seems to gravitate towards that number over time. I want to be reasonable in my expectations, so I’ll use 6x 2022 estimated ebitda.
The FCF numbers don’t go back quite as far as the other valuations, but there is still enough data to draw a reasonable conclusion from it. I’m going to use 8x FCF.

Upside:Downside

Given the above we get an upside to downside ratio of 1.5. Not high enough for me to pull the trigger here. I prefer a 3 or 4:1 ratio. Of course, this is just looking at the company right now knowing what we know. The valuations used are historical and the company may trade at a premium to these multiples as the business grows and liquidity increases.

This purely mechanical exercise has the potential to miss so many things. Some that come to mind are:
  • The company could use it’s cash to purchase another facility at discounted rates.
  • The commercial aerospace part of the business could bounce back quicker than anticipated and vaccines rollout.
  • The defense business could see more growth than anticipated.
  • Variants could turn out to be worse than anticipated and full reopen could be delayed.
  • There could be some specific issue with a facility in the business.
  • The government support could be removed substantially faster than the business environment normalizes post covid.

Summary

FTG is a company I’ll keep a close eye on. From my perspective they have a strong market presence with a management team that understands capital allocation. Though it is somewhat cyclical, the business does generate ROE and ROIC well above it’s cost of capital over a full cycle. The balance sheet is strong and their is potential to expand the business in a depressed environment. As well the CEO owns substantially more than his annual salary in shares.

I will continue to monitor FTG.

Anyone own FTG or have any opinions?

Dean

*I don’t own FTG at this time

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