Fire & Flower Holdings Corp.
Shares Outstanding: 133.11M
Market Cap: $145M
Fire and Flower Holdings (TSX: FAF) announced on Monday January 13th 2020 that the company has reached its internal target to open 45 stores by the end of the company’s fiscal end which falls on February 1st 2020. The company surpassed its internal milestone by having a total of 46 stores in operation according to its previous press release. All recent locations that have opened are situated in the province of Alberta. The Chief Executive Officer of Fire & Flower, Mr. Trevor Fencott, stated “Fire & Flower is committed to delivering on the targets that we have provided to our shareholders and reaching 45 cannabis retail stores several weeks in advance of when we had anticipated to reach this target is a clear demonstration of our discipline in achieving our goals,". It is clear that management holds true to their word and are committed to achieving what it has outlined, and the current move in the company’s share price is a true reflection of their efforts.
On Monday January 13th, Mr. David Kideckel of Alta Corp., an investment banking firm based out of Alberta, maintained its speculative buy” rating of its one-year price target of $2.80 per share for Fire & Flower. This price target would represent an increase of 156.88% from a close of $1.09.
Mr. Kideckel stated, “Among Canadian retailers, we believe FAF is best-positioned due to its partnership with the global retailer Alimentation Couche-Tard (TSX: ATD.B), which we believe will support Fire & Flower’s rapid retail expansion strategy”. We are glad to see that our thinking is aligned with Alta Corp. on the basis that the involvement of Alimentation Couche-Tard will greatly benefit this cannabis retailer. Mr. Kideckel is confident that FAF will post Adjusted EBITDA of $4.7 million on revenue of $127.8 million in fiscal 2020.
On December 31st FAF announced that the company has issued shares to satisfy the debenture interest payment to Couche-Tard. Fire & Flower has issued 979,034 common shares to settle $831,679.53 for an average conversion price of $1.17. We noticed this conversion was significantly higher when compared to the trading price of $0.85 cents from our previous article on January 8th.
With the upcoming expansion of retail outlets in Ontario, growing revenues, and with the support of Alimentation Couche-Tard, FAF in our opinion, will become a dominant player in the cannabis retail market.
Kontrol Energy Corp.
Shares Outstanding: 29.55M
Market Cap: $17.7M
Kontrol Energy Corp. (CSE: KNR) is an energy efficient technology company that has been growing at a very rapid rate and 2020 is pointing to be a pivotal year for the company. KNR made headlines on January 09th, when the company announced that it has received a purchase order from Beyond Meat (NASDAQ: BYND). Under the agreement, Kontrol will supply Beyond Meat with 2 real-time analyzers for a pilot that will provide monitoring service for rapid evaluation, measurement and validation of organic inputs. The initial order is valued at USD $150,000 for the analyzer and another order is anticipated to be received shortly. KNR stated that Beyond Meat has 6 facilities globally and each facility could require 10 analyzers per production facility for a total of 60 analyzers. If Beyond Meat requires a total of 60 analyzers, this could generate USD $9,000,000 in revenue for KNR.
On November 28th, 2019, Kontrol reported its third quarter financial results ending September 20th 2019. KNR reported an impressive $10.9 Million for the 9-month period, up 64% over the same year over year and KNR is estimating to report revenues in between $15 - $16 million for its fourth quarter. Kontrol is expecting a major ramp up in revenues in 2020 as the company provided its full year guidance and KNR is expecting revenues of CAD $32 million - $35 million and Adjusted EBITDA of $3.0 million to $3.7 million. This is unprecedented growth for a small cap stock with a current market cap of $17.8 M or approximately Price to Sales ratio of ~1.2x.
In our recent interview with Paul Ghezzi CEO of KNR, Paul stated many interesting developments investors can look forward to during Q1. These milestones include more updates with Toyota, its recent Smart suite technology announced on December 19th. KNR anticipates in adding more globally branded customers and uplisting its common shares to the TSX and the company aims to upgrade its US listed securities (OTCQB: KNRLF) to the NASDAQ in 2021. The listing of its securities on the TSX would certainly grab the attention of a new set of retail and institutional investors.
