High Liner Foods Inc(TSE:HLF)

Web Site
Google Finance
Filing


Dec. 20, 2016
2016 Q3 Data
Current Price: $20.2

1.Basic Information
(1) History

(2) Business-related:
Around 25% sales are from Canada and rest is in the US. The first quarter seems the best quarter. Rest almost the same. In recent years the seafood consumption actually is declining mainly because of the high cost. There is a trend that more people prefer simply seasoned seafood than heavily breaded ones.

(3) Management.
KEITH A. DECKER, current CEO, previously CEO of Fishery Products International, which was acquired by HLF at 2008. Since then, he led several acquisitions for the company and named CEO of the company at 2015.


(4) Debt and Credit Facility.
Current debt around $266m.  Down from high over $350m at 2014 year end.


(5) Insider holding, options, Insider trading info, share buyback.

Thornridge Holdings Limited: 11.5m shares.  37%.
Keith Decker, 32k shares + 360k options.
Henry Demone, Chairman, and the old CEO, 530k shares

(6) Employee numbers

(7) Auditor


(8) Industry comparison.
Clearwater Seafoods Inc(TSE:CLR): Canadian based seafood company as well. Its main product is shellfish. Unlike HLF, it also harvests its raw fish by itself. It seems has 9 active vessels. Unlike HLF,  all of its products are processed in Canada. Its sales to Canada just around 11%, rest is from the US. Europe, Asia etc. It reports in CAD$. Revenue is just about half of HLF. Current market cap is over $700m. Higher growth rate. Very good FCF-WC.

(9) Major events

FPI joint HLF at end of 2007, and since 2008, it acquired 4 companies. Most of the revenue growth is coming from those acquisitions.

2. Financial data.

3. Valuation
The company's report number is in USD$ while the share price is in CAD$. Currently, EBIT is around $53m, Interest expense $16m. Pretax income is around $36m. Net income $30m.  Market cap CAD$644m. Current P/E ratio 16.

When compares with Clearwater, CLR has higher margin 22%-25%, and SG&A is lower at 12%. CLR has close to $480m in debt which is much higher than HLF. Maybe because it has vessels. The weak CAD$ definitely helps the company's performance.


4. Risk
(1) When removing the effect of the acquisition, there seems little organic growth or even negative growth. Currently, the management is focusing on efficiency. If it can bring SG&A level down from current 15% to around 12%, that would be significant.

(2) The debt level is still little too high to me although the management is working to get the debt down.


5. Conclusion

6.Links

http://canadianvalueinvesting.com/?p=189

BNN interview

Bloomberg interview

SFP interview

Top 25 US seafood producer

August 16, 2017
Current Price: $14.5. Market Cap. $483. 
(1) The company recorded 2.5m before tax loss in income for Q2 2017 because of product recalls.

(2) Henry Demone came back as CEO and Keith Becker left the company.

(3) At May the company made another acquisition for $75m. Currently, the debt is $336m.

May 14, 2019
Price: $7.4. Shares: 33.4m. Cap: $247m.
2019 Q1 data
(1) It has been a bad year for HLF for 2018, the 2017 acquisition was pretty bad. Net income was just around $17m for 2018. Net debt went up to $380m in early 2018. But down to $350m at Q1 2019. It had recovered around $17m from the 2017 product recall from the ingredient supplier.

(2) For Q1 2019, its sales volume was down but operating income is flat.  It generates around $26m in real EBITDA compare to Q1 2018's $24m which is a little better. It also cut the dividend to CA$0.20/year which will save $10m in cash annually.

(3) Going forward, it might be able to generate $60 in EBITDA, interest cost: $22m, CapX: $10m, Dividend $7m. Should only have $20m left for debt reduction. It has to do better than that. Overall it is doing better but it is way too early to say it has turned around. Need to watch closely.

Callidus Capital Corp(TSE:CBL)

Web Site
Google Finance
Filing


Nov. 20, 2016
2016 Q3 Data
Current Price: $18

1.Basic Information
(1) History
Asset based lender(ABL) created and majorly owned by Catalyst Capital at around 2006. Catalyst Capital is a private equity firm mainly specialized on distressed debt investment. It seems Catalyst is more on buying distressed debt while Callidus is to offer distressed debt.

(2) Business related:

(3) Management.
Newton Glassman is the key person of both the parent and the company. Very good tracking record managing Catalyst. The equity fund might be around $4B in assets.

(4) Debt and Credit facility.

(5) Insider holding, options, Insider trading info, share buy back.

(6) Employee numbers

(7) Auditor


(8) Industry comparison.

(9) Major events

The company started a tender offer at April 2016 at $14/share for up to 3.57m shares. It bought back 1.1m shares. Later it increased the price to $15.5 and then to $16.5, totally bought back another 1.5m shares. Currently it the $16.5 buy back still in effect until Nov. 30. But I don't think anyone will tender it since it below current market price. 

2. Financial data.
3. Valuation
Currently around $1.3B loan outstanding. Allowance for loan losses is $78m. Total debt liability is around $520m, total equity is around $500m.

The company is very likely going private next year. At April 2016 Nation Bank has a valuation at $18-$22. But Glassman says $22 should be a base for the price, I would expect maybe a little more than that. $18 in kind of a bottom line.

4. Risk
(1) The company got involved with litigation with West Face regarding a former employee who joined West Face. Also regarding a short report generated by West Face at 2015. In my opinion, this is quite unnecessary.

(2) The West Face report doesn't provide much valid concern except it mentioned a company called Xchange Technology which owned the company more than $40m in loan. But seems Xchange is worth much less than that.  However, at march 2016, the parent company Catalyst took over the loan and paid Callidus $101m under a guaranty agreement which is not bad for Callidus.

