Tag Archives: RELL

Feb 2021 Recap – $CSW/A.to, $REPH, $ISDR, $PSD.to, $ISV.to, $IDG.to, $STC.v, $FTG.to, $XTC.to, $SYZ.to, $FRD, $FRII.to, $RELL, $MTLO.v, $DWSN

Holy cow this month was busy.

TIKR

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Thoughts on Market Activity

Once a month I write in my investment journal to attempt to capture my current thoughts on the public markets. It’s not a forecast and I am not a macro guy. It is a quick snapshot of what is happening in real time and how I’m processing it.

This month I made note of Reddit and meme stock phenomenon. Also, layering on the uncertainty with covid and the lockdowns. For the first half of the month there seemed to be a record number of victory laps being taken and many are now regretful that they were not fully invested (or beyond fully invested) in tech/SaaS/WFH stocks over the last 6-9 months. On a personal note, I had never been trolled so hard from non-finance people for asking about risk when they mention hot stocks. The end of the month seen some of the market darlings (my proxy being ARK ETFs) look like they are rolling over. What I find interesting about this is that many of these companies could see their market cap drop by 60-80% and still be considered expensive by traditional financial metrics. I must admit I have had a harder time than ever staying on task and keeping on productive activities.

Posts this month

Company Updates

  • Corby Spirit and Wine Limited (tse: $CSW/A.to & $CSW/B.to)
    • Fiscal Q2 2021 released
      • Rev and gross profit down a bit vs. last year
      • Opex was down a bit as well
      • Nets out to pretty flat EBIT
      • 5% dividend
      • EV/FCF around 10
      • 12ish P/E
  • Recro Pharma ($REPH)
    • Renaissance Technologies disclosed a 5.8% position
      • interesting development thought doesn’t seem meaningful
    • Portolan Capital Management disclosed a 5.5% stake or 1.3 mil shares
      • This does not look like a meaningful position for the fund
    • management additions
      • looks like a (very) small amount of portfolio
    • amendment to credit facility
      • debt reduced to 100mil from 116mil
      • interest rate reduced by 1.5%
      • the reduced portion of the term was exchanged for $9 mil in shares of REPH
      • they now deleverd by 25mil in the last 4 month
    • Released Q4 2020
      • The quarter was below my expectations
      • They posted negative gross margin and went through about 5 mil in cash before capex or changes in working capital
      • Guidance was for stronger Q1 rev
    • Also filed an S-3 to issue up to $30mil to Aspire Capital
      • There is a limit of 6.2mil shares allowed
        • There are about 23mil shares outstanding at the moment
      • Uses volume weighted average price (VWAP)
        • Minimum price of $3.43
      • Can’t be more than $500K per day
    • I have sold my shares – the position size was not worth the headache and I need to clear my head
      • I will continue to monitor for 2 or 3 quarters as part of my feedback loop when buying or selling
  • Issuer Direct ($ISDR)
    • Polar Asset Management filed that they sold their 325k shares
      • This is about 8% of the outstanding
      • The shares have absorbed the sale really well
      • Not a material event for me given how well the business is performing
    • Announced a platform upgrade
      • Should help drive Accesswire adoption over time
  • Pulse Seismic ($PSD.to)
    • Reported Q4 2020 results
      • Better than expected
      • Rev down a little
      • Shares have been performing well YTD
  • Information Services Corp ($ISV.to)
    • QV Investors picked up some more shares in Jan 2021
      • This is the first time I’ve seen them active in ISV since 2016
    • Provided an update and outlook for 2021
      • No hard numbers were given for guidance
      • They are expecting Registry and Services to have lower volumes than normal in 2021
      • They are expecting Services to perform well
      • Technology experienced some delays but seem to be chugging along as best they can remotely
      • Trading at 9x ev/forward ebitda for a very strategic asset
  • Indigo Books & Music ($IDG.to)
    • New president announced
      • Leading the “Living with Intention” and transforming the business model
      • He has experience in different types of retail and managing brands
    • Reported Q3 results
      • Did better than I expected given all the covid lockdowns over the holiday season
