The Good, the Bad, and the Ugly (February 2025)
To learn more about microcap strategies or the Rivemont MicroCap Fund, check out this post and see the disclaimer at the bottom.
Welcome to your monthly recap of the Canadian microcap market!
After a fruitful January, the market shifted to a "risk off" mode in late February. The threat of US tariffs has been in the media every day, and it seems to be making investors nervous. Microcap high-flyers from 2024 experienced significant pullbacks this past month as sellers rushed to take profits without any meaningful buyers stepping up. Is the microcap bull market already over? Let's hope not!
On the M&A front, we saw two new transaction announcements: Converge Technology Solutions (TSX: CTX) will be acquired by H.I.G. Capital, a US private equity firm, for a 56% premium and Buhler Industries (TSX: BUI) will be privatized by its majority shareholder (who already owns 96.7% of the shares) for a 115% premium.
Let's move on to some of the main highlights from last month!
The concept is simple for those who recently signed up for this newsletter. I feature the news that caught my attention during the previous month after skimming through all the press releases on the Canadian market. Every press release, every single day!
The Good
Aurora Cannabis (TSX: ACB), which had become a microcap (!), published surprisingly strong financial results. Total net revenue was up 37% year-over-year, driven by strength in its international export business. The company's net income and adjusted EBITDA were records at $31.2 million and $23.1 million, respectively. The shares soared 87% in the days following the announcement. The news also brought back some much-needed attention to the beaten-down Canadian cannabis sector (read my recent piece on it HERE).
D-BOX Technologies (TSX: DBO), a world leader in haptic and immersive experiences, published impressive financial results. Total revenue was up 65% versus the prior year, with an Adjusted EBITDA margin of 19% and a net profit margin of 11%. Following a CEO change in 2020, it took some time to set the company on a new growth path, but it looks like D-BOX is finally hitting its stride. The stock price shot up over 40% in the days following the release.
I have to give credit where credit is due. I highlighted MiniLuxe Holding (TSX-V: MNLX) a few months ago because I was skeptical they could raise a financing at a 13% premium to the last closing price and 75% over the 30-day VWAP. Well, not only did they pull it off, but the US$5 million offering was slightly oversubscribed. Consider me impressed!
DATA Communications Management (TSX: DCM), a print and digital marketing solutions provider, made an interesting announcement. First, they'll pay a $0.20 per share special dividend (a 10.6% distribution based on the share price that day). They will also initiate a regular quarterly dividend for an additional 5.3% annual yield. The stock had fallen off a cliff in November following their Q3 results due to an unexpected revenue decline and softer margins. The company is now sending a message that things are back on track, and its financial situation is on solid footing. The stock reacted well to the news, increasing as much as 27% the following day.
The Bad
Titanium Transportation Group (TSX: TTNM) announced the suspension of its quarterly dividend amid ongoing challenges. The company cited a soft market for transportation and logistics services, macroeconomic and geopolitical uncertainty, and potential tariff impacts. Suspending a regular dividend is generally a bearish signal that a company is in a precarious financial position. The stock declined 32% over the ensuing days.
I almost highlighted Medexus Pharmaceuticals (TSX: MDP) in January following the FDA approval of their GRAFAPEX drug. However, the company killed all the momentum in its stock by going out and raising $30 million in equity immediately. In February, the company released its financial results, and it looks like some of its products are facing headwinds and pricing pressures. Medexus also disclosed that it received a Notice of Deficiency from Health Canada, which will likely prevent the launch of its nail fungus product in Canada. The stock was crushed, retreating more than 50% from its peak slightly over a month earlier.
Deveron Corp (TSX-V: FARM) published underwhelming financial results for its fiscal year ending June 30th,2024. The stock has been halted since November 2024 due to the late filing of these financials. Revenue in Q4 came in 23% below the prior year, while full-year revenue was down 3%. The worst part was that Deveron took a goodwill impairment charge of $43 million related to its acquisition of 67% of A&L Laboratories in 2022, for which they had paid over $50 million. Not what I would qualify as optimal capital allocation…
The Ugly
Devonian Health Group (TSX-V: GSD), a clinical-stage healthcare company with a revenue-generating pharmaceutical distribution business, announced the loss of its largest customer. The terminated distribution agreement represented 92% of the revenue in its last quarter and over $15 million in its previous fiscal year. What I like most is the timing of the release: the good old Friday night!
ImagineAR (CSE: IP), an augmented reality technology company, had to refile previous financial statements and MD&As following a British Columbia Securities Commission review that found several revenue misstatements. ImagineAR has also made forward-looking statements based on publicly announced contracts. However, two of these contracts ultimately did not result in any revenues, and two others generated revenues that were subsequently almost entirely written off due to collection issues. I'll have a hard time relying on their public disclosures from now on.
Banxa Holdings (TSX-V: BNXA), a cryptocurrency payment rails provider, announced a management buyout transaction at $1.00 per share in December. Curiously, about a month later, the stock started to trade above the offer price as investors began to smell a superior offer. The rumours proved true; Banxa received a $1.79 per share offer from Exodus Movement (NYSE: EXOD), a $1+ billion US-listed company. The stock shot up to $1.62 on the news. Then, two weeks later, the Exodus offer expired without reaching an agreement, and Banxa and its management team also agreed to terminate the previous $1.00 deal. The result: Banxa will remain public, and its share price is now back just under a dollar. What a rollercoaster to return to the starting point!
That's all I have for you this month! I hope you enjoyed it.
If you like the content, please help spread the word by sharing it with like-minded investors.
Did I miss any important developments last month? Let me know in the comments which news or earnings reports caught your attention!
Disclaimer
This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund does not hold shares in any of the companies mentioned. Always do your own research and consult a professional before making investment decisions.
If you’d like to invest in small public companies, check out this post.
I love your series “the good, the bad and the ugly”. The format is original and pleasant to read, continue your good work and thank you for sharing.