Monday, 16 October 2017

DGLT and Urban FT: The Ridiculous Saga Continues

Digiliti Money Group (DGLT) looked like is was turning a corner, up to an $0.80 close. I knew there had to be something amiss because the previous two days saw last minute closes in the low $0.50's on very low volume, purposefully cutting the stock price's rise on the day despite most of the volume going through in the $0.70 to $0.75 range. This time around it was pushed up to a day high. Then after hours we got this tweet from Kasey Kaplan:



You can see my comment in response to this development. So what does this mean?

He's likely telling the exact truth, but a truth that would benefit the cause of Urban FT. This wouldn't be the first time DGLT balked at an offer only to come back to the table later. So far about 90% of the information we have gotten about this proposed deal is from Urban FT through various articles and social media circles. Based on that I can only surmise that Urban FT is acting in good faith and putting forth a fair deal and DGLT management, or what's left of it, is acting like a bunch of incompetent rubes. It would be nice to see an 8-K from DGLT management so shareholders can get an official update on the story and hear DGLT's side of it. Until then, Urban FT can play these tweeting games which the firm obviously knows will impact the stock price but Kasey and team can likely get away with it if they are posting factual and timely information. All in the name of providing market transparency when there is none on DGLT's side.

I think the term supportive is particularly important in this instance. I think that this implies that the loan between UFT and DGLT is still active and that there is no imminent danger of the company going bankrupt, despite DGLT management playing with matches while it is teetering on the edge of insolvency. Or that's what we have been led to believe. But with only getting Urban FT's side of the story in the media and without properly audited financials or recent quarterly results, who really knows about DGLT's cash situation.

What will happen tomorrow? Who knows. Gut instinct is that there will be a sell off because this will be seen as bad news and cause a knee-jerk reaction. We don't know if Kaplan's tweet is merely being as diplomatic as possible because Urban FT must know it is under a microscope for price manipulation that may have at least partially led to the T12 halt. Or if he is being completely honest and Urban FT remains in hot pursuit of DGLT.

It could also be Kaplan trying to lobby retail shareholders behind Urban FT. Although there is a lot of anger directed Kaplan and Urban FT, some of it deserved, this is the only side we have been able to rely on for information. In my eyes, and others, these prospective buyers are trying to act in good faith even if they originally goofed up by yapping on Twitter about this buyout offer. It's DGLT management dropping the ball. That's where all anger should be directed except that there is seemingly no one answering DGLT's calls and emails in which to direct anger towards.

So instead of a drop, perhaps there is a rise tomorrow? Someone has been buying up large blocks of shares in the $0.70 to $0.75 region over the last few days. This wouldn't be a retail day trader trying to load up on a grey market stock. Someone is buying to accumulate shares. Possibly for a hostile takeover by Urban FT? Another entity buying up shares for whatever reason? The main reason to buy on the open market other than the obvious that one thinks the stock will go up would be to secure votes in a hostile takeover bid or to try to deny that bid.

I might put up some asks tomorrow at higher prices to see if they get taken out (not my entire holding, just a part of it). I suggest other shareholders do the same. A substantial block of shares up for sale at a reasonable price (say, anywhere between $0.75 to $1.50) could get taken out if my thesis about the big buyer is correct. I think it is wise to start offloading this position given the nonsense surrounding it, but I don't want to sell too much too soon and give a potential bidder cheap shares. Tomorrow should be an interesting day.

Monday, 18 September 2017

Hive Blockchain's Hot Debut Gives Hope To Fintech Select Investors

Hive Blockchain Technologies (HIVE) made its debut on the Venture today and is trading at $0.90, up 200% from the price of the financing that took place during the reverse takeover transition from Leeta Gold. I have not purchased this stock today as I have exhausted all cash resources, but it does look interesting.