Kontrol will be conducting a roadshow in the United States to brokers, institutional investors and family offices this month. The roadshow is a great way to introduce US investors to the growing opportunity that KNR presents, but it is also inline with the company’s strategic expansion of its operations in the US.
With 30 million shares outstanding, an insider ownership of ~45%, full year revenue guidance of $32 - $35 million for 2020, a growing relationship with global leaders like Toyota and Beyond Meat and the possible graduation to the TSX this year, KNR is a low float stock investors will want to keep their eye on.
Meta Growth Corp.
Shares Outstanding: 187M
Market Cap: $53 M
Meta Growth Corp. (TSX-V: META) is our second favourite cannabis retailer with 36 established stores across British Columbia, Alberta, Manitoba, Saskatchewan and now the company is expanding its operations and soon it will be opening its doors in the province of Ontario. On January 9th, 2020, META announced that it has entered into an agreement with Patricia Gertrude Donnelly, a winner of the cannabis lottery winner of Ontario located in Kitchener. Under the agreement, the cannabis store will be owned and operated by the lottery winner with META acting as a service provider and consultant partner for a term of 5 years. Mark Goliger, CEO of Meta Growth. Stated "With our first to market advantage in the region, combined with our newly announced Toronto META location, we have a solid foundation for a successful rollout of META stores across the province."
We firmly believe in the cannabis business and understand that, as a nascent industry, there will be moments of euphoria, like 2018 when capital flowed faster than operational deployment, and moments of extremely low sentiment. At the moment we are in one of the lower points of the investor sentiment cycle which began down trending in early 2019. From our point of view, the industry got ahead of itself, was inundated in cheap paper and far too many production projects with promises of grandiose numbers. Our view from 2019, that the next leg of the speculative portion of capital allocation in the industry towards distribution of product holds true today. We believe that META is one of the best in class and presents a very compelling investment thesis for the cannabis industry.
Mav Beauty Brands Inc.
Shares Outstanding: 36,764,699
Market Cap: $192M
Mav Beauty Brands Inc. (TSX: MAV) is not the most well-known name to investors, however we first alerted MAV to investors on November 29th 2019 from the article titled “A Beautiful Play – MAV Beauty”. We found MAV as a great tax loss opportunity at $3.50 as MAV was trading at a market cap of ~ $135 million which is almost at par to the company’s revenue and represented a Price to Sales ratio of ~1.02x. Compared against the private and public peer group, we found this valuation to be a steep discount. Since publication shares of MAV have risen to over $5.00 for total increase of at least 45%.
Mind you there haven’t been any sort of news releases which could account for some of the percentage gain. With positive news, MAV may hit our estimate of CAD $7.00 based on 2x Price to Sales ratio, inline with industry peers, as mentioned in our article.
While MAV completed an overpriced go-public transaction at $14.00 in November 2018 and subsequently sold off all the way down to $2.25, on November 20th, 2019, the company’s founder and CEO Marc Anthony purchased approximately 2.4 million shares at $2.40 which represented about $5.7 million. We believe that the massive insider buy was a major signal for investors and marked the bottom. MAV Beauty has also been actively repurchasing its own stock back as shown on the image below.
Back on March 28th, 2019, MAV received approval for a normal course issuer bid (“NCIB”) to repurchase a total of 812,500 shares for cancellation. The company can purchase shares up until April 1st, 2020, where the repurchase program will come to an end. With approximately 2 ½ months left for the repurchase of its shares, we believe MAV will continue to repurchase it shares. The repurchase and cancellation of its shares could give a post to the company’s Earnings Per Share (EPS).
