Dye & Durham Corp

Dye & Durham Corp (TSX: DND) is a cloud-based platform service provider, which is engaged in the business of delivering business support services to organizations, government, and private firms. The company offers legal services like due diligence, securities filings, litigation solutions, investigative services, court filing, KYC services, and financial risk management services. 

Key highlights 

• Positive updates on Q2 2021: The management is bullish on the company’s prospect. On the back of strong momentum across its product lines, and the strong performance of its recent acquisitions, the group expect to generate revenue between CAD 27 million and CAD 29 million, representing 64% growth compared to the previous corresponding period.

• Dividend: On November 9, 2020, the Company declared a quarterly dividend of CAD0.01875 per share to shareholders with a record date of December 7, 2020.

• Ample liquidity: The company’s balance sheet is in a healthy state with cash and cash equivalents of CAD 16.5 million. At the same time, the loans and borrowing level was brought down to CAD 85.8 million in Q1 2021 as against CAD180.8 million at the year end. On September 28, 2020, the company entered into a new credit agreement, providing CAD 140.0 million revolving term loan facility with an additional uncommitted accordion of up to CAD 25.0 million, for an aggregate availability of CAD 165.0 million. 

Financial overview

Source: Company 

• In Q1 2021 the company reported revenue of CAD21.9 million, increased by 29% compared to CAD 16.9 million in the previous corresponding period. The revenue rose due to an increase in transactions as the economic recovery following the relaxation of restrictions related to COVID-19.

• Adjusted EBITDA in Q1 2021 was CAD 12.5 million, increased by 41%, compared to CAD 8.9 million in Q1 2020.

• In Q1 2021, the company reported Net Loss of CAD 14.9 million, against a Net Loss of CAD 4.6 million in Q1 2020, primarily due to the enormous one-time costs incurred as a part of the IPO listing in July 2020, re-financing of debt and acquisitions completed during the reported quarter.

Geographical Revenue Bifurcation 

Source: Company

Risk associated with investment

The company derives a portion of its revenue through real estate conveyancing product line and is subject to witness seasonality. Furthermore, a significant chunk of the revenue is derived from cloud segment, and due to the limited entry barriers, the cloud segment might turn into a perfect competition market and would lead to pricing pressure which would eventually dampen the top line and cash flows of the company. Some other risks associated are like Foreign Exchange Risk, Interest rate Risk, etc.  

Valuation Methodology (Illustrative): Price to Cash Flow

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

Recently the Company acquired R-Squared Bidco Limited, a leading U.K. cloud-based real estate due diligence platform. We feel this acquisition has given new geography to the Company to expand and mark their presence. The group is operating in the highly growth-oriented industry, and the business prospects look attractive, and the management highlighted that in the upcoming quarter they would be clocking a revenue between CAD 27 million and CAD 29 million gives an impression of solid future.

Therefore, based on the above rationale and valuation, we have given a ‘Speculative Buy’ rating at the closing price of CAD 22.73 on November 23, 2020. We have considered Kinaxis Inc, Descartes Systems Group Inc, and Real Matters Inc etc. as the peer group for the comparison.

Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

Ag Growth International Inc 

Ag Growth International Inc (TSX: AFN) is a leading provider of equipment solutions for agriculture bulk commodities including portable and stationary grain handling, storage and conditioning equipment, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. It has manufacturing facilities in Canada, the United States, Italy, Brazil, and the United Kingdom. Western Canada region generates most of the company's revenue.

Key highlights 

• Ample liquidity: The company is having a cash balance of CAD 75 million along with CAD 9.5 million under Cash held in trust. Further, the Credit Facility includes committed revolver facilities of CAD 225 million and USD 215 million with a maturity date of March 20, 2025. Besides, the Credit Facility consists of a separate one-year revolving facility of CAD 50 million to provide increased short-term flexibility during the COVID-19 crisis. 

