Paul Andreola and partner Brandon Mackie have established the SmallCap Discoveries newsletter as Canada’s top source for small-cap investing ideas since its launch in November 2014, and on October 4 the SmallCap team held its first annual conference to highlight its favourite picks. The day-long event saw 10 companies present to some 140 investors at Vancouver’s Pan Pacific Hotel.
Catering to a subscriber base focused on Canadian non-resource companies, SmallCap Discoveries has unearthed successful value plays in recent years that include Lite Access Technologies (CVE:LTE: $0.25 to $3.75), Pioneering Technology Corp. (CVE:PTE; $0.11 to $1.50) and Hamilton Thorne (CVE:HTL; $0.10 to $1.05). At present, subscribers have the opportunity to participate in a private placement for the group’s latest pick – Atlas Engineered Products, which is going public by way of an RTO (Reverse Takeover), with trading expected to begin by the end of the year.
SmallCap Discoveries relies on tried and true indicators such as quarterly revenue/earnings growth, management quality and share structure. While none of this would surprise a seasoned investor, Andreola brings another important ingredient to the table that is difficult to quantify but shines through in his track record: a powerful personal network enabling him to find little-known businesses primed to take off. He also helps companies obtain the capital they need to reach their objectives, and suggests marketing tools enabling them to get their stories heard once business starts firing on all cylinders.
The formula has worked wonders on the growth front for the selected companies, and on the profit front for shareholders. Lite Access Technologies was the first presenter at the SmallCap Discoveries Conference to update investors on its current status and near-term outlook.
Optical fibre is the main material for the world’s fastest Internet broadband networks, and Lite Access Technologies is the undisputed leader when it comes to installation of that fibre in an environmentally friendly, cost-effective, and timely manner.
Using patented equipment that enables it to carve narrow “microtrenches” into everything from sidewalks to rocky outcrops, the company creates a subterranean home for fibre cable in special tubing it calls microduct.
Fibre is blown from one end of the microduct to the other using compressed air. Installation is fast, disruption to roadways and other surface areas is minimal, and the system is future-proof – if additional or alternate fibre is needed to upgrade a system, it is simply blown through the microduct and hooked up on the other side. No need to rip up the road again or spend stacks of money. It is an amazingly simple solution, yet one backed by an impressive array of protected technology.
Used by the United States military, at the 2010 Winter Olympics, and for 125km of network on Canada’s Haida Gwaii, company and licensed work crews have installed the system in numerous countries.
CEO Mike Plotnikoff used the conference podium to tell investors that projects were underway in multiple jurisdictions, including an installation currently taking place on the Pacific island of Guam (home to a key regional US military presence).
He added that the company’s fast-growing operations in the United Kingdom had accounted for 40% of consolidated revenue so far in 2017, even though the team there had only been operating in any real way since April. With cash of $17.2 million on the balance sheet, Plotnikoff noted the company was in excellent financial shape to take advantage of work for existing and new clients through the balance of 2017 and into next year.
Pioneering Technology Corp.
We just finished fiscal 2017 “and feel great about where we are going in fiscal 2018,” were the words that kicked off CEO Kevin Callahan’s presentation.
Business is growing at a year-over-year pace of 50%, and as Pioneering has what essentially is the only technology in the field today to prevent the second highest cause of fire-related deaths in North America (cooking fires), the pace of growth should not be surprising. The company’s product lineup is headlined by the SmartBurner replacement for conventional stovetop coils.
Callahan pointed to three major channel partners (including none other than the world’s largest business supplies chain, Staples) as extending the number of people selling Pioneering Technology products from a handful to around 600. He suggested that this new sales approach was only scratching the surface of its potential.
Of tremendous importance is the pending (April 2019) introducing of revised UL858 standards dictating that new electric coil ranges in the United States must feature fire prevention technology. While not ruling out the possibility of range manufacturers developing their own solutions, Callahan said that Pioneering’s was the only known technology ready to be deployed now, and that because of logistical and other challenges faced by manufacturers they would have to decide soon as to what their plans are for meeting the new standards. Clearly, the message was that there is potential for supply on an OEM basis.
