Tag Archives: STC

July 2020 Update – $OSS.v $ISDR $PSD.to $ISV.to $STC.v

I was thinking that I would try sending out a quick update on the companies mentioned here recently that I keep tabs on. Maybe I’ll make it a regular thing, maybe not. Many companies will be announcing Q2 2020 numbers next week.

OneSoft Solutions – $OSS.v

Their wholly-owned subsidiary (OneBridge Solutions) was named as a finalist of Application Innovation 2020 Microsoft Partner of the Year. The demonstrates the value of their solution and the intimate relationship of the relationship with Microsoft.

Filed a statement of claim against a breach in a Software License Agreement from 2014. The claim is not material from a financial standpoint, but it shows how important they take their IP.

Issuer Direct – $ISDR

Issuer reported their results last night and they were really good. Shares have jumped over 20% today. Revenue was up over 20%. Profitability was the highest in a long time. They have cash to deploy on multiple capital allocation opportunities. If growth and profitability is maintained, then ISDR is still cheap.

Pulse Seismic – $PSD.to

Very rough quarter, but that was expected. Still generated a little bit of cash. They are in compliance with covenants at this point.

Information Services – $ISV.to

They announced an acquisition of Paragon. This diversifies the business and bolts in well to the existing Services side of the business and is recession resistant. The price isn’t dirt cheap, but does seem reasonable.

Sangoma Technologies – $STC.v

Closed a financing for $81 mil. This was oversubscribed. The price was at $2.30 per share. They now have a bunch of cash and I would expect an acquisition announced soon.

 

The author is long shares of $STC.v, $OSS.v and $ISDR

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Sangoma Technologies Corp – $STC.v

Well well well….

I am doing my best to prioritize writing in schedule. I can’t say that I’m getting better, but the inertia of starting and working through a post has reduced.

I’ve owned Sangoma for years (since 2013) and have averaged up a few times. I have a running word doc that I use to keep track of news that is well over 100 pages long now.

This post is meant to illustrate the path of one of my more successful investments. I will be a tour guide through the last 7 years of history of this business and the share price. I’ll share my thoughts and some insights that you can only gain by experiencing the ride. It demonstrates some of my evolution as an investor. I believe that investments like Sangoma represent what an average investor can obtain with the right mix of research, luck and (most importantly) patience. It should be noted that this investment did not rely on a drill bit, a phase 3 trial, some new technology adoption or a sky high valuation to be successful. Not to say that you can’t make money following any of those strategies, I’m just going to focus on what works for me.

Start with low expectations

When I first wrote up Sangoma in 2013 it was trading less than liquidation value, it was actually trading at less than net cash. It was a lumpy product business that was on the (slow) decline. They managed to grow top line a few million by launching new products that eclipsed the slow decline of legacy products (PSTN analog phone cards), while running a small profit. At the end of 2013, new products had grown from 0 to 5mil in a little over 2 years. The CEO (who is still on board today) was focused on growing top line without needing to continuously raise money to support a business that doesn’t generate cash. At this point the risk was dead money.

Continue with business improvement without the market caring

For 3 years the business continued to improve and the stock went down or sideways at best. 3 years. And it actually started in 2011. So really 5 years of slow business transformation without share price moving. I wrote about in an update here.

During these 3 years, the business was restructured and 3 acquisitions were made. There was always something to muddy each quarter’s results. Inventory levels, age of receivables, margins, acquisition integration, not spending the cash quick enough, etc. In the meantime, they continued to build the business strategically and gain more share of wallet from about 10-20% to 50% of a business’s connectivity purchases. Recurring revenue continued to climb higher each quarter as they focuses on cloud based and services. I was starting to see the long term potential of the business and was happy with management’s ability to grow the business without diluting shareholders.

Success after years

The work started to bear fruit. The share price responded (finally) at the end of 2016. I ended up adding a little in early 2017.

I think it’s important to note that as an investor I could have sold out a reasonable gain. It’s tempting to take the money made and distribute it into other opportunities.

The business had successfully shifted and expectations have changed. This was not the net-net from 2013. This was a larger, more complex organization and your measure of success needs to change.  Quarterly lumpiness was really reduced and visibility increased to the point where they could issue guidance in fiscal 2017.