• Trade sales in the U.S. increased 12%: The group recognized maximum share of the revenue from the US in Q3 2020. Although all the geographies have shown an increase in revenue as compared to previous corresponding period, the U.S reflected the most remarkable change, since farm sales increased 23% due to a natural replenishment cycle that occurred in the first half of 2020 and continued into Q3.

Source: Company 

Financial overview of Q3 2020 (thousands of dollars except per share amounts) 

Source: Company 

• The Company’s revenue increased by 8.2% to CAD 281.4 million as compared to CAD 260.1 million in Q3 2019 because of high farm sales in all the geographies, partially offset by the commercial sales.
• The Company posted a gross profit of CAD 46.86 million in Q3 2020 as compared to CAD 65.51 million in Q3 2029, on the back of increased COGS, due to equipment rework worth CAD 40 million.
• The Company posted a net loss of CAD 12.2 million in Q3 2020, as compared to a net loss of CAD 2.8 million in the previous corresponding period, due to equipment rework during the quarter. 

Risks associated with investment 

The company is exposed to many risk factors which alone or in a cumulative manner can affect the company’s operations and financial health. Some of the risks include fluctuations in agricultural and other commodity prices, crop planting, crop conditions and crop yields, weather patterns, the timing of harvest and conditions during harvest, volatility of production costs, interest and currency exchange rates, governmental regulation of the agriculture and manufacturing industries, etc. 

Valuation Methodology (Illustrative): Price to Cash Flow

(Note: All forecasted figures and peers have been taken from Thomson Reuters) 

Stock recommendation

The company’s business stood resilient during the COVID-19 pandemic, and the farm segment remains robust and unaffected. Crop conditions and demand remains favourable in Canada and the U.S regions. Also, farm sales increased 23% in the U.S due to natural replenishment cycle that occurred in the first half of 2020 and continued into Q3. The company maintains ample liquidity, having a cash balance of CAD 75 million along with CAD 9.5 million under Cash held in trust, along with healthy credit revolving facilities. The group also generated a free cash flow of CAD 26 million in Q3 2020.

Therefore, based on the above rationale and valuation, we have given a ‘Speculative Buy’ rating at the closing price of CAD 29.67 on November 23, 2020. We have considered Superior Plus Corp, Nutrien Ltd, and Savaria Corp etc. as the peer group for the comparison.

Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

AcuityAds Holdings Inc.

AcuityAds Holdings Inc. (TSX: AT) is active in the technology sector based in the United States. The business model is engaged in the provision of a web-based platform for advertisers to connect to its end-users.

Key Positives:

• Recently the company received a CAD 20 million capital infusion from a syndicate of underwriters led by TD Securities Inc. and Canaccord Genuity Corp., wherein the company would issue 3,280,000 common shares, at a price consideration of CAD 6.10 per Share. The company would use the funds for the Company's growth strategy and for general corporate purposes. 
• The group reported a significantly higher Cash generated from operations at CAD 15.991 million for 9MFY20, as compared to an outflow of CAD 5.030 million, a year ago. The improved performance was driven by increased working capital and reduced costs.
• At the last closing price, the stock traded above the short term as well as long term support level of 50-day, 100-day and 200-day SMAs, which reflects that the stock is hovering in bullish price zone.

Q3FY20 Financial Highlights:

• AT announced its quarterly results, wherein the company posted total revenue of CAD 26.06 million, as compared to CAD 26.86 million in the previous corresponding period (pcp). The quarter was marked by a slide in income from managed service segment, while an improved revenue from self-service segment partially supported the company’s income.
• Despite a slowdown in the top line, the company posted a higher gross profit of CAD 13.53 million compared to CAD 13.02 million in Q3FY19, thanks to a lower media cost (CAD 12.53 million versus CAD 13.84 million in pcp).
• The company reported total operating expenses of CAD 12.03 million as compared to CAD 13.95 million in pcp, thanks to a lower sales and marketing expense, technology and lower general and administrative costs.
• The company’s adjusted EBITDA stood at CAD 4.03 million, significantly higher than CAD 1.613 million in pcp. The increase was driven by improved gross margin and the Management’s focus on cost containment.
• The company posted a net income of CAD 0.92 million, as compared to a net loss of CAD 1.36 million in Q3FY19.
• The company posted cash and cash equivalent of CAD 9.47 million, while total assets stood at CAD 53.95 million.                   

