Intrinsyc Technology goes from software to hardware

   Intrinsyc Technology is a junior technology company and one that is not covered often by this blog.But Intrinsyc seems to have transitioned away from software internet services to hardware,at least partially.Intrinsyc (ITC) says that it "is a leader of solutions for the development of embedded and IoT products"On August 9 it had it's second quarter results and it is clear that it's growth in revenues has levelled off.This is not too surprising as it's software products are now in a mature market and it's hardware products are still in the growing stage of the product cycle.Unfortunately hardware is a capital intensive product and Intrinsyc will have to invest more or make more acquisitions.However it is clear that it is introducing new products.       

The Growth Trajectory

Intrinsyc is making several kinds of computing modules.Their biggest seller appears to be the Open-Q embedded computing modules.But it has several types of computing modules as well as a hardware kit that it sells to individuals.Intrinsyc still sells some software services but not as much as hardware.Revenues were $4.6 million a 2% increase from $4.5 million in Q1.And revenues dropped from Q2 in 2016.Adjusted EBITDA showed a small drop from $113,000 to $85 ,000 in Q1 2016.                                   Revenues for 6 months were down from $9.1 million in 2016 to $9 million in 2017.While adjusted EBITDA dropped from $250,000 to $187,000 in 2016.However ITC is still on track to hit almost$1 million in adjusted EBITDA for 2017.

Options for the Future

It is this blogs opinion that ITC must make a few acquisitions or be acquired partially or totally.However no decision has to be made immediately.If hardware revenues don't pick up by the end of 2017 or Q1 in 2018 they had better have a small acquisition lined up.For example, DCM has Iotum telephony technology and would be an excellent hardware combination.ITC has the ability to make a sizeable secondary offering and raise the required cash.There are other possibilities around but ITC must be aware that it has positive EBITDA and could be a target itself of bigger technology companies.Most junior technology companies with similar revenues have negative adjusted EBITDA and are of less interest.http://intrinsictechnology.com/  ;

Algonquin Power shows "big numbers" and a small price increase

Algonquin Power is a bit of a mystery these days.It recently released it's second quarter report and it had some "big numbers".However investors barely reacted to it;the stock chugged ahead to $13.80 while it had been $13.25 before the report.It certainly isn't because AQN is not doing it's work.They have been very busy!Recently it announced that it had completed the acquisition of Empire District Electric and this took about  18 months to wrap up.It also(in this quarter) bought a few generating stations in California.Consequently AQN revenues were up 103% over the same quarter in 2016.

Earnings, earnings,earnings

All categories of earnings were up over the same quarter of 2016.Net earnings at $47 million was up 92% to$47 million for the second quarter and for six months at $74 million up from $67 million in 2016.Adjusted EBITDA went from $99 million  in 2016 to $198 million .For the six month period  adjusted EBITDA went from $247 million to $452 million.While adjusted funds fiom operations went from $78 million to $120 million for Q2 and from $197 million to $328 million for six months.This is a good earnings report.But the problem is that the trajectory of the growth in earnings is greater than the trajectory of the share price.AQN shares are chugging along but not nearly as well as the growth in earnings.

Recommendations       

This blog has two recommendations that could improve their share price.First it should be noted that the yield on AQN shares at 3.42% is below the industry average  yield.AQN's big increases in earnings could easily support a dividend increase to bring a 4.0% yield. But this will improve their trajectory only slightly.In order for Algonquin Power to reach $15 and above it will need to  release some of the equity that now appears to be locked in the American regulatory umbrella.A new equity issue from Algonquin or better from the newly formed Liberty Utilities (listed on the NYSE) would be needed to raise cash that is used to buy Canadian assets or even a small Canadian or Can -Am utility.A purchase of Atlantic Power or Alterra Power or even Boralex would show that earnings and assets under the American regulated umbrella is not locked in.An acquisition that is only slightly accretive to Algonquin's own earnings would "do the trick".Shareholders would surely approve of this strategy.            use Workathon for analysis of Cdn. utilities;use Workathon for utility solutions

Aimia works on a New Plan

      On August  9 Aimia released it's second quarter results.Investors waited patiently for the report after Air Canada announced their intention of non-renewal for the upcoming new contract in June 2020.After the announcement Aimia's share price dropped to a low of $1.40.Most investors realized that this announcement would not have a large impact on 2017 earnings but there would likely be some redemptions.In fact there were only about 2% redemptions.But Aimia did not make any major announcement on the forthcoming Air Canada non-renewal in the Q2 report.That aside Aimia did make some changes. 
                                    

Second Quarter Highlights

Aimia recorded gross billings of $20 million which is down 2% from 2016.But their 2017 guidance has been maintained.They expect gross billings of $520 million and adjusted EBITDA of $40 to $45 million.And they expect an annual free cash flow of about $54 million.They continue to make operational cuts and expect substantial savings from them by 2019.And they have suspended dividends for the forseeable future.