Their biggest and most complex acquisition to date was executed (VoIP Supply). This was the 5th acquisition they made since I had followed the business (MicroAdvantage, Schmooze, RochBox, VegsStream). I will admit I was usually skeptical of the acquisitions on the surface, but I had seen enough examples of well executed acquisitions and integration to continue to hold the majority of my position.

Continued execution and share price appreciation

Sourcing and executing deals continued with CCD, Digium, VoIP Innovations. The share price has responded, although it still trades at a discount to peers.

Operations were humming along nicely. Continued share price appreciation was driven by the ability to source and execute acquisitions with minimal dilution. The scale and complexity of each acquisition grew bigger incrementally. It was reassuring to see that the CEO was able to keep the pipeline as robust as he did.

Performing continued due diligence is a must. Once you realize that you have a multibagger potential in your portfolio, the last thing you want to do is sell after a rough quarter when it won’t matter several years down the road. As the price grew, the company took up a larger and larger percentage of my portfolio. Things like culture, ego, foresight, customer focus are now the most important things.

Sangoma Today

Obviously I don’t think Sangoma will be a 10 bagger from here, but there are still many things to like about the business. They have been quite insulated from covid, their shares trade at a discount to peers, the are a well run organization, over half of their revenue is recurring, and they still have the ability to up-list on the the TSX from the Venture. I will continue to hold.

Summary

The journey to multibagger is colorful. I have about 30 different data points on their financial results over the years. 7 quarters have been softer than anticipated, 15 have been stronger than anticipated and  8 have been kind of meh. I think each multibagger comes with it’s own merit badges or battle scars that you have to earn and endure.

  • stock price drops of 15-20% after a “bad” quarter
  • 1-3 years of no price appreciation
  • naysayers telling you that it won’t work out
  • market prognosticators predicting another recession worst than all the other ones put together
  • everyone else getting hilariously rich off bitcoin

Anyone care to share a multibagger story?

 

 

Dean

*the author is long shares of Sangoma Technologies ($STC.v) at time of writing

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Sangoma Technologies Corp (STC.v) – Update

I am going through my current portfolio and sharing thoughts on my holdings in hope of getting some feedback from readers. At the very least, it’s a therapeutic exercise for me. Please don’t expect clear succinct thoughts from these posts, it’s more of a mental dumping ground for my brain.

I originally wrote up Sangoma way back here and briefly mentioned it here. Since writing Sangoma has made some acquisitions (and integrated them), invested new products and services, and is seeking a larger share of wallet from customers. Since coming onboard, the CEO has stated that he wants to grow top line and move away from one time product sales towards having recurring revenue to remove lumpiness in the business.

All this has led to a shift in the financials as the new services, acquisitions, and legacy products all have different margin profiles. As with many analysts on the conference calls, I was somewhat skeptical of the desire for top line growth given how much cash was sitting idle. Most of the high cash net-nets sit on cash and do nothing with it. At least with Sangoma, management was acting.

All the hard work has led to a higher top line, less lumpiness through the year, and still have the combined gross margins above 60%. Operating margins have been challenged as this work was integrated and more expenses were required to market to new verticals and geographies. All this was done while maintaining positive net income over the last two years in a corner of the market that is not booming.

The tone from management has been consistent stable growth in top line will translate into a stronger bottom line eventually. Around 40% of revenue is now coming from services and the legacy products now make up about 30% of revenue.

Below is a look at their product vs. service revenue mix. Quite a change. And you can see the working capital required as a % of revenue has declined as well.

STC rev mixstc-wc

Here is a look at the new IP phones that bundle several of their products together. Demand has been strong according to the last two conference calls.

Over the last two years there have been some angry investors attending the conference calls that were not supportive of management’s actions (I could only imagine how many emails and calls the company has gotten directly). From my vantage point, management has executed the plan that they have consistently communincated to investors.

Will 2017 be the year that we see the hard work bear fruit? I am betting on it.

STC.v was also mentioned on Investorfile.

Q1 2017 results should be out really soon.

 

*author is long shares at time of writing

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