The Good, the Bad, and the Ugly (July 2024)
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Welcome to your monthly recap of the Canadian microcap market.
Surprisingly, the activity level and trading volume remained quite robust in July. Non-resource, growing, and profitable companies continue to do exceptionally well in this market.
In the US, smallcaps (Russell 2000 index) have outperformed large caps (S&P 500) by a wide margin over a few weeks, something we had not seen in 20+ years. Could this signal the start of a rotation from large to small caps in North America?
Only one high-profile microcap acquisition happened on our home turf in July. Hamilton Thorne (TSX: HTL), a leading provider of precision instruments, consumables, software, and services in the Assisted Reproductive Technologies (ART) market, agreed to be acquired by Astorg, a European private equity firm. The $2.25 per share cash consideration represented a 54% premium to the last closing price.
Let's now look at some of the main highlights from last month!
For those who joined this newsletter recently, the concept is simple. 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
Crescita Therapeutics (TSX: CTX) is firing on all cylinders. In the span of a week, CTX announced a distribution agreement for a new medical aesthetic product, a new long-term manufacturing deal for sanitary products that could be worth up to $6 million in annual revenues, and an amended contract manufacturing agreement with a large customer worth a minimum of US $2.5 million per year for four years. Those announcements appear significant for a company that reported $17.5 million in revenue last year. Even after a 17% increase in share price in July, the market gives the company very little credit. The enterprise value is a mere $2.3 million after backing out $9.5 million of net cash on the balance sheet.
California Nanotechnologies (TSX-V: CNO) reported phenomenal results for its fiscal 2025 Q1. Revenues were up 243% year-over-year, while Adjusted EBITDA and net income increased 569% and 1,863%, respectively. The share price exploded higher on the news, finishing the month up 77%.
Simply Better Brands (TSX-V: SBBC) continues to execute flawlessly following a restructuring and financing in April and May. In early July, SBBC announced that its Trubar protein bar would be distributed in more than 1,000 GNC retail locations across the USA. A few days later, the company increased its 2024 revenue guidance for Trubar from US $40-45 million to US $45-50 million. With a renewed focus on its Trubar subsidiary, SBBC is an exciting growth story to follow.
The Bad
The wave of restructurings and bankruptcies we've seen in recent months has not abated. ATW Tech (TSX-V: ATW) filed for bankruptcy, Taiga Motors (TSX: TAIG) applied for creditor protection under CCAA, Select Sands (TSX-V: SNS) received a final notice of default from its primary lender, with foreclosure proceedings expected to start on August 1, 2024, and Newtopia (TSX-V: NEWU) entered into a forbearance agreement with its secured lender to avoid default and pursue a sales process.
Arcpoint (TSX-V: ARC), a US-based franchise system of clinical testing labs, closed a $1 million private placement. The company went public in October 2022 with an estimated working capital of US $10.6 million on the back of a record year, mostly due to high-volume COVID testing. Unfortunately, revenues declined 65% over the next two years, from US $19.1 million in 2021 to US $6.7 million in 2023. Mounting losses caused the company to burn through most of its working capital. Unfortunately, Arcpoint was not able to right the ship or cut expenses quickly enough, and it’s now costing shareholders significant dilution at an all-time low in share price.
Bluerush (TSX-V: BTV), a personalized video software platform, released its fiscal 2024 Q3 results. Subscription revenues were down 19% year-over-year due to elevated churn. Still, the company didn't share any financial metrics in its press release and opted to talk about generative AI capabilities instead (a classic!). Later, Bluerush announced another dilutive financing with the support of large insiders. With the amount of convertible debt on this balance sheet, it seems less and less likely that minority shareholders will reap any rewards for their patience…
The Ugly
Remember Bettermoo(d) Food (CSE: MOOO) from a few months ago? The company tried to pump its stock and raise a significant financing. Oh, and they were paying a 2% commission on the money raised to the CFO. Well, that didn't work (surprise, surprise!). The stock slid below the offering price, and the company couldn't raise any capital. A proposed $8.5 million financing at $1.52 per share became $8 million at $1.46 per share (both with a half-warrant), and almost three months later became a $2 million financing at $0.70 per share with a full warrant. The CFO was kind enough to reduce his commission to 1%. Times are tough!
Verses AI (NEO: VERS) issues many press releases touting its involvement in the AI ecosystem. However, no press release is needed when it comes to audited financial statements. Verses released its financials in early July (available on Sedar if you care). Revenues were $1.97 million, up $361,000 over the prior year. Meanwhile, operating expenses ballooned to $40.4 million. The company spent $2.7 million on investor relations alone and took a provision of $6.3 million for a legal claim against a subsidiary of the company, the CEO and the president.
That's all for this month, everyone. I hope you enjoyed it!
Did I miss anything? 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 holds shares of California Nanotechnologies (TSX-V: CNO) and warrants of Bluerush (TSX-V: BTV). 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.