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company operates as a communication service company and therefore change in technology might hinder the company’s performance drastically as they are subjected to the high cost of capital.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The company impresses with its recent performance, and the recent capital infusion would help in expansion, which is encouraging. We have valued the stock using EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Score Media and Gaming Inc, Yellow Pages Ltd (Canada) and Enthusiast Gaming Holdings Inc, etc. Hence, considering the aforementioned facts and valuation, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 6.67 on 23 November 2020.

 Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

GoldMoney Inc.

GoldMoney Inc. (TSX: XAU) is a precious metal focused global business. Through its ownership of various operating subsidiaries, the company is engaged in precious metal sales to its clients, including arranging delivery and storage of precious metals for its clients, coin retailing, and lending. Clients of the group are in over 150 countries hold nearly CAD3 billion in precious metal assets.

Key highlights 

• Decent performance: In Q2 2021, the Company experienced a strong operational growth generating CAD 243.6 million in precious metal trading revenues, up by CAD 116.5 million as compared to CAD 127.2 million in Q2 2020, leading to a gross profit of CAD 10.4 million as compared to CAD 5.6 million in Q2 2020. The Company reaped the benefits from the high demand for precious metal and increased market prices.

Source: Company 

• Ample Liquidity:The Company hold sufficient liquidity to continue its ongoing development of Goldmoney.com, LBTH and Schiff Gold, acquire new users, and explore additional opportunities. The Company believes its net working capital balance is sufficient to fund expected requirements for the next 12 months. As on September 30, 2020, the Company had CAD 22.2 million in cash and cash equivalents, cash held for dealing, and restricted cash and net working capital of CAD 89.2 million, with no significant long-term debt or material contractual payment obligations.

Financial Highlights: Q2 2021

Source: Company 

• In the quarter under consideration, the company recorded a quarterly Revenue of CAD 243.6 million, an increase of 40% Quarter-over-Quarter (“QoQ”) and an increase of 92% Year-over-Year (“YoY”).
• The Company increased its gross margin by 203% to CAD 7.6 million against CAD 2.5 million in Q2 2020. The increase is attributable to strong precious metal demand.
• Gross profit increased by CAD 4.8 million to CAD 10.4 million in Q2 2021 as compared to CAD 5.6 million in the previous corresponding period, due to increased precious metal revenues and fee revenues.
• Net income in Q2 2021 stood at CAD 7.5 million as compared to CAD 1.1 million in Q2 2020.

Risks associated with investment

The company is exposed to commodity price risks, including gold, silver, platinum, and palladium held as assets. Volatility in commodity price may have an adverse impact on the earnings of the company. Other risks involved include Foreign Currency Risk, Interest Rate Risk, and Liquidity Risk, etc.

Stock recommendation

The group provides its shareholders with the potential for significant long-term value creation. As a diversified group, the company generate revenue, growth, and returns on capital in two ways, first, through a continuous global revenue stream of precious metal spreads and fees which are generated by an asset-light internet-scalable business model. Second, through the group’s asymmetry to a rising precious metal price environment, which results in both margin and nominal revenue growth.  The company is building long-lasting relationships with a global base of clients by making precious metals-backed savings accessible to all. The company’s group client asset has increased regularly and at present, stood at CAD 2.59 billion.

Further, despite a stellar performance in the second quarter of 2021, its shares are trading at a steeply discounted valuation. At present, the stock is trading at an LTM Price to Sales (P/Sales) multiple of 0.25x multiple against the Industry median of 3.93x. Hence, considering the aforementioned facts, we have given a “Speculative Buy” recommendation at the closing price of CAD 2.22 on November 23, 2020.

Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.