(3) I think the only problem the company could have is that it underestimate its bad debt allowance. Or maybe fraud behaviour could related to this. Since its loan are usually short (12m-18m), it can't hide the lost unless it keep refinance previous loans.  Based on Q1 2016 presentation, since 2006 till may 2016 , the company got 1 loan was acquired by Catalyst which I think is the Xchange case. 5 companies went restructuring and repaid loan in full. 4 companies went restructuring and result a loss of $17m. There are 8 loans in restructuring. Totally 34 loans outstanding at Q1 2016.

Gray Agua Group: Don't know when and how much the company owns to CBL. At Q4 2015, it had trouble and later filed for bankruptcy again in 3 years. In total it has $55 million in debt. At Q4 2015 CBL write down $22.6m in loan. At Q2 2016 CBL wrote down another $12m. In total in has recorded $37.4m in provision for Gray Aqua. At Dec. 2016, Marine Harvest acquired Gray Aqua for $15m. Don't know whether it includes CBL's claim of Gray Aqua.

(4) Glassman talked a lot about Yield Enhancement in Q3 conference call. I don't really understand it.

(5) The privatization may be fail or last long and then the stock may be repriced by the market.

(6) Currently the company keep the tender offer going one and may increase the price again in future. Anyway, the $16.5/share provides a downside protection currently. However, the company will eventually end the tender offer before it can strike an offer from third party. It might get down again once the tender offer is expired.

5. Conclusion
Current $18 is pretty attractive and the downside is quite protected, major risk is whether and when the privatization will be done.

6.Links

Mar. 31, 2017
Current Price $18.27
The company recorded big bad loan allowance which is unexpected to me. Also it indicated the biding price for privatization might be close the previous tender offer price $16.5 if I comprehended it correctly.

Collectors Universe, Inc.(NASDAQ:CLCT)

Web Site
Google Finance
Filing


Nov. 4, 2016
2015 Q2 Data, Year end June 30.
Current Price: $17.6

1.Basic Information
(1) History
Found by David Hall at 1986, named Professional Coin Grading Service(PCGS), later created Professional Sports Authenticator(PSA). At 1999 it became Collectors Universe and IPO'd at 1999 at $6/share. Its main business include coins grading. sports card grading, autograph authentication. At 2000, its revenue boomed to over $40m. Then down at 2002, 2004, 2009.  Currently is around $60m.

(2) Business-related:

In 2016, total revenue $61m, of which around 62%($38m) in coin business, 15%($9m) in card business, 8%($5m) autograph business, rest 15%($9m) in other business.

Gross margin stayed 60% since 2010, quite a high margin business.

Pretty capital light, only $3m in fixed assets.

(3) Management.
Robert G. Deuster became current CEO since 2012. Before that, he was CEO of Newport Corporation since 1996 and retired at 2007. Newport was sky-rocked at 2000 and had a rough time at 2002 period but recovered pretty well. Early 2016 it was sold at around $900m. Its revenue is roughly 10 time of CLCT's. It is quite amazed me that he came out from 5 years of retirement to accept the job.


(4) Debt and Credit Facility.
No Debt and around 10m in cash.

(5) Insider holding, options, Insider trading info, share buyback.

David Hall still holds around 600k shares which probably the most in management.
CEO holds only 80k


(6) Employee numbers

(7) Auditor


(8) Industry comparison.

(9) Major events

At Aug. 2016, it entered a contract with China Guojin Gold(国金黄金) for until 2020, will likely creates $2.8m to $4.6m yearly revenue. 

2. Financial data.
3. Valuation

(1) Adjusted for the 3:1 reverse split. The stock is actually trading below its IPO price of $6 after 17 years.  Revenue is just 50% higher than origin. However, profit seems much better, especially since 2010, net income was much stable and quite profitable at more than 12%.

(2) Currently, it pays a $1.4/share dividend which is $12m/year. Very generous but fall short of cash generation by at least $5m, so now the cash is only $12m. I doubt if they can continue to support the dividend without taking any debt.

(3) Currently, it is trading at 20 P/E, not really cheap.

4. Risk
(1) Collections tend to tie to economic conditions. When the economy was down at 2002-2004 and 2009, it got hit hard. In the future, the same will happen if there is a recession.

(2) The high dividend might not be preserved in the future. If been cut, no one will be happy. The company even hiked dividend last year which is totally unnecessary. It should reserve some cash or even looking into some acquisition to diversify the business.


5. Conclusion

6.Links

Sept. 1, 2018
2018 data.
Price: $14.91. Shares: 9m. Cap: $135m.
(1) After two years since I first wrote about it, the company had quite a show. The year 2017 was a good year with net income of $8.5m and the share price had raised up to $30. However, by early 2018, the business had pulled back and it cut the dividend by half to $70c/share/year, which equals around $6m/year. after two dismal quarters, Q4 2018 seems stabilized and the share went back from $14 to close $15.

(2) The business seems still below its historic performance with gross margin below the normal level. The real income might be just $6 to $7 level which makes current P/E is still around 20. The major reason is currently sales for newly minted coins were down due to the low gold price I guess.

(3) I believe the business could recover to $7.5m level. The dividend cut is very necessary although it is still high in my view. Current price is not that cheap if the business can't grow back.

Tesla Motors Inc(NASDAQ:TSLA)

Web Site
Google Finance
Filing

Nov. 01, 2016
Current price : $190

Tesla is a typical growth stock. There is no much to write as from a value point. I actually find most of the writings on SeekingAlpha are not quite useful.

