About 6 months ago I posted about a position I have in Macro Enterprises. At the time shares were trading at $2.40 vs. $2.50 today. This is slightly outperforming the TSX over that time. My blended ACB position has performed slightly worse FWIW.
Given that I focus on business fundamentals as a large portion of my investment thesis, my timeframe is typically 9-36 months. However, for Macro there have been a couple of relatively big announcements that seem to have been overlooked by the market. Below is a quick summary:
May 19, 2021 – signed a construction contract for the Deep Valley South Section and Colt Sections of NGTL System Expansion Project. Scheduled to start Q3 2021 and finish Q1 2022. Estimated value was in excess of $190 million.
May 27, 2021 – released Q1 2021 and held AGM. During the presentation they confirmed $250 million in revenue for 2021.
August 19, 2021 – announced Q2 2021. Results were positive from an operations standpoint. They upped the estimated revenue for 2021 to be $300 million. Subsequent to quarter end they confirmed that they received the $20 million that was marked as receivables related to JV with Spiecapag.
September 7, 2021 – construction contract with Kiewit TMEP Corp for segments of the TMX along the Coquihalla-Hope corridor. Estimated value was approximately $180 million. As a result they are now expecting revenue to be $350 million in 2021. They will also increase the capex program from $8-$10 million to $20 million to meet demand. To me this demonstrates that they can still win high value contract as an independent.
Putting this all together I see the company as having being de-risked. They have more revenue visitibility than they had 6 months ago. In the short term we should see continued strong trend in EBITDA and revenue.
I went through some risks in the previous post, but I think they are worth looking at again.
There is a chance that they are unable to win more contracts in 2022 and they could see materially lower revenue at some point.
The political risks associated with pipelines and hydrocarbons in general.
The margins on the recent contract wins could be lower than prior contracts.
Using tangible book as a downside scenario could be incorrect.
Using the current tangible book value and $200 million in revenue coupled with prior multiples I derive a blended downside of 15-20%.
There are only a handful of times where the company traded below half of tangible book value for longer than a week or two over the last 10 years. I am comfortable using that as a worse case downside scenario.
The company could trade below these multiples of course. The business does have more project work and less recurring maintenance work than prior.
The upside uses a blend of $250 million in revenue for 2022, my estimated EBITDA and analyst estimated EBITDA.
I believe the share price in MCR does not reflect the recent developments. Of course, the market could have digested this news already and MCR could possibly be fairly priced at today’s prices.
Despite the headlines of oil hitting multi-year highs, MCR is still out of favor in my mind. Yes the business is capital intensive and lumpy, but I believe the price paid is at such a discount that MCR represents a decent bet here. If I didn’t have a position already, I would take one here.
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.
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
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
This month continued the debate on whether or not the current inflation readings are transitory or more permanent. I’m not smart enough to know. Most seem to be over the worry about covid in the first world.
Personally, my portfolio took it on the chin this month. Bigger holdings in $STC.v and $VMD.to are the main culprits. I continue to believe in both businesses over the long term so I continue to hold. I’m still finding some interesting ideas, but they are more cyclical or neglected with lots of uncertainty.
Corby Spirit and Wine Limited – $CSW/A.to & $CSW/B.to
Reported fiscal Q3 2021
In line with expectations
Lots of lockdowns so in person dining is hit
But people still drinking
At about 4.8% yield
They’ve have issued special dividends before, as things recover and cash builds on the balance sheet, they may do it again as they now have almost $3 per share in cash
OneSoft Solutions – $OSS.v
A little below my expectations
Last year had a large amount of data uploaded which led to a very tough comp
Recro Pharma – $REPH
Reported Q1 2021
Results were better than expected
They provided full year guidance and the market reacted well
the business seems to have bottomed and having the visibility for full year results is a positive
AWM announced an initial position
4.8 mil shares
I’m assuming they picked some up during the recent issuance
Can’t find a ton of info on the fund, but this does not look like a top 10 holding for them based on the last round of 13F’s
Issuer Direct – $ISDR
Rev up 32%
Profitability up yoy and flatish from Q4
Outlook was positive
Pulse Seismic – $PSD.to
Announced a data license agreement for 17mil
Immediate rev of 7.3mil
Remaining 9.7mil by April 15, 2022
YTD rev (17.2) is way ahead of full year 2020 rev
Information Services Corp – $ISV.to
Better than expected
The real estate market in Sask was stronger than I expected
It will be interesting to see what the rest of the year looks like given that the seasonality weak quarters were strong and there may be some demand pulled forward in parts of the business but also other parts (Paragon for example) are being held back due to stimulus