The Good, the Bad, and the Ugly (March 2024)
Welcome to your monthly recap of the Canadian microcap market.
March was action-packed, with lots of earnings releases and news to cover. To my dismay, a couple more technology companies were acquired: TrueContext (TSX-V: TCXT) and mdf commerce (TSX: MDF). For a complete recap of the recent acquisitions, I recommend checking out my most recent post on the topic: Flurry of Acquisitions - Part 2
Now, let's 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
Bought deals are back! Vitalhub (TSX: VHI) announced a $35 million bought deal financing, and Nervgen Pharma (TSX-V: NGEN) made a similar announcement for $20 million. Bought deals are bullish because the investment banks guarantee they will raise the money. There must be a high level of institutional appetite for these offerings to happen. And when you see a bought deal offered to a pre-revenue life science company (Nervgen), you can tell that risk appetite is back.
Progressive Planet Solutions (TSX-V: PLAN) came out with impressive financial results. After implementing several cost-cutting measures in the second half of 2023, operating expenses decreased while revenues and gross margin % increased. That was the perfect combination to swing from losses to solid profitability. Assuming these earnings are sustainable, the company could be trading for less than an 8x P/E ratio on a run-rate basis.
AirIQ (TSX-V: IQ) announced the acquisition of customer contracts from one of its resellers. The company acquired $370,000 in annual recurring revenues (ARR) for $218,000, or an attractive 0.6x multiple. The stock trades at about 2x ARR, making the acquisition highly accretive. It's a small move, but kudos to the team for creating value.
The Bad
Artificial Intelligence is the flavour of the day. Cryptocurrencies are making a comeback. What better time for struggling microcaps to pivot and rebrand? Parcepal Logistics (CSE: PKG), a last-mile delivery and logistics company, is entering the crypto-mining logistics space. Rakovina Therapeutics (TSX-V: RKV), a biotech, announced a strategic pivot to AI. And Scope Carbon (CSE: SCPE) changed its name to Scope AI before launching a public awareness campaign. I'm not saying these are without merits, but…
Quisitive Technology Solutions (TSX-V: QUIS) announced it would sell its Bankcard subsidiary back to a group of employees. The Bankcard payment business was deemed non-core, and the divestiture was meant to reduce financial leverage and refocus the company on its core competencies in Microsoft Cloud and AI solutions. The financial community viewed the transaction as positive (judging by the share price increase), but I'm willing to take the other side on this one. Quisitive acquired Bankcard in 2021 for US$100 million in cash plus 50 million shares (worth over C$80 million at the time). They just sold the asset for US$40 million in cash and 133 million shares to be cancelled (worth C$37 million on the day of the announcement). By my calculation, that's over C$120 million of value destruction right there. Who's going to trust this management team to allocate capital from now on?
Plantify Foods (TSX-V: PTFY) announced its intention to apply for a Nasdaq listing. Look, I have nothing against Plantify (I don't know the company very much), but when you have a $3-4 million market cap and less than $1 million in sales, there's no way you should list on Nasdaq. Dangling that carrot just sounds like a marketing tactic to attract investors. Up-listing on the Nasdaq is the holy grail of stock catalysts, right? (sarcasm)
The Ugly
Kidoz (TSX-V: KIDZ) reported fourth-quarter results in a very misleading press release (although it was factually accurate). Kidoz is an ad-tech business. Ad-tech businesses are very seasonal, with the bulk of revenues coming in the fourth quarter due to strong advertising demand during Black Friday and Christmas. Instead of presenting a valid comparison with the fourth quarter of last year, Kidoz chose to compare results with its third quarter of 2023, highlighting massive sequential growth in revenues and improvements in profitability. In reality, revenues were down 11% compared to last year's quarter and 12% for the whole year. Not cool, Kidoz…
Bettermoo(d) Food (CSE: MOOO) tried to pump its own stock in a bizarre fashion. First, the company announced it sought an investment or even a takeover by a major consumer packaged goods (CPG) company. A week later, they scheduled a conference call to discuss a special announcement. Then, the call got postponed to wait for approval to use the name of the major brand involved. Meanwhile, the stock was running hard, surging from $2.67 on the day of the first press release to a high of $4.04 (+ 51%) just before the major announcement. Finally, the "big news" drops. A distributor will stock Bettermoo(d)'s products to start selling in Canada's largest grocery retail chain (they still can't name the brand…). Look, that's great. You got your product into a large grocery chain. Thumbs up. Just announce it like every other company. Why all this fanfare about a potential takeover? Within a few trading days, the stock crashed over 60% from its peak and still trades lower than its March starting price as I write this. Nice try, I guess.
That's all for this month, everyone. I hope you enjoyed it!
Did I miss anything? 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 positions in any companies mentioned. Always do your own research and consult a professional before making investment decisions.
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