Other Changes

Aimia will have a new CFO in September.They have recently sold a small loyalty program with a gain of $5.4 million.And they are in discussions for new partners in their Aeroplan loyalty program.Here is where they must obtain progress and keep their shareholders aware of it.

Non-Renewal of Aeroplan

It is in this quarter that Air Canada gave notice of it's intention of non-renewal of the Aeroplan program with Aimia.This caused the stock to drop from the $9 level to $1.40 per share.But it is the position of this blog that Air Canada cannot cancel the contract with Aimia.There have been no  performance issues to cause a breach of contract.And it is hard to cancel a long term contract unless both sides agree.Doubtless Aimia did not agree.So in effect there is no "real cancellation".But Aimia cannot continue without an agreement.Soon irritations and performance issues would start to appear.It is better for Aimia to take a not as profitable amended agreement but continue on.

Recommendations

Aimia needs to hire a contract expert until the Aeroplan problems have been completely remedied.Secondly this blog strongly suggests that Canada Pension Plan take a small position here (5 to 10%)to shore up and get future capital gains on Aimia.A secondary and smaller position by Caisse Populaire would strengthen the stock price almost immediately.This blog sees Aimia's share price at the $3.25 to $3.50 level by Christmas.

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Chorus Aviation develops a new set of Wings

     In July Chorus Aviation announced two new leases for newly acquired aircraft.The first for 2 Embraer 190 aircraft and the second for 3 Q-400 aircraft.The terms of the lease are not known at this time.But this blog believes this is what is called a long term full-maintenance lease.The new subsidiary called Chorus Aviation Capital has now acquired 11 fully leased aircraft this summer.6 aircraft were leased in June.The operating margin on these leases is not yet known.Revenues for the first 6 ( but not the last 5 aircraft) will be included in second quarter results.       

                   A good Second Quarter
           This blog is expecting a good second quarter for Chorus Aviation.For example, above is a new CRJ-1000 produced by Bombardier and leased by Chorus Aviation Capital.And revenues on the Amended C.P.A. with Air Canada should have levelled off. Also we expect revenues from the planes leased to Air Canada Express will be as high as in Q1.The new investments in Voyageur Airways,their charter operation, will be slightly higher.But the second quarter will be the first quarter to show earnings from their new subsidiary Chorus Aviation Capital.This is the subsidiary that has long term full maintenance leases.
                By the numbers
    There is some controversy over Chorus' earnings.Several financial websites show earnings for 2016 at $.60 to $.90.This includes Scotiatrade and Qtrade.This raises the price/earnings ratio and makes the stock look more expensive.This blog believes that these are cash flow figures, not earnings.The best estimate of earnings comes from  using Adjusted EBITDA.Last year earnings (adjusted EBITDA) were around $230 million and so e.p.s were about $1.80 per share.This means that the price/earnings ratio is about 3.75 times.That makes Chorus a cheap stock relative to stocks on the TSX index.
     A Workathon post of January23,2017 see this blog for prediction of earnings predicted 2017 earnings of $235 to $250 million for 2017.The wild card here will be the new revenues from Chorus Aviation Capital coming; so this figure might be a little low.The most likely figure would be $250 million and this makes e.p.s at $1.95 to $2.05 per share.With a price/earnings ratio of 3.75 to 4 this should drive the stock price up to the $7.50 to $8.00 area by yearend.This blog picks this stock as one to watch in the second half of 2017.                 

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Huronia XVI- The Miracle on 10th Street

         This is another in my Huronia series;this discusses Grey County.The two largest towns in Grey county are Owen Sound and Hanover.Huronia XV  talked about Owen Sound and this one talks about Hanover. And of course the main street in Hanover is called 10th street.Hanover is in the southern part of Grey county.It was first settled in 1832  and as usual had a lumber and feed mill. It sits on the Saugeen river which is about 150 kilometres long and flows into Lake Huron at Southampton.The town grew very slowly until 2000.And between 2001 and 2011 it grew from 6900 to 7600.The population sign in Hanover shows a population of 7650 but it hasn't been changed for about six years.This blog estimates the population at about 25,000.
          A new kind of Huronia Blog
   Most of my Huronia blogs are based on me giving suggestions on possible improvements to towns that I visit in Huronia.But this one shows the changes that have been made that I noticed rather than suggested.Hanover has an old part that hasn't changed much in many decades;it is the same old Hanover.But there has been new construction that has been made in the last five or six years.It looks like the first change was a new Mcdonald's restaurant and maybe a new A and W restaurant.Possibly the Independent food store space was expanded to become a plaza but there were no stores in the plaza.Then stores were added all around this basic structure and the plaza filled in with newer popular stores.Perhaps a year later the Canadian Tire plaza was built.Lastly the Walmart plaza was built.Now there is a whole new south end of Hanover.And the population has increased to match the new construction.
     Once the main plazas were filled and solid "anchors" put in the plazas there were some "infills".Wightman Electronics started up in the A and W plaza and DJ's furniture came onstream.In the newest plaza Mark's Work Wearhouse and Crabby Joe's restaurant opened up.Now there truly was a Miracle on 10th Street.
      Grey County moves up in Class
    According to Wikipoedia Grey county has about 95,000 people.About half of them live in two towns-Owen Sound and Hanover.Hanover has about six small industries to employ people that use these service centres.One of the big employers in both Hanover and Owen Sound are feed mills.But the majority of customers for both towns comes from the rest of Grey county.The money spent here (and in the south end of Owen Sound) takes care of the rest of both towns.          