Good parts:
1. Innovative and disruptive in almost every aspect from manufacturing to end sales. In my opinion, if it makes gasoline cars, it still makes great cars. Maybe even easier for the company to success.

2. Tesla's car has around 30% gross margin compare to 25% from Toyota. The main saving is probably because it doesn't pay dealers.

3. Tesla's marketing expense should be much lower than others.

Risks:
1. It needs big cash investment for foreseen future.

2. It is solely relies on Elon Musk. 

Valuation:

1. From value point, the company is no way a candidate. There is no profit and big negative cash flow. 

2. I am trying to use a simple logic to guess its value. Because of the saving on dealer's profit and marketing, maybe manufacturing as well. Eventually its profit margin should be double the next player. The market may valuate it as 1.5-2.0 times of its sales at 2020 or later.  

3. By 2018, it plans to ship 500k cars, assuming average USD$50k price, plus service revenue etc. It could be close to $30B in sales. Let assume it can't achieve that and only get $20B in revenue which might ship only 400k cars. Using 2 times price/sales ratio, given some share dilution, it can still be valued at $500/share. 

4. If using more conservative estimate $30B sales at 2020, then it wouldn't worth too much than today's price. 

5. The Solarcity deal would increase Telsa's shares by 11m. It will add $1B sales annually now. Personally I feel the deal is more likely be approved. Buying Solarcity's stock would be equal to buy Tesla's around $170 level.

Steel Partners Holdings LP(NYSE:SPLP)

Web Site
Google Finance
Filing


Oct 17, 2016
2016 Q2 Data

1.Basic Information
(1) History
Warren Lichtenstein created hedge fund Steel Partners  at 1990 at age of 24 and was performing really good until 2008 when the fund has big loses and many withdraw happens. Lichtenstein try to convert the fund to partnership and had a fight with major stack holder(notably Carl Icahn 34%). Finally they settled by withdraw in kind and the rest was converted to SPLP.  From 2011 to 2015, the company wasn't performing good but that was only the share price( ave 8%/year).  Gradually Lichtenstein take some of the holding private and reduced the complexity of the Corp.

(2) Business
Major Holdings
1) Handy & Harman Ltd  70%
This is its major holdings ant the company it self is a holding company. It consolidated JPS Industries, Inc.(OTC:JPST, tendered at 2015 at $10/share) and  SL Industries, Inc. (NYSE:SLI, tendered at 2016 at $40/share) which both are SPLP's major holding before. In the near term, the company might get around 800m annual sales and around $100m EBITDA, compare around $240m market cap and $500m EV.  Currently it has around $260m debt  and $260m pension obligation. Tangible book value is below zero.

NHN seems a little undervalued based on EV/EBITDA of just 5 times. The company has grew its revenue and combined business quite well. It also utilize some NOLs each year. FCF is above $50m before 2015 but down to $40m at 2015. Still very cheap if based on $40m FCF.

2) WebFinancial Holding Corp(WFH Holdings)  91%
a) WebBank: The company was acquired at 2005 and currently has around $31m net income at 2015 and is recorded on book value of $60m by SPLP.

WebBank seems significantly undervalued at $60m. I use 10 P/E to give it a valuation of $300m, SPLP's 91% share should worth 270m.

b) WFH Holding LLC: Previously called CoSine Communications, converted to WFH shares at $4.40 at Dec. 2015, perviously it consolidated API group. 2015 revenue is $113m. It has be combined with webbank which is to use the NOL tax benefits.

Currently is valued $188m. This includes around $116m future tax benefit. If deducted the tax benefits, it should only worths around $70m.

3) Steel Excel: 64% valued at $80m.

4) Aerojet Rocketdyne: 6.6% valued at $80m.

(3) Management.
Lichtenstein is a deep value active investor who is good at identify troubled business and aggressively turn them around.

MER is 1.5% currently.

(4) Debt and Credit facility.
Currently the company has $75m debt.

(5) Insider holding, options, Insider trading info, share buy back.

Warren G. Lichtenstein: 35%,  Jack L. Howard: 15%.

2. Financial data.

3. Valuation
(1) As the company's financial consolidated its major positions. So the data is quite hard to read and is not very useful. It is more accurate to treat the company as the sum of all its parts minus debt.

4. Risk
(1)NHN's pension assets $320m, liability $260m. It is quite underfunded and is quite a bit concern. However, any future interest rate increase will give it some release which is pretty likely.

(2)Webbank business is mainly on P2P online lending although it doesn't offer directly and didn't carry the credit risk. However, if the industry changes, or regulation getting tuff, it could lose its main revenue stream.

(3) Lichtenstein is great investor, but his strong personality might get the company in trouble sometime. 

5. Conclusion

6.Links

https://www.valueinvestorsclub.com/idea/STEEL_PARTNERS_HOLDINGS_LP/66484#top

http://www.barelkarsan.com/2016/09/stealing-from-steel-partners.html


June 13, 2017.
Current Price: $18.5, Preferred : $22.0
The company finished the acquisition of all shares in steel excel and will acquire rest shares of Handy and Harman. Currently the fair value is expected to be around $32/share.

The company created 6% preferred share for the acquisition of Steel excel and Handy and Harman. The share is 20% redeemable at par at 2020 and will be fully redeemed at 2026. Currently it is yield around 8.45% at price of $22.

Apivio Systems Inc(CVE:APV)

Web Site
Google Finance
Filing


Oct 16, 2015
2016 Q2 Data

1.Basic Information
(1) History
A Korean company reverse merged at 2009 in CVE.


