Yahoo Finance
Filing
Jan. 25, 2019
2018 Data
Price: $3.56 Shares:17.5m, Cap: $62m
1.Business Information
(1) History
The company originally was the combination of 2 mining business and 1 EV motorcycle business. All 3 was pretty bad and had accumulated $35m in losses. At 2010, the company purchased Winnipeg-based Peerless Garments with $14.4m in cash. It took $10m in debt and issues $6m in stock. Peerless is the uniform manufacturer for the Canadian military. It turns out a pretty good purchase. For the next 3 years, it had generated $5m, $5m, $3m in cash. However, in 2013, revenue was down to $2m from 2012 to $27m. For 10 months ending Sept. 2014, revenue down further by over $3m, but it still generates $2m in cash including some contribution from Unisync. From 2014 to 2018, its revenue remains low except for a temporary hike in 2017.
At 2014, it acquired Unisync Group Limited in Ontario for $4.3m cash, also consumed around $10m in debt. Unisync is also a uniform producer which is mainly aiming the corporate market like Air Canada etc. The company changed its name to Unisync after the acquisition. After the acquisition, the revenue from this segment starts to pick up and doubled at the fiscal 2018 year. However, it was losing money until 2018, it made over $7m in profit.
At Sept 2018, it acquired Montreal based Utility Garments Inc for $11.5m plus 1.3m shares at $3.35/share. The company also consumed around $7m in debt for it. The company also issued 3m shares at $3.8/share. The business expected to be generating $20m annual revenue and be profitable.
(2) Major business.
1) Peerless Garments: The is the first business and has a long history since 1950. It generates $25m - $30m in revenue at the time of acquisition. Overall it is very profitable. However, revenue was down to $15m level for the last several years. It states that revenue will back to normal at Q2 2019.
2) UGL: Corporation uniforms. It wasn't very profitable for several years. Now it did very well and it also signed several new customers. It expected to be growing going forward.
Air Canada: 30000 employees. Uniform roll out in 2017 and 2018.
WestJet: Roll out uniforms for 11,000 employees starting early 2021.
Alaska Airline: Will roll out uniforms for 19,000 at early 2020.
It seems the UGL will receive prepaid revenue for the contracts signed. There is a hike in prepaid revenue before 2018.
3) Utility Garments: Also corporate uniforms. Estimated revenue $20m/year. It is hard to tell right now how profitable it will be.
(3) Debt and Credit Facility.
At the year-end of 2018, it has $13.5m in debt. However, after the new acquisitions, the new debt level should be over $20m. Interest is prime+0.5% to 1.25%.
(4) Employee numbers
(5) Industry comparison.
(6) Major events
2. Management
(1) Key person
Douglas Good: Current CEO. His was with the company since 2005 which is before the Peerless acquisition. He seems did quite well with the first acquisition. However, the UGL acquisition wasn't that great as the first one at the first several years.
(2) Insider ownership
Douglas Good: 750k shares at end of 2017.
Michael O Brian: 1.8m shares at end of 2018.
All insider holds around 29% of all shares at end of 2017.
3. Financial data.
4. Valuation
(1) Based on recent earning of over $7m/year, the company is quite cheap. However, 2018 is a very unusual year with the UGL segment almost doubled its revenue. On the other hand, the Peerless segment is below the normal level. Overall, it is possible to achieve $5-$6m annual profit.
(2) The company still has a big net loss in the book. It didn't pay much tax for passing years.
5. Risk
(1) Revenue in the UGL segment is very likely to be pulled back for the short term. Also Peerless won't get back to normal for a while.
(2) The business is kind of contract based in nature. Revenue will vary greatly from quarter to quarter, or from year to year.
(3) The new acquisition might incur losses and will increase the debt level.
6. Conclusion
The company was doing quite well for the past two acquisition. Although there might be short term problems. It might be doing quite well in the future. Current price is quite acceptable.
7.Links