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EFN wins race with DH Corp

     
Earlier blogs on Workathon talked about an implied competition between Element Financial and DH Corp (see March 6 and April 7,2016)www.blogale-workathon.blogspot.com/.Those blogs predicted that another financial institution might get a share but not all of DH at the right price.It also predicted that e.p.s for Element Fleet Management might hit $1.25 and the shares would be trading at $15 to $17.Some of this has happened and some has not.It's hard to see perfectly into the future.
                                    

 Why My Forecasts were not Better

Forecasts are always based on certain assumptions so one or two of my assumptions were incorrect.I thought that the forecasts of e.p.s given by Google  and Yahoo Finance for DH were low;$.36 per share of earnings seemed low but it must have been high.Customers saw DH as a sinking ship and got off .The price remained at $25 a share but earnings must have dropped off.It's market capitalization was $2.8 billion but it sold(reportedly) for $2 billion.Now it has merged with another financial technology company and  new

company is called Finastra.So if there was a race then DH lost it.

    This blog predicted e.p.s of $1.25 per share for EFN but it came in at $1.00 per share.Still this was enough to pay their dividend and have positive cash flow.But many investors may have thought that EFN was not paying off it's debt fast enough.Although it's fundamentals are still solid it headed towards $9.00 instead of $15 per share.EFN will need another solid quarter this time to inch it's share price back towards $12.EFN won the race but it is not moving very fast.

Conclusion 

Both companies expanded quite rapidly and both took on a lot of debt.DH made a lot of it's new acquisitions in USA.And it is possible that infamiliarity with it's new, sophisticated market may have surprised DH and then helped to close it down.EFN  has taken on a lot of debt also but is paring it down.This blog thinks that neither is likely to make any acquisitions soon.So EFN won the race as DH isn't running anymore.It is always important to consolidate new acquisitions with the existing structure before expanding again. 

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Computer Modelling hangs tough in a rough environment

       Computer Modelling (CMG) is another one of the new companies that I am watching more closely now.On May 19 it released it's  fourth quarter and annual results for 2017.The report was interesting for it's operational results as well as the clear description of  it's activities and processes.Computer Modelling develops and runs reservoir modelling software for Canadian and international oil and natural gas companies.It also does consulting and training on the use of its' software.It states that it is developing new tools, one of which is simulating the entire hydrocarbon recovery process including  the production of hydrocarbons.
          Operational Mathematics

Both CMG and producers realize that simulation is less costly than discovering and extracting oil and natural gas.Especially if the well is a dry one.And CMG is constantly improving it's simulation tools as it spends 22% of total revenues on research and development.And 90% of revenues come from licensing it's software.But Computer Modelling has been able to remain resilient when oil prices have fallen by at least 60%since 2015. It's revenues and EBITDA have only fallen by 15% since 2015.This compares to most oil service companies whose revenues have fallen by 60 to 80%.One of the reasons for this resilience is that CMG has customers in both the Eastern and Western Hemisphere.Another factor is that it gets revenues from training and consulting.              It raised 600,000 shares of equity in 2017 for proceeds of about $6 million and now has 75 million shares.This caused it's e.p.s to fall only from $.32 to $.31 per share.And it's adjusted EBITDA fell only from $37.5 to $34.5 million or less than 8%.And CMG is in a pretty solid situation as it literally has no debt on it's balance sheet.

Recommendations

Computer Modelling does have a sizeable investment in Pulse Data.This blog does not know how big it is but it could easily increase it's investment as PSD present price is fairly low.The combination would help to make their reports less of a simulation and more the exact data clients need.Also CMG has special GEM software that is used for enhanced recovery (EOR).This blog recommends that more R and D be spent here.There should be a larger market for  enhanced recovery solutions (waterflooding and other liquid solutions) with these low oil and gas prices.Lastly this blog recommends that less emphasis be put on simulation techniques and oil recovered and all reports emphasize the additional dollars that can be earned.This is after all what the client needs to know.Most of these recommendations(if followed) should increase revenues for the next quarter.If CMG tightens up it's operation this blog expects revenues of $20 million in the next quarter and being on track to hit $80 to $85 million.This will put Computer  Modelling on the path to be trading at $11 per share by Labour Day.  use Workathon for business forecasts  ;use Workathon for business forecasts  use Workathon for business consulting