(3) Management.


(4) Debt and Credit facility.


(5) Insider holding, options, Insider trading info, share buy back.

(6) Employee numbers

(7) Auditor


(8) Industry comparison.


(9) Major events

2. Financial data.

3. Valuation

4. Risk
(1) The company seems care about share price quite a bit and issue shares every time when possible.  It also pays for $5000/month for someone to promote its stock.

(2) The smart desktop phone product might not be able to success.

(3) Its core money making Korean market relies on a few big customers. It is unknown how long the revenue steam can last.

5. Conclusion

6.Links

Bevo Agro Inc(CVE:BVO)

Web Site
Google Finance
Filing


Year End June 30.

Sept 22, 2015(Updated Mar. 2017)
2016 Q1 Data

1.Basic Information
(1) History
A family based green house farm. Much like Village Farms. However, it is much smaller and it mainly to produce the baby plants to supply other farms. The company was founded by Jack Benne(Dad) and Leo Benne(Son) at 1993.

(2) Business
As end of 2016, it has 53 acres of farms in Canada. Its major customer should be Costco USA.
The Q4 quarter seems always the best quarter which double the revenue of Q3. Q1 seems the weakest quarter with just 1/3 of Q4.

At 2016 the sales to Canada and USA both count around 50% of revenue.

(3) Management.
Both Jack and Leo seems very passionate plant grower and very creative in farming method.

(4) Debt and Credit facility.
At Dec. 2016, its net debt is around $23m. Grows debt is around $25m. Most are fixed interest between 3%-4%. Annual interest is around $800k.

(5) Insider holding, options, Insider trading info, share buy back.

The Benne family holds 62% of total shares. There are 2.2m options outstanding at quite low price level.

(6) Employee numbers

(7) Auditor


(8) Industry comparison.

Don't know much about any other baby plant grower. Comparable greenhouse grower is Village Farms. When compare to VFF,  BVO had above 25% gross margin which much higher than VFF's 15%. EBITDA is about 15% compare to 12% of VFF.  Its business is also more stable than VFF.

(9) Major events

At end of 2015, it planed the construction of the last 8 acres farm of its current location. The dev completed at Sept. 2016 quarter and increased its acreage from 45 to 53. The cost is $8m which seems fully invested at Dec. 2016.

At June 2016, it creates the CubicFarm systems company to market its container style vertical farming equipment. BVO holds 54% of the CubicFarm. Later the company issued around $575k in 64250 shares at $8.95/share which diluted BVO's holding to 51%.  Based on the number I guess the initial total shares is around 1m to 1.1m. So the company is valued at $9m and BVO's share is close to $5m.

Dave Dinesen is the CEO of CubicFarm and I am guessing that he holds the rest of the shares. Previously he founded and run the BackCheck company for 15 years which was acquired by competitors. Don't know how big it was but it seems to have at least 500 employees.

2. Financial data.

3. Valuation
(1) The company isn't having much growth during the past. From 2006 to 2013 revenue was kind of flat. But after that, it is able to grow from $20m level to $30m level while acreage only grows 1/3 from 34 to 45.

(2) Original I was kind of doubt whether its big increase in revenue at Q4 2016 is sustainable  But the new 8 acres of farm creates 18% more capacity for the company and should start to contribute to its revenue starting at Q3 2017. I feel it can at least maintains current revenue level.

(3) If it can maintain current level of revenue and 16% EBITDA margin, it can generate $5m EBITDA. Current price $1.02. Cap $26m. Net debt $21m. EV/EBITDA around 9 times. Now really cheap. However, if using $800k interest, $1.5m maintenance CapX. 10% tax, its real income could close to $2.4m.

(4) The CubicFarm idea if works out would be a significant part of the company. Although  it is hard to tell whether it can workout. I do feel its system is quite good compare to Freight Farm.

4. Risk
(1) Don't know how much it relies on Costco or any big customers. If it lost major customer it could be bad.

(2) Clearly the weak Canadian dollar help the company both on revenue side and on profit side. If the Canadian dollar goes up. It will be bad for them.

(3) The green house business seems a very capital extensive industry. The company's debt/equity ratio although is down now but still above 100%. Village farm actually defaulted its debt twice during the past.


5. Conclusion
The company is well managed and the current price is quite acceptable although I wish it has been cheaper.

(Mar. 2017) The company's share doubled since I first wrote about it at 2015. Current price is $1.02 down a little bit from the peak last year. I wish I had put more effort on it last year. Currently it is trade around 12 P/E to normalized income. If the company can keep its 2016 revenue and income, then current price is quite cheap. Also the management is doing very well. The new 8 acres farm and the CubicFarm could also bring good result for the company.

6.Links

http://www.vancouversun.com/life/garden+jack+benne+gift+growing+great+plants/11305213/story.html


Nov. 03, 2016
Current price 1.17
The company's Last quarter is really good and the full year revenue increased to over $31m.  It is EBIDTA increased to $5.8m as well. However, current net debt is $19m. Market cap $30m. Totally gives an EV/EBIDTA ratio of 8.4. If the company can continue growing, then it would be ok. If not, the price is quite fair for a stable business.