I recommend reading the registration statement filed on SEDAR:

http://www.sedar.com/GetFile.do?lang=EN&docClass=13&issuerNo=00004998&issuerType=03&projectNo=02675521&docId=4181847

It's 134 pages and I have just skimmed through it quickly, but it appears to provide a detailed risk-reward profile of investing in blockchain and cryptocurrency. I think this is a valuable source for Fintech Select (FTEC), formerly Selectcore (SCG), investors such as myself.

HIVE has 226,584,760 shares outstanding, about 250 million fully diluted. So at $0.90 the fully diluted market cap is $225 million.

FTEC has 60.6 million shares outstanding and another 26.7 million in warrants. The fully diluted market cap at $0.20 is $17.5 million. Clearly there is large upside and investment demand for FTEC based on what I have seen with HIVE today if it can achieve some of the initiatives stated in the AGM several weeks ago. I am taking a wait and see approach for the remainder of 2017 to see what this company can do.

Wednesday, 13 September 2017

Talks Between Urban FT And Digiliti Continue: My Guess Is A Reverse Takeover

An 8-K filed by Digiliti (DGLT) last week showed that the company came to an official agreement with Urban FT's financing wing UFT Equities for a Secured Promissory Note. People have asked my opinion on it so here it is. Why have I decided to post this on my personal blog instead of Seeking Alpha? Seeking Alpha qualified my first write up on DGLT as an article. That means I get paid for it. My next two write ups didn't qualify for whatever reason and I had to post them as blogs. Seeking Alpha puts ads up on blog posts but doesn't pay out for them so I figure instead of giving the site content and traffic for free I might as well offer readers an ad free experience and expand the reach for my personal blog. Here are some of my recent Canadian small cap picks if interested:

Mission Ready Services Signs $400 Million Deal The Military
Seven Other Stocks I'm Watching Closely for the Rest of 2017

In addition to the 8-K, there was an attachment disclosing the details of the note. It's long and filled with legalese, but the main takeaway that shareholders will want to know from this is:

"If a definitive agreement with respect to the Proposed Merger is not entered into on or prior to September 30, 2017 or such later date as agreed upon by the parties in writing, the obligations of the Noteholder to make future advances pursuant to this Note shall terminate with immediate effect."

As in other words, if there is no deal made by the end of September, DGLT is in major trouble. But the hurt would be much larger for insiders and management who own a heap of shares compared to us retail investors who bought up shares the few days leading up to the halt. Urban FT has also gone on public record practically salivating over DGLT's client base and business (not so much the business model itself which is what has led DGLT down this path to destruction).  So I believe that both sides are working hard to get a deal done. Ideally September 30th would be a hard deadline, but it wouldn't surprise me if talks continued beyond that. Just by looking at Urban FT's news page on its website tells you all you need to know about the company's mindset.

So what do I think will happen? The language in the 8-K has me leaning to a reverse takeover as my best guess. It makes sense as Urban FT has been trying to increase its public profile recently. A reverse merger by definition means that Urban FT interests would come away with the bulk of the shares. My experience has been that reverse takeover deals result between 50% to 90% of the newly created float going to the new owner. That would mean DGLT would have a minimum of 20 million shares and up to 100 million shares outstanding post-merger. However, the float itself would remain unchanged as Urban FT would own all of the newly formed shares and there would presumably be a lock-up period or some kind of disincentive to immediately dumping millions of shares.

Another article about the deal released today has Urban FT CEO Richard Steggall reiterating that the closing price of DGLT's stock of $1.05 represents a "fair market value". So a reverse takeover would likely value Urban FT around $1.05 for hypothetical "UFT" stock. There isn't a lot of information surrounding Urban FT available, but the company did complete a $3 million seed round at an undisclosed valuation in 2012 as well as two follow up rounds of undisclosed amounts.