      • Keeping operating margins here may prove to be a challenge as the support programs may come off quicker than activity returns
      • Having said that they are leaner then when the pandemic first hit
  • Sangoma Technologies Corp ($STC.v)
    • see post from the month
  • Firan Technology ($FTG.to)
    • reported fiscal Q4 2020
      • results were better than I expected
      • there is a fair bit of uncertainty in their market right now
      • seems cheap with what the potential could be with lots of cash
      • it looks like 2021 (and forward) defense budgets will remain
      • 2021 visibility on simulator sales is low right now and could we weighing on the share price
      • might do a formal revisit
  • Exco Technologies ($XTC.to)
    • Released fiscal Q4 2020
      • Results were better than I expected
      • Raised their dividend a bit
      • They seem to be executing well and are now trading at single digit ev/forward ebit
      • I know this isn’t SaaS or EV or crypto or anything sexy, but this company seems to be turning the corner and warrants a closer look
    • NCIB announced
      • 9.5% of total outstanding
  • Sylogist ($SYZ.to)
    • released Q1 and held a virtual meeting
      • results were in line with expectation to me
    • the core business is quite profitable
    • new CEO may be a driver for higher growth whether organic or inorganic
    • something to monitor
  • Friedman Industries ($FRD)
    • Renaissance Technologies LLC announced they own share
      • 543,752 shares 
      • 7.72% of Friedman Industries Inc..
    • Reported Q3 2021
      • Good quarter
        • rev up a little, while tons sold (in the coil segment) was down a bit
        • gross margins way up
          • higher steel prices and sale of a steel derivatives contract
          • increased throughput
        • some equipment changes are starting to pay off
      • was bouncing around NCAV price, now at a slight premium
  • Freshii ($FRII.to)
    • Held AGM and reduction of capital for the A shares was approved
      • The NCIB starts in March and is approved for up to 10% of the public float
      • If they execute the maximum per day repurchase they will still only hit about 65% of the total approved
        • They are allowed to execute a block purchase
    • Q4 results came out
      • Business is obviously weak due to covid lockdowns
      • They maintain a strong balance sheet and have the same level of cash as they did before the pandemic began
      • They seen positive trends at the start of Q4 vs. Q3 but further lockdowns took the wind out of their sails
      • I’m expecting Q1 to be weak as well
  • Richardson Electronics ($RELL)
    • Renaissance Technologies disclosed an 8.13% position
      • interesting development
    • has performed well YTD and still trades at a discount to NCAV
  • Martello Technologies Group Inc ($MTLO.v)
    • Reported fiscal Q2 2021
      • Below expectations and shares immediately dropped about 7%
      • Negatives
        • Opex is up due to some reopening and investing in marketing
        • Organic growth lower than expected due to legacy business declining quicker than anticipated
        • Still have high cost debt
        • Share structure is not ideal
      • Positives
        • This legacy business (much of it LiveMaps that came over from GSX) is now 17% of rev
        • MSFT DEM growth sequentially
        • 96% of revenue is recurring
        • 1.49 MRR at quarter end
        • Less than 4x MRR vs peers north of 10+
        • Mitel related revenue up slightly
    • Announced $5 mil bought deal at 0.195 with a half warrant
      • Disappointed in this as I thought they didn’t need the cash immediately and would wait until there was visible organic growth (and a higher ARR multiple) before raising
      • I haven’t added or sold any material amount of shares and this remains a small position for me
  • Dawson Geophysical – ($DWSN)
    • Renaissance Technologies LLC owns 1,741,679 shares or7.42% of Dawson Geophysical Company
      • down from 1,755,263
      • not material to me

Hope everyone is staying safe.

Thanks,

Dean

*the author has a position in $ISDR, $STC.v, $FRII.to, $MTLO.v at time of writing

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Jan 2021 Update – $OSS.v, $ISV.to, $STC.v, $VLN.to, $VMD.to, $SYZ.to, $MCB.to, $FRII.to, $RELL, $MTLO.v, $DWSN

Trying something new this month to catalogue some recent market activity and my thoughts around it.