Oct. 24, 2017
Current price $1.46. Market cap $38m.
(1) Recently the share price raised quite a lot. Today the company released news that the CubicFarm business is growing.
1) It issued 125,142 new convertible preferred shares at $8.95/share. This diluted its holding from 51% to 46%. This means before issuing shares total share is around 1.15m. After issuing shares total shares is around 1.3m. Consistent with the previous calculation. I guess the new shares were also issued to Dave Dinesen. It is strange that the company only recorded $120k in minority interest for CubicFarms on its balance sheet. In the future, the company will report it as an investment instead of subsidiary since its share has dropped below 50%.
2) The new $1.1m funding will be used for R&D of CubicFarm, which will set up 10 machines to grow plants and sale to local. It also logged sales of 2 machines for $1.6m each.
3) It formed a partnership with a Chinese company to produce the machines it needed.

(2) Overall I am very bullish about the CubicFarm machines. It is obviously better than the popular one on the market. It executed well, this business could be a much much better one than BVO itself.

(3) The company supposes to release fiscal 2017 result pretty soon. I still feel it can generate similar or better result than last year.

Oct. 30, 2017
Price: $1.5. Market Cap: $39m.
(1) For whole fiscal 2017, revenue $35m, net income $3.0m. The CubicFarm expense is around $1m. Added back around 400k expense share in the CubicFarm. Its real income should be around $3.4m. EBIDTA should be around $6.8m not including expense in CubicFarm. CapX 6.4m, of which 2m are actually maintenance.

(2) Assuming in 2019 $8m EBIDTA , CapX $1.5m, Interest $0.8m, Tax 20%,  Real income could be around $4.5m. Using 15P/E, and assume CubicFarm worth $5m. It should support a Cap of $70m by then.

Sept. 28, 2018
Q4 2018 Data
Price: $2.41. Shares: 26.2m Market Cap: $63m
(1)Today aftermarket the company released full-year 2018 data. So the price hasn't reflected it yet. Full-year 2018 revenue is similar to 2017 and 2016. EBITDA is around $7.2m. CapX 2.5m which are all maintenance. Interest expense: $0.8m.  Operating income is around $4.8m compared to $4m last year. However, this year there is no expense on CubicFarm side compare to $0.7m incurred in last year. Using 20%, real income is around $3.2m which is actually worse than last year if not include expense on the CubicFarm side. 

(2) Assume by 2020 it can generate $8.5m EBIDTA, CapX 2.5m, interest $0.8m. 20% tax. Real income is around $4.2m. Using 20 P/E. 28m shares. CubicFarm extra $5m. Its fair price by then would be around $3.2. Current price is actually not cheap anymore.

(3) In the past 2 years, the share price was lifted quite nicely. But it might somehow related to the cannabis fever. Once people realize that this company wouldn't participate in the cannabis space or when the cannabis bubble busted, it might be getting cheap again.

Canadian Preferred Shares( Floater & Resets)

July, 24, 2016

1. Basics
Preferred shares usually are not good candidates. They offer rate might be a little higher than bonds but usually without mature date. Also interest on preferred shares are paid as dividend but not interest. It is after tax and can't count as expense by the company.  Usually they are offered at $25 par value and a fixed interest rate. Price of preferred shares is often like bonds: when interest rate goes up, price goes down to make yield goes up to match higher interest, and vice versa.

However, since 2009 to 2010, there are new type of rate resets and floater which now account over 60% of preferred share markets. Floaters use 3 months Canadian T-Bill rate as base rate and plus an fixed rate of 1% to 4% based on the company's credit. Resets will use 5 year Canadian government bond rate as base rate and plus an fixed rate as well. Resets will only change rate every 5 years. Many companies issue resets and floater at the same time and make them exchangeable to each other at the rate reset date.

The creation of floater and resets is to protect the investor against the low interest rate caused by 2008 crash.  Everyone expect the interest to go up at 2010. However, pre-2008 crisis, the 5Y Gov Bond Rate was around 4%. At 2010, it is around 2.5%. And now it is only 0.65%.  Since 2015, it is time for rate resets of many preferred share. I guess all the companies are pretty happy that they can pay 2% less dividend in the next 5 years. But the preferred shares price dropping quite a lot because of the low rate. Most interesting ones are the those who are trading between $10-$15 which will rebound a lot once interest rates goes up.

Preferred shares are rated by DBRS and usually a RDF-2 is a good company which currently should yield below 5%.  an RDF-3L seems the lowest we can invest which might yield around 10% now.


2. Thoughts
(1) One benefit of preferred shares is the dividend which is way more tax friendly than interest. As eligible dividend, the tax rate could be -2% if income is less than $30k. But if include Ontario health care premium, it might not as good as it looks.  Needs more study on this part.

(2) I think there is way higher chance of a higher interest rate in next 5 years. The low rate can't last forever, I am assuming 2.5% base rate at 2021 which is around 2% higher than current. For the next 5 years I estimate 5Y rate: 2017: 0.8%, 2018: 1.0%, 2019: 1.5%, 2020: 2.0%, 2021: 2.5%.

(3) The return on preferred share is combined of dividend and capital appreciation. I would like to put more weight on capital appreciation than dividend income.

(4) Usually an RDF-2 will yield 5% at issuing time. If base rate is 2.5%, it will be base+2.5%. If now it is the time to reset. The new rate will be only 3%. To make up the same 5% yield, the price would be $15.  Assume at 2021 the base rate will be back to 2.5%, the price goes back to $25. Including the dividend, the annualized return would be close to 15%.

(5) Besides the interest rate ETF, the preferred shares are very good candidates to hedge interest raise. If selected carefully, the return could be very attractive although might be as good as common shares.


3. Risk
(1) The interest rate goes even lower. However, the down side are pretty limited which can't be below zero I feel.

(2) The interest rate will last for the next 5 years. In this case, preferred share price will not change much but we will still be able to collect the dividend return.

(3) The individual company might suspend dividend payment or go bankrupted. This needs careful selection of preferred shares and diversify.