Urban FT acquired Wipit in 2015 and iParse in 2017. Wipit is a mobile payments solution provider for the underbanked. It has an active partnership with Sprint (see website, as well read the fine print at the bottom of the page referencing Urban FT as the operator of this program) and has signed a deal with H&R Block back in 2012, but I haven't seen anything that suggests it's particularly active or lucrative. The iParse acquisition seems to have been mostly for its technology, allowing Urban FT to white label its mobile banking solution to all banks and credit unions, regardless of size. The article I am referencing from mid-July made note that the plug-in made possible by the iParse acquisition would be deployed in 60 days - or right around now as the DGLT deal looks to get done.

Richard Steggall and Urban FT's President Kasey Kaplan are the two faces of the company. They disseminate and promote Urban FT's activity in the FinTech space as well as opine on various trends in the industry. Both have active social media profiles. They have made missteps yapping about the DGLT offer too early and often which greatly impacted the stock price before it was halted on 8/16, but seem to have learned their lessons from the mistake and have acted more responsibly since then. Both of these men would make pretty good stewards for a publicly traded company, able to disclose Urban FT's business in a functional but not overly promotional way. This would serve well in, for instance, analyst conference calls.

What I am trying to get to is that on the surface, Urban FT looks to be at an ideal time to go public. It has enough interesting deals going on like the one with Sprint and this new iParse offering in addition to whatever synergies it may pick up from merging with DGLT. The management team appears capable. The FinTech space is hot. So no matter what valuation this proposed reverse takeover may entail, the stock has a significant chance of going higher as the market may love this deal. 

Short interest as of 8/31 was 845,643 which is actually less than what I originally guessed, but is still a high enough amount on a stock with 10 million shares outstanding and is currently halted pending some kind of deal. This is ripe for a short squeeze if/when it opens.


While my patience has been wearing thin, what I can say as a long is that I am much more confident about my position once it opens than what those 800,000+ shares short should be. Today's article mentioned the following about the possible timing of DGLT re-opening for trading:

"Once DGLT appoints new auditors and they complete an audit review of 2016 and 2017 earnings to date, Steggall anticipates that the stock will resume trading. He expects a new firm will be appointed later this week."

So perhaps if the new firm is hired by the end of this week and is immediately deployed to review the books, could we see the halt lifted as well as news of the M&A deal by the end of this month?



Thursday, 7 September 2017

Mission Ready Services: Bought Shares On $400 Million Deal With U.S. Military

Mission Ready Services (MRS) announced a distribution agreement to supply its products to a foreign military, with all signs pointing to that foreign military being the United States.

The Material Terms of the Agreement include:
  • Minimum Purchases (USD): Year 1 (2018), $50MM; Year 2 (2019), $50MM; Year 3 (2020), $100MM; Year 4 (2021), $100MM; Year 5 (2022), $100MM.
  • Advance Payments: Distributor agrees to pay Mission Ready (the “Manufacturer”) a down payment equal to forty percent (40%) of the purchase order amount within 10-days of submitting the purchase order.
  • Exclusivity: Manufacturer appoints Distributor, on an exclusive basis, as its sole distributor for the defined territory.
The total minimum guaranteed amount for this contract is $400 million over the next 5 years. The press release implies that the contract will start in 2018 but the material change report shows that the first $50 million could occur any time between now and the end of 2018. This is the largest deal I have ever seen relative to market cap in the Canadian junior world. While it's portrayed as something much more definite than an LOI, the caveat is that the anonymous distributor (possibly Federal Resources Supply Company, a distributor that MRS signed an agreement with in Q2 2017) isn't subject to a very strict punishment for not adhering to the minimum purchase volumes. Once the purchase order comes and the 40% down payment is sent to MRS, that's when we can be assured of the distributor's dedication to this deal.