The company announced the same day its largest purchase order ever (approximately 20,000 four-burner kits to outfit some 36,000 suites at 300 hotels). It is worth noting that this is a new order from a customer that has already installed the company’s SmartBurners in tens of thousands of its suites.
Atlas Engineered Products
President Guy Champagne delivered a compelling presentation that outlined the company’s strategy for acquiring truss manufacturers in British Columbia and turbocharging their performance using the same management techniques that turned Atlas into a profitable force on Vancouver Island.
Explaining that regional truss manufacturing is naturally insulated from outside competition owing to expense and other challenges involved in moving the large constructs from manufacturing facility to building site (a competitive radius of 150km), Champagne went on to note that many manufacturers in the industry (and other industries throughout Canada) face a succession challenge.
Simply put, for many of these companies, the aging owners do not have an obvious choice to hand the business to, or an eager buyer to whom they can sell. Champagne called it a “crisis” affecting small businesses throughout the country.
Atlas, with a focus on profit margins and industry relationships, has proven that it can run a very profitable business in the truss industry. Champagne said that the company already has non-disclosure agreements in place with a number of companies that could, if they pass due diligence, become acquisition targets.
Atlas recorded sales of some $8 million in its previous business year, making it a major player on Vancouver Island, where total truss sales are in the range of $30 million to $35 million. The British Columbia market overall is worth $250 million to $300 million.
From its top line, Atlas generated $1.5 million in operating income, giving it a margin of 18.7%. In the future, it looks to bring its gross margin, and those at acquired companies, to 30%. In terms of revenue, the three-year goal is to have the top line at $50 million.
Interestingly, Champagne said one of the industry’s top challenges is retaining talented design and engineering professionals. Truss designs can be quite customized, especially in the strata of super expensive houses that characterizes today’s real estate landscape in British Columbia. Having more engineers and multiple regional operations for them to service makes for a better working environment and also means better service for customers.
Atlas will be absorbed by Archer Petroleum Corp. (CVE:ARK.H) prior to the newly named company coming back to trade.
President and CEO David Wolf gives the impression of an executive fully aware of where every aspect of his business is at any given time, and what is needed to march the company toward its goals.
He pointed out that one in six couples have trouble conceiving children and that means the market for the company’s related products and services is both massive and global. The estimated need for invitro fertilization procedures worldwide is 10.5 million per year.
Hamilton Thorne serves the market with equipment, consumables and technologies. As an example, it sells equipment that can be used to analyze an embryo and determine that it is healthy before it is implanted in the womb.
Wolf said industry growth runs at a 5% annual pace but that Hamilton Thorne is expanding at twice that rate. He also said studies suggest sperm counts have plummeted by up to 50% over the years. Sad, but undeniably a great backdrop for the industry that Hamilton Thorne operates in.
Key acquisitions in 2016 and 2017 will see sales and earnings in the current fiscal year rise substantially. The company runs a very disciplined process for choosing acquisitions and Wolf said it currently has some 150 companies identified and ranked according to desirability. In other words, investors might anticipate further expansion through acquisition at some point in the future.
As of June 30, Hamilton Thorne had $3.26 million in working capital, plus a $76 million market capitalization on the day of the conference to back those acquisition plans.
Also presenting at the SmallCap Discoveries Conference were Grande West Transportation (CVE:BUS), Renoworks Software (CVE:RW), Immunoprecise Antibodies (CVE:IPA), Kraken Robotics (CVE:PNG), AnalytixInsight (CVE:ALY), and Gatekeeper Systems (CVE:GSI). Dave Barr, CEO of Pender Funds, opened the event with a keynote address outlining some of the approaches he has refined while managing mutual funds focused on small-cap and value stocks.
Investors interested in learning more about the SmallCap Discoveries methodology can visit www.smallcapdiscoveries.com.