4.Links

http://www.theglobeandmail.com/globe-investor/investment-ideas/bull-market-in-despondency-offers-opportunities-in-preferred-shares/article28748446/


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AIMIA INC PREF SERIES 1(TSE:AIM-A)
AIMIA INC PREF SERIES 2(TSE:AIM-B)
AIMIA INC PREF SERIES 3(TSE:AIM-C)
Aimia Inc(TSE:AIM)

1. Basic
(1) Current price: A:$10.74, B:$10.36, C: $14.00. Credit rating is RDF-3H. Current Yield 10%-11% A: Reset date: 31/3/2020, Reset rate: 5YBond +3.75%. C: Reset date 31/3/2019. Reset rate 5Y Bond + 4.2%.  Reset yield 9%-10% if 5Y Bond rate stay the same. The AIM-B is a floater and can be converted to A at reset date. Its rate is 3M T-Bill + 3.75%.

(2) Aimia is a spin off of Air Canada. Its major business is aeroplan. It has quite strong FCF generation of  $200m/year. However, it pays $140m in dividend annually. And bought back a lots of shares last year. On the balance sheet, it has $400m in cash and around $650m in debt. Negative tangible book value.

2. Thoughts:
(1)For A: Assume 2021 the 5Y rate is 2.5%. Then at that time the reset rate would be 6.25%, to make the same 10% yield, price should be $15.25. Added dividend the AR is 16.5%.

(2)For C: Assume 2021 the 5Y rate is 2.5%. Then at that time the reset rate would be 6.7%, to make the same 8.82% yield, price should be $19.05. Added dividend the AR is 16.5%.

3. Risk
(1) Its contract renewal with Air Canada at 2019 might get bad terms.

(2) The major banks might cut aeroplan rewards and affect the company.


4. Links
New Position: Aimia Preferred Shares

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CANACCORD GENUITY GROUP INC PREF A(TSE:CF-A)
CANACCORD GENUITY GROUP INC PREF C(TSE:CF-C)
Canaccord Genuity Group Inc(TSE:CF)

1. Basic
(1) Credit rating is RDF-3L.  CF-A: Current price: $11.07. Current Yield 12.4%. Reset date 30/9/2016. Reset rate 5Y Bond + 3.21%.  Reset yield 8.72% assume no rate change.  CF-C: Current price: $13.51. Current Yield 10.64%. Reset date 30/6/2017. Reset rate 5Y Bond + 4.03%.  Reset yield 8.66% assume no rate change.

(2) Cannacord has investment bank and brokerage business. Its revenue and income is kind of volatile through the finance crisis and recent oil down turn.  However, its FCF-WC is roughly stable at $30m-$80m/year.  Currently dividend is suspended on common share. Has $1B cash equivalence and no debt. Tangible book value $400m compare to $200m in preferred shares.

2. Thoughts:
(1)For CF-A: Assume 5Y later at 2021 the 5Y rate is 2.5%. Then at that time the reset rate would be 5.71%, to make the same 8.72% yield, price should be $16.37. Added annual dividend of $0.965 after reset the AR is 15.5%.

(2)For CF-C: Assume 5Y later at 2021 the 5Y rate is 2.5%. Then at that time the reset rate would be 5.51%, to make the same 8.72% yield, price should be $15.6. Added annual dividend of $0.965 after reset the AR is also 15%.

3. Risk
The company might suspend preferred dividend as well.


4. Links
Cannacord Genuity Preferred Shares

Hamilton Thorne Ltd(CVE:HTL)

Web Site
Google Finance
Filing




July 22, 2016
2016 Q1 Data

1.Basic Information
(1) History
The company was a reverse merger at 2009. Previously, it seems co-founded by Meg Spencer, and Douglas  Hamilton at around year 1997.  Meg served as the CEO until 2011, Douglas Hamilton as CTO till now. Later Daniel Thorne invested in the company and became the main investor. The company seems name after Douglas and Daniel. At IPO, Meg hold 4%, Douglas hold 1% while Daniel hold 48%. Currently Meg holds less than 1%, Douglas still holds 0.8%, Daniel holds 28% while the new CEO David Wolf (since 2011) holds 2%.

(2) Business
70% of its sales is from laser equipment used in IVF (In Vitro Fertilization). 30% revenue related to animal. Most of its customer are labs and research institutes. Very high gross margin ( >60%).  The companies revenue grew quite consistently since IPO and turned to profitable since 2013.

(3) Management.
David Wolf join the company since late 2011, previously he was working at larger companies. He seems doing quite a good job and have a good past experience. Feels like a pretty humble person.

(4) Debt and Credit facility.
No debt and around 4.5m in cash.

(5) Insider holding, options, Insider trading info, share buy back.

The company only had around 21m shares at 2009 IPO and now it has over 70m shares. Deluded quite a lot.  CEO holds 2%,  while all insider hold over 30%.

(6) Employee numbers

(7) Auditor


(8) Industry comparison.


(9) Major events

2. Financial data.

3. Valuation
(1)The company currently is trading around 0.18. Market cap $12.3m about 10 times P/E.  Given its growth and profitability, this is quite a cheap price.

(2)It actively looking for acquisitions and target $30m revenue with 20%-25% EBITDA margin and then move on US exchange. If it can achieve that in 5 years, it could be worth $60m at that time.

(3)Its addressable market is around $1B and seems its product are in the high end.

4. Risk
(1) Continue dilution of common stock seems inevitable. Just how much it needs for acquisition.

(2) Its customers are probably quite concentrated, so main revenue may depend on a few customers.