With that being said, the risk-to-reward trade off from this deal is way out of whack. At 20 cents, the fully diluted market cap (~127M shares) is $25 million CAD. As soon as the stock opened yesterday at 11:30 I bought 200,000 shares with the intent to ride it for a short period of time since I thought it would take off. Instead the stock pulled back to 16 cents which allowed me to load up, really load up. That includes clearing out my U.S. account (well not DGLT) and using credit card debt. Not something that I wanted to do but when I was given this opportunity I took it. The pullback could be from profit takers as well as a significant amount of warrants at the 15 cent level. I get it. I was lambasted for selling a few hundred thousand of my six million shares/warrants of PKK when it hit 20 cents before buying that all back and then some as it seeped back down. So I won't fault others for taking huge profits. If you own a stock that is 10% of your portfolio and it suddenly triples, it has grown to become 25% of your portfolio. Selling parts of your holdings isn't being a weak hand, it's showing prudent portfolio management. The 30M+ volume on the sell side allowed me to become a participant in the 30M+ of the volume on the buy side relatively easily and at good prices. I thank the sellers.

I'd like to share a relevant link:

https://www.defense.gov/News/Contracts/

This is the U.S. Department of Defense contract announcement page. I have skimmed through the contract announcements over the past couple of days and haven't seen anything that could match the terms of the contract as announced by MRS. It's tricky though, as the contract name could be awarded to the anonymous distributor and it will likely be for more than $400M as that is only the cut to MRS as the role of manufacturer.  The announcement might still be to come. So investors should keep their eyes peeled and also have a look at the contract announcements over the past several days. The search function on the site is completely useless. So several more pairs of eyes might pick up something that I missed. It also means that I won't have to scour the website  - delegation of tasks to other shareholders with a large stake in this stock.

 I'm certainly not suggesting that the contract is bogus. I wouldn't load up if I thought it was, plus with the day long halt the Venture Exchange likely went through this deal quite carefully. The company has undertaken steps to put all its resources into fulfilling this deal, namely reneging on the Wild Things acquisition. But if this contract does show up on the DoD website that would be a huge boost to its credibility and basically assure us that the minimum threshold will be met. After all, if the distributor can sign a deal for $400 million plus markup with the U.S. Government, why wouldn't they fulfill their duty to MRS? That would be throwing away middle-man profits. MRS is the one sacked with the tough job of actually producing the goods.

Speaking of tough jobs, one of the prime causes for the stock not immediately spiking over 50 cents is likely the market's worry that MRS is going to have to finance through equity to garner some cash to fulfill its end of the deal. I don't share this view, particularly by reading this paragraph in the release:

"MediaTech Capital Partner’s Porter Bibb, who recently partnered with Mission Ready (see Company’s news release dated August 2, 2017), states, “Mission Ready’s impressive new management team has delivered on its promise to put Mission Ready on a fast track to rapid growth and significant profitability as a market leader in the burgeoning military and public safety tactical equipment sector.” MediaTech will assist the Company with obtaining bridge loan capital for raw materials, as required, and will help to facilitate the rapid expansion of the Company’s manufacturing and sales divisions."

It explicitly states that MediaTech and MRS will seek to obtain bridge loan financing. It makes sense to go with PO financing rather than equity with the new stage the company is about to enter as a major manufacturer. If equity financing is needed at a large scale (small financing for working capital requirements is acceptable) then the company and its capital partner completely dropped the ball on this one. Military spending is about as safe of an industry as you can be in with the current political climate in the Unites States. Interest rates are still very low in historical terms and the stock market is high. There should be firms lining up to finance this deal, seeking some alpha return on an investment that should result in an 8-12% coupon for a bridge loan.

Valuation

How much is MRS worth right now?  Not the easiest question to answer at this early stage but I think most people will answer "far higher than a $25 million market cap". The company hasn't given any EBITDA guidance on this deal yet so I think the most straightforward method to use is a revenue multiplier. Axon Enterprise, Inc. (AAXN), formerly Taser, is the first company that I can think of that manufacturers equipment for the law enforcement and defense industry. It has a Price/Sales ratio of 3.7x.