We also find it noteworthy that the lowest price of options for management are at $4.72 and the next sets are priced at 6.23, $7.05, $7.79, $9.44 and go as high to $23.37. We think that the $6.00 to $7.00 may prove to be good target range for MAV as management will gun to have their options in the money. There are some good technical points of interest there on the chart (200dma, pivot high/lows) and the valuation comes closer to industry peers.
With a large insider ownership, stable business and revenues, expanding into new countries and a share buyback program, we think there should be a lot more room for MAV to move as the company attempts to regain the $515,000,000 market cap or $14.00 per share as it was when it IPO’d in July 2018.
The Energy Sector & Suncor
Suncor Energy Inc.
Shares Outstanding: 1,542,538,783
Market Cap: $67.48 B
The commodity complex and more specifically the energy sector have been under pressure for the better part of the entire decade since the “Peak Oil” narrative of 2007-08 where tremendous resources were deployed worldwide to secure the next major production fields and develop clean and green technologies. In order to secure energy independence from foreign sources and potentially avoid wars and hard power conflicts, the 2010’s saw a Shale Oil boom in the United States where enormous amounts of capital were allocated to domestic energy plays promoting energy independence. The result is that today the US is a net oil exporter - something that was absolutely unthinkable prior to 2010.
However, with so much cheap supply hitting the market and a fundamental pivot towards clean and sustainable energy, underlying commodities (oil, natural gas, gasoline, distillates, etc.) get relatively inexpensive and companies have a hard time turning a profit. Given that commodities are deep cyclicals and, let’s face it, carbon-based energy sources are not going away for the foreseeable future, we believe that there is a turn in the tide that is coming very soon for the sector. We are not the only ones to have this opinion.
Canadian economist and one of the most respected names on the street told BNN on January 13, 2020 that: In a world where everything looks so expensive, energy stocks look downright cheap. At a minimum, the group is priced for a much weaker oil environment than what we have on our hands. There are few sectors in the equity market that have this characteristic of having bad news priced in at this moment,” he wrote. “But in the energy space, perhaps in the overall materials sector as well, all that has to happen is for something bad not to happen and there will be a positive rerating as the end-result.
Another extremely notable shot caller, Uncle Warren, has also made his position clear about the energy sector. As noted in a recent Motley Fool article, Warren Buffet’s firm, Berkshire Hathaway (NYSE: BRK.A) has been sitting on a record $128 billion in cash because there has been a lack of good opportunities in the market at reasonable valuations. Berkshire has however been buying Suncor (TSX:SU)(NYSE:SU) to the tune of 10.8 million shares so far.
Suncor is a household name and one of the most storied companies in the Canadian energy industry. As Paul Harris notes on BNN, Suncor continuously grows it’s dividend, makes sharp acquisitions and is mindful of capital preservation when times are tough. With a yield of 3.827% and an extremely solid track record of growth and management since 1996, it is no wonder that Suncor was Buffet’s choice for playing the sector.
A look at the monthly chart for Suncor below clearly shows a defined channel since 2009 has provided a reliable trading range and that the 200 monthly moving average coinciding with volume accumulations have provided support.
Although we tend to look at small cap stocks at Equity Insight, it is hard to neglect the Buffet sponsorship and potential move for one of the best in class names in the industry which has a stellar track record and solid balance sheet. While we look for smaller names to add to our watchlist, we believe that an aggressive strategy including the use of derivatives could yield fantastic gains on Suncor in 2020 and beyond.
Forward Looking Statements: This article may contain "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of the content is published on this website. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify these forward- looking statements. Information in this article has been furnished for your information only, is accurate at the time of posting, and may be superseded by more current information. Except as required by law, we do not undertake any obligation to update the information, whether as a result of new information, future events or otherwise. This article should not be considered as personal financial advice. Full Disclosure: The parent company of Equity Insight is a paid client of Kontrol Energy Corp. The parent company of Equity Insight has not been paid by other companies mentioned in this article. Directors of the parent company of Equity Insight may buy, hold or sell the securities before during or after this publication.