5. Conclusion
Overall it seems a good managed company with growth potential and trade at a quite cheap price.

6.Links

http://wallstreetanalyzer.com/2015/12/08/hamilton-thorne-tsxv-htl-ceo-interview/


Sept. 17, 2016
Current price 0.275
(1) The company acquired an US company which has around USD$5m annual revenue and USD$1.5 EBITDA. For USD$7.25m including around USD$6m in cash and around 7m new shares.

(2) The companies new debt level is USD$7m compare to $3.5m before. Also the $4.5m cash might not much left.  New share count should be around 80m.

(3) I estimate new interest expense would around 0.5m/year. New annual revenue should around $15m. Net income might be $1.5m to $2m per year.

Automodular Corp(CVE:AM.H)

Web Site
Google Finance
Filing


July, 9, 2016
Current price $2.50
1. Business
(1) This is cash shell company with no business activity.  Cash $33.5m. Shares: 13.1m. Market cap: $33m.

(2) Currently running rate is about $0.5m/quarter. Two full time employees + some part time I guess.

(3) The company bought back over 5m shares at $2.65/share. Also has ongoing share buy back at 10%/year.

(4) Lawsuit with GM
Currently there is $25m lawsuit against GM about a contract termination at 2010. The company lost millions due to factory shutdown. The lawsuit has last for several years and it is likely to have a result in second half of 2016.

Its former CEO Michael Blair on the lawsuit:
“The last contract my company had with GM is an example. We contracted to sub-assemble cockpits for the Chevrolet Camaro being produced in Oshawa and invested millions of dollars in equipment and training. As soon as the investments were made and production was about to begin, GM demanded a 50% reduction in the price for our sub-assembly work or they would move the business to another supplier. We refused, they followed through on the threat and we suffered millions of dollars in costs to close the facility. The merits of that decision by GM will be contested in a lawsuit between my former company and GM, which is still before the courts and I won't comment further. The point is, regardless of the legalities, it is poor form to contract with a party, let them get pregnant with major capital outlays and then demand a 50% price reduction. Anyone who has ever supplied a car company knows that no supplier can absorb a 50% price reduction on any contract.”


2. Thoughts
(1) If the company win the lawsuit, it could translate to around above $1.80/share value. Based on the Michael Blair's writing I believe the outcome is more likely positive.

(2) The management seems quite share holder friendly with share buy backs and dividends. Although they stopped dividend payment since 2016.


3. Risk
(1) Lost in the lawsuit, in this case, its cash will drop under the current market cap. I am prepared for a 20% decline.

(2)The lawsuit is set to trial at the second half of 2016. The result could be delayed.


4.Links

Automodular – A Liquidation Play

Michael Blair on GM

http://stock-market-insights.ga/automodular-a-coiled-spring/

Feb. 3, 2018
Currently been halted, Previous Price: $2.4. Shares: 12,976,227
(1) Cash 32.5m. Cash/Share: $2.5.

(2) The lawsuit trial is set to begin at Feb. 2018.

(3) The company is set to be taken over by HLS Therapeutics. For each AM.H shares, exchange for   0.165834 shares of HLS. Totally will be 2,151,900 shares of HLS shares. Also, it will set aside an escrow fund around $7m which is the total cash less $25m for the GM lawsuit. After the lawsuit ends,  95% of proceeds from the lawsuit and left over in the escrow fund will be distributed to original AM.H's shareholder. The redemption might be paid in several times and as a dividend of preferred shares.

(4) HLS is also seeking a private placement of no less than USD$9.25/share. If using 1.25 for USD to CAD. It equals 9.25*0.165834*1.25=CAD$1.92. Totally that equals $25m of market cap. Which means HLS is indeed just getting into the company as a private placement. It is quite a good deal for HLS because it also is able to go public for free.

Feb. 20, 2019
Still been halted.
(1) The company settled the litigation with GM will pay AM for $7m. It is much lower than the original claimed $20m+$5m amount. Since it was solved before the reverse merger with HLS. The two companies will make an amendment to the take-over agreement.

Feb. 26, 2019
Still been halted.
(1) The company will distribute $6.3m which is all the net proceeds from GM settlement to preferred shareholder as a redemption. The redemption price is $0.65/share and will redeem 9,689,289 shares. The left-over shares should be 12,976,227-9,689,289=3,286,938. Based on $7m balance on escrow fund, it is over $2/share.

However, "the escrow account (governed by the Claims Administration and Escrow Agreement) prior to closing of the Arrangement will be used principally to fund certain administrative costs in connection with post-closing matters, to pay taxes payable by AMD in connection with receipt of the settlement proceeds from the GM Claim, and to cover other legacy claims, if any, that arise on or before December 23, 2020. Following that date, the outstanding Resulting Issuer PreferredShares will be redeemed in return for the net funds in the escrow account as at that date, if any."

Assuming there is $1m additional cost, then at the end, it still should get around $1.50/share distritution.

Horizons BetaPro US 30 Year Bond Bear Plus ETF(TSE:HTD)

Web Site
Google Finance


July, 8, 2016
Current price $7.75, index value: 2.15%.
1. Business
(1)This is a treasury rate double short of us 30 year treasure yield ETF in CAD$.  MER is around 1.15%. Since its inception at 2008 it has lost 65% compare the loss of 50% of the index.


2. Thoughts
(1) The treasure rate is currently in all time low at close to 2%. In 1980s, the treasury is close to 10% which was a high interest rate and high inflation period. Since 1990 to 2010, the rate is down from 8% to  4%, roughly lost 1 percent in every 5 years period. Then from 2010 to now it lost around another 2%.