If we were to apply that 3.7x revenue multiple to the $50 million in revenue guaranteed by that contract in 2018, that would be a $185 million valuation or about $1.45 per fully diluted share US, which translates to to about $1.80 CAD. Now obviously there are a couple of issues with comparing AAXN's already existing revenue to MRS' supposed future revenue stream:
  • AAXN's revenue is multiple is based on past, audited results. The MRS contract is not yet 100% guaranteed.
  • AAXN is profitable at its current level of revenue. We don't know the gross margins on the MRS contract nor if this will be enough to get the company to profitability.
  • AAXN has an existing manufacturing process that can handle large volumes. MRS has yet to prove that it can do this (though it looks like the company brought in new CEO Jeff Schwartz specifically to tackle this issue).
There are also a couple of advantages:
  • We know that the revenue stream on this deal will double by 2021. AAXN will be challenged to double revenue by then.
  • This is just one contract and the $50 million is referred to as a minimum commitment. The revenue stream from this contract will be added to the existing marginal revenue stream as well as any other contracts signed in the near future. Revenue could be substantially higher than $50 million in 2018.
Rather than saying that MRS is definitely worth X price, I'll look at it from the perspective of how big of a discount the market is valuing MRS relative to AAXN and where I think it should be. If $1.80 is the price MRS is assuming all goes well with the contract, the manufacturing and the financial audit between now and 18 months from now, $0.20 means that the market is giving an 89% discount. That means it is giving MRS an 11% chance of success (or say, a 22% chance of getting half way there). I personally think that's way too low.

What's a reasonable target price in my opinion? Well, $0.50 is a nice round number that has a realistic shot based on MRS' current breakout and that would imply about a 28% chance of success. I think if everyone looks at it from this perspective, they'll figure out a comfortable level in which to take profits. That doesn't mean I would dump all my shares at exactly 50 cents nor would I recommend anyone else do that.

Offloading small lots from 25 to 75 cents would result in the same 50 cent average sell price and provide an opportunity to trade spikes and dips. You can never accurately predict when to sell or what will happen. Just look at DGLT as an example. Had I not starting selling in lots between $0.75 and $1.00 I'd be stuck with 100% of my money in a stock that has been halted for three weeks, even if I am technically up over 300%. At least in that case I recovered my original investment and then some and whatever ends up happening to that stock is gravy.

Final Note

Not only do I think MRS will move up, I think for the health of the Venture Exchange, it HAS to move up. If we can't make money trading a $25 million CAD market cap stock that has just signed a $400 million US contract to provide protective gear to the U.S. military, what chance do we have to make money on PKK, FGD, PEEK or any other stock not being chased by weed dreamers? This contract is the Holy Grail for junior investors. There are stocks on the NASDAQ with 5 to 10 times the market cap that would double if they announced a $400 million contract with the United States military. MRS should make all of us good money. If it doesn't, this market is completely broken.




Tuesday, 15 August 2017

Seven Stocks I'm Watching Closely for the Rest of 2017

As I have been in summer mode, I haven't written much about the stocks in my portfolio lately. Here is an update on seven stocks that I am watching closely for the rest of 2017.

First Global Data (FGD)

I'm surprised at the extreme pullback, but I have taken the opportunity to buy more shares. I hold more FGD shares now than ever before. However, thanks to the tank in the stock price, FGD has slipped to the third largest holding in my portfolio. Despite the negative move, I'm not too upset about it. If FGD was doing poorly I would be but I know that business is going very well.

FGD is the one stock I tell people I know to buy, even those who are unfamiliar with the stock market or who only buy very conservative stocks. Why? For two reasons:

1. FGD has been consistently profitable since Q1 2016. Four of the past five quarters showed positive net income while Q4 2016 only showed a loss because of the stock compensation expense booked in that quarter. The threat of bankruptcy is as about as minimal as it can be for a junior stock and while FGD seems to be battling dilution issues right now, those issues will be in the rear view mirror soon enough. It is extremely unlikely that the company will need to finance to maintain operations in the future, yet possesses a very high speculative upside upon continued traction of the business. I strongly believe that FGD will be a $5.00 stock soon enough, which is more than a 15x upside from current prices. I can see a strategic investment being a possible dilutive event in the future, but that would only be a net positive for existing shareholders.