Thoughts on Market Activity

I’m sure you’ve heard of activity around wallstreetbets reddit board and the short squeeze on some heavily shorted names (Gamestop being the most well known). Sorry to disappoint, but I won’t be participating in the short or long side of that corner of the market. It’s too risky for me. It is absolutely fascinating to witness in real time. I have been overly curious to understand what the thought process is for the individuals on each side. I will admit I have probably spent too much time listening to finance and non-finance people explain why they feel the way they do about it. Anyone interested in hearing some anecdotal data I’ve collected can send me an email or DM on Twitter.

I am not a macro guy. I can say that I have been finding interesting ideas lately, but I have not stumbled across businesses that I feel warrant a very large position in the portfolio. I am sitting on a higher than normal amount of cash, but that can change in a few weeks.

Posts this month

Relevant News from Companies Profiled Recently

  • OneSoft Solutions ($OSS.v)
    • Another customer signs on to integrate CIM into their pipeline operations
      • 4th customer in 3 months
      • This is a big positive and shares are up a bit for the month (about 15%)
  • Information Services Corp ($ISV.to)
    • They announced that they ratified a collective agreement with their in-scope unionized employees
      • They did this virtually which is good to hear
      • Provides 6 years of stability with the members with modest wage increases
  • Sangoma Technologies Corp ($STC.v)
    • Update on cyberattack
      • Had no material impact on sales or additional risks to the business
    • Huge acquisition announced
      • The had a call on Jan 29th to discuss
      • More details to come in the next few weeks
      • On the surface the acquisition seems like it is a good fit for the business and will further increase their value to customers, but the valuation is not cheap
        • This is common for Sangoma; all previous acquisitions looked a little off at first glance, but ended up being very well executed
      • I’ll likely to a more in depth post to help myself digest the news
      • As of this morning the shares are halted
  • Velan ($VLN.to)
    • CFO resigned to join a private owned company
      • Doesn’t seem a material event on the surface as he is staying to help transition the role
      • Would like to see a new CFO within a reasonable amount of time
    • Reported fiscal Q3 2021
      • The quarte was better than expected though covid is still having an impact on the business
      • They were able to execute the V20 plan remotely
      • They have the highest backlog in 8 years
      • Sale of the montreal plant resulted in a gain on the balance sheet
        • To me this gives additional margin of safety as looking at this as net-net gives no value to PPE which obviously has some value
    • I honestly think that this is one of those weird names that could earn more ebitda in a few years than the market cap in 2020
      • But that needs to be monitored
    • The bulletin boards are dead from this
  • Viemed ($VMD.to)
    • Released details of a recent Non-invasive vent study
      • Study was led by their CMO
      • Data was between 2012 and 2018
      • Seems like a good validation of NI vents and a helpful data point to bring to the table
  • Sylogist ($SYZ.to)
    • CI purchased shares
      • Bought 1.032 shares since Nov 10, 2020
      • About 40% of trading volume
      • These likely happened at the start of December as there was a spike in volume
    • New CTIO announced
      • Pedigree seems well
      • 225 options at $11.78
        • 5 year term that vest in equal tranches on 1st, 2nd, 3rd anniversary of $15, $17 and $19
  • McCoy Global ($MCB.to)
    • New board member announced (Cory Janssen)
      • Was co-founder of Investopedia
      • He’s quite connected as McCoy commercializes some of their digital products
  • Freshii ($FRII.to)
    • Alternative Monthly Report stating that Silver Ring Value Partners Fund LP
      • During the month ended December 31, 2020, Silver Ring acquired 195,500 Common Shares through open market purchases on the facilities of the Exchange, resulting in Silver Ring holding an aggregate of 2,806,233 Common Shares as at December 31, 2020, representing approximately 10.65% of the issued and outstanding Common Shares.1 Prior to December 1, 2020, Silver Ring owned, or exercised control or direction over, 2,618,733 Common Shares, representing approximately 9.95% of the issued and outstanding Common Shares.
      • Seems like a decent value shop
      • Nice to have a capital allocator own a large amount of the shares outstanding
    • Update on Special Meeting Circular announced
      • Reason for the special meeting is to reduce the stated value of the A shares so they can institute a NCIB
      • This is a step in the right direction
  • Richardson Electronics ($RELL)
    • Reported fiscal Q2
      • Results were better than expected and guidance was strong
      • Looks like wafer side of their business is rebounding and the current cycle could match or eclipse previous cycle
      • The CT tubes are seeing an increase in demand versus what was previously communicated, particularly seeing strength in Europe
        • looks like they could get the healthcare part of the business to break even closer than anticipated
      • shares spiked 20% on the news
  • Martello Technologies Group Inc ($MTLO.v)
    • Provided an update on operations
      • GSX (which was acquired in May 2020) is now fully integrated
        • Gizmo coupled with solutions MTLO already provides is set to take their DEM strategy to another level
        • Sales from all GSX and Savision were about 58% of rev in Q2 fiscal 21
      • Reiterated that legacy products have been declining and will mask core business growth
        • They noted that expenses related to managing the legacy part of the business are minimal
  • Dawson Geophysical – ($DWSN)
    • Wilks Family disclosed a passive stake of 2.28mil shares or 9.7% of the outstanding shares