(2) Although the US keep deferring the rate hike, I don't think the low rate will last for a long time. As Francis Chou has said, he is asking the same question again when he asked at 1980s: "How long the low(high) rate will last".

(3) The major reason for recent down is because of the Brexit. But I think it is an over reaction.

(4) I believe a normal 30 rate should be at least 3% which is also a normal rate of inflation.

3. Risk
(1) The treasure rate can go even lower to maybe just 1%.

(2) The fund might got shut down because the asset base is just a few million.


4.Links

Treasury Yield 30 Years(INDEXCBOE:TYX)

https://ca.finance.yahoo.com/echarts?s=%5ETYX#symbol=%5ETYX;range=my

Exco Technologies Limited(TSE:XTC)

Web Site
Google Finance
Filing


Year End Sept.

June. 29, 2016
2016 Q2 Data

1.Basic Information
(1) History
Exco was founded in 1952 by H.H. Robbins, as a machine shop known as Extrusion Machine Company Limited. It soon evolved into a custom manufacturer of aluminum extrusion dies for Canadian aluminum extruders. In 1976, Brian Robbins, son of the founder, became President, by which time the Company had developed a strong technological base. In 1986, it went public, and has subsequently grown both internally and through acquisitions, and has continued to expand its product line as well as its geographical locations. Now it has 18 manufacturing locations in 10 countries with operations based in North America, Mexico, Colombia, Brazil, and Thailand.

(2) Business
1) Aluminum casting and extrusion, making of aluminum auto parts.  This is its traditional business which account around 1/3 of its revenue, the profit margin seems higher ( >10%).

2)Auto interior parts using leather, plastic etc. Count 2/3 of revenue net profit margin is lower ( < 10%).


(3) Management.
CEO: Brian A. Robbins, Son of the founder of the company H. H. Robbins.

(4) Debt and Credit facility.
Recently entered $70m debt mainly for AFX acquisition. Historically very little debt.


(5) Insider holding, options, Insider trading info, share buy back.

Brian A. Robbins: 9.7m shares. 22%
Edward H. Kernaghan: Director, 4.7m shares. 12%. Kernaghan & Partners Ltd, Seems an investing form.
Top 5 compensation $5m for year 2015.

(6) Employee numbers

The company's employee are mainly in offshore manufacturing. Maybe more than 5000 in total.

(7) Auditor


(8) Industry comparison.
Magna International Inc.( TSE:MG): Magna annual sale is about $32 billion. It has 305 manufacturing operations and 93 product development, engineering, and sales centres in 29 countries.

The auto parts supplier produces the body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules. It also does complete contract manufacturing and vehicle engineering.

Linamar Corporation(TSE:LNR): Annual sale of $2B. Linamar has 56 manufacturing locations, six research and development centres, and 15 sales offices in 17 countries in North and South America, Europe, and Asia.

The auto parts supplier consists of two operating segments–the Powertrain/Driveline segment and the Industrial segment, which are further divided into four operating groups: Machining and Assembly, Light Metal Casting, Forging, and Skyjack.

Martinrea International Inc(TSE:MRE): Annual sale close to $4B. Production of metal parts, assemblies and modules, fluid management systems and complex aluminum products.

(9) Major events

March 1, 2014, Exco acquired Automotive Leather Company Group (ALC) of South Africa for approximately $17.3 million in cash and 973,895 Exco shares. ALC manufactures and exports luxury leather interior seat covers and other trim components, primarily for BMW in Germany.

Apr. 2016, acquired of AFX Industries L.L.C. ('AFX') for US$73 million, excluding $4 million of assumed debt. AFX is a tier 2 supplier of leather and leather-like interior trim components to the North American automotive market.

2. Financial data.

3. Valuation
(1) The company PE ratio is about 11 to 12 which seems pretty low given its high grows rate. However, its rivals are trading around in PE of 6 to 7. The whole sector is trading pretty cheaply. I guess the reason is that Auto business is highly cyclical and when economy is bad, it is getting hit hard.

(2)The company is growing pretty well and is the smallest among the several companies.

(3)The new AFX acquisition is yet to see. The past ALC acquisition seems to be highly successful which revenue doubled in two years.


4. Risk
(1) Auto industry is highly cyclical and subject to economy change.

5. Conclusion

6.Links

Clarke Inc.(TSE:CKI)

Web Site
Google Finance
Filing


Feb, 19, 2015
2015 Q3 Data

1.Basic Information
(1) History
This is pretty much a close end fund similar to Urbana.


(2) Business related:


(3) Management.
George Armoyan is the key person in this company. He is more like an active value investor. His style is to invest in troubled companies and actively involved in target company. He had been doing very well for many years except at 2008 finical crisis.

(4) Debt and Credit facility.
No debt.

(5) Insider holding, options, Insider trading info, share buy back.

George currently hold around 7.3m shares. Which is close to half of the total shares.

(6) Employee numbers

(7) Auditor

(8) Industry comparison.

(9) Major events

2. Financial data.



3. Valuation
Currently the stock is around $9.23 with market cap around $145m. While book value is around $11.80. Around 1/4 in cash and 1/2 in investment.

4. Risk

5. Conclusion
The company is similar to URB. However, the management is more friendly and willing to buy back shares aggressively. Currently there is also a dividend of 4%.

6.Links
http://www.theglobeandmail.com/report-on-business/rob-magazine/the-lone-raider/article694584/?page=all

Updated Oct. 2016
Current price $9.2. Book $10.9
It declared $2 special dividend at June and now the market price is closer to book value.