2 Comments

Filed under Company Updates, Random Thoughts

Richardson Electronics – $RELL

I noticed that Richardson Electronics was listed on the Grahamian Value site here.

I thought that since that I couldn’t find any write-ups, it would be a good opportunity to share some unbiased thoughts.

Overview

Market cap almost 60mil and EV under 20mil.

Background – from the website

Richardson Electronics, Ltd. is a leading global provider of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high value flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

The company is bumping around break even and has been that way since 2011.

They sold a part of the business in 2011 (RFPD) for close to 240mil.

Business Segments

There are 3 distinct business segments. PMT is by far the largest.

PMT

Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions capabilities, power grid and microwave tube business with new RF, Wireless and Power disruptive technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

This part of the business has been quite consistent. They consistently generate stable gross margins and revenue has slowly risen over time.

Canvys

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

They have worked hard to grow this part of the business since 16/17. Revenue is up and gross margin is heading in the right direction.

Healthcare

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.

This is the smallest and least profitable part of the business. On the last conference call it was made clear that this part of the business will run operating losses while the invest in growing the business. They are looking to grow their presence in CT and MRI tubes. They expect to lose 4-5 mil per year for the next year or two.

Balance Sheet – Current Assets

When you look at these net-nets it’s important for me to take a look at the make-up of the current assets. I want to make sure the business isn’t just building inventory or accounts receivable that won’t be converted into cash eventually.

Cash has come down substantially since 2012.

You can see that the cash has slowly dwindled over the years after the sale of RFPD.

Share structure

They have 17mil common and 3mil B shares approved. There are 11.1mil and 2.1mil currently outstanding. B shares hold 10 votes and get 90% of the dividend of the common stock.

The CEO owns all the B shares and controls voting outcomes.

CEO & Compensation

The compensation does not seem very high relative to the amount of revenue. The CEO gets a little over a 1mil per year on a business that does 150mil annually in revenue.

The CEO (Edward Richardson) is 78 and has been CEO for over 40 years.

He is also the Chairman of the Board.

Per Share Numbers

When looking at these asset based valuations, it’s important to make sure that the asset base is not falling dramatically. As you can see, we have seen the NCAV has gone from over $10/share to $7.28 currently.

You can see the drop in revenue per share after the sale of RFPD/

5 Year Summary

When looking for some mean reversion in sentiment (and the business performance) I think it’s important to take a look back over a reasonable timeframe to see how the business has performed.

  • Bus Perf fiscal 2016-20
    • Divis – 15.5mil
    • EBIT – (-)11.5mil
    • EBITDA – 3.2mil
    • CFFO – 6.6mil
    • FCF – (-)14.4mil
    • WC change – 20mil removed

On the most recent conference call it was made clear that there will be no large buyback or special dividend.

Conclusion

Many proponents of net-net investing will reference back-tests showing how well the strategy works. I can tell you that I am drawn to buying cheap business and have a natural contrarian streak. Having said that, I have to be honest with myself. I don’t think I would be able to hold RELL for another 12-24 months while it continues to lose money and eat into the cash balance in the hopes of a turnaround.

Anyone else look at RELL before?

Thanks,

Dean

*the author has no position in RELL

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