2. There is plenty of verifiable third party evidence that suggests that business is booming:
  • The Android stats for VPayQwik in the Google Play store showed that the app surpassed 100,000 downloads in January and 500,000 downloads in June.
  • The CEO of Vijaya Bank (FGD's operating partner for VPayQwik) stated that he wants to see more than a million users on this app.
  • The Alexa web traffic stats for firstglobalmoney.com have been on a consistent uptrend. It entered into the top million rank in September 2016 and top 400,000 in June. It sits around 370,000 now after hitting as high as 350,000 at the end of July.
  • The partnership with LianLian to bring remittance services to WeChat is already live. Website link. Note the "Powered by First Global Money Inc." message on the service's interface.
Check my previous articles for links and analysis that back up these points. Points one and three show strong growth in usage of the company's existing payments services which has so far been highly correlated to increased revenues in each quarter since Q3 2016. The WeChat service will not likely impact Q2 but we may see material revenue from the deal as early as Q3 based on the progress made early in the quarter.


Peak Positioning Technologies (PKK)

Like FGD, I have also been buying PKK shares and hold more shares now than ever before. Though for this one I can understand why there might have been such a pullback. The company will not be making original financial projections made for 2017, which may have turned off some investors as Q1 looked weak and I am expecting much the same for Q2. However, rather than this being due to a screw up, this delay in revenue is largely due to the opportunity to pivot into the much higher margin Chinese B2B lending space through Cubeler, ASDS and ASFC. Rather than accepting a small margin on large amounts of revenue-generating transactions processed through Gold River, PKK has the opportunity to increase the margin on these transactions by offering lending and other financial services to its customers. Three press releases in August show that the company has achieved major milestones in getting to this point. I expect marginal revenue from these initiatives in Q3 with a ramp-up in Q4.

Another issue that could be negatively impacting the stock is the discount-to-market financing deal that PKK signed with GEM. Many people were suspicious that GEM was responsible for the recent tank. That may not have been the case, but the July progress report showed that PKK financed through GEM with the investment firm getting 3.3 million shares at an average of a little over 6 cents.

I have stated my concerns to PKK's CEO about GEM, and this was his response:



I was quite encouraged to know that he is aware of the issues surrounding GEM and is using this as a test case. I look forward to hearing more business developments that will encourage the stock price to return and surpass the 52-week highs made a couple of months ago, hopefully before the year is up. Even at 6 cents PKK is still my largest holding, reflecting the large amount of shares I own and the even more severe pullback on FGD. However, the next stock could take over as my largest holding if it continues towards new 52-week highs.


Selectcore (SCG)

I was a reluctant buyer of SCG shares recently. Having seen what happened to FGD since the free trading of shares, I was worried about the impact of SCG's private placement coming due, particularly since the stock price has been so strong since the addition of a Blockchain/Cryptocurrency Strategist to the Advisory Board. So far, so good, as Monday didn't generate much selling. However, there could be a risk of weakness in the short term if anyone does decide to sell their shares. If there is not, I will take that as a very good sign and a precursor to more buying as potential buyers see that sellers aren't blinking and will blink first. Thanks to FGD tanking and SCG remaining near 52-week highs, it's now the second largest holding in my portfolio.

I was at the AGM where CEO Mohammad Abuleil and new Chairman (and CEO of FGD) Andre Itwaru explained the current state of the company and plans for the near future. In addition to leveraging the JV with FGD and existing government relationships, SCG is planning to dive in head-first to several leading-edge fintech solutions. This includes a peer-to-peer lending and microfinancing (getting into the GoFundMe type of space) and possibly creating its own cryptocurrency. While the creation of the currency certainly sounds intriguing, that sounds like something that is far down the road and will have a lot of hurdles to overcome. I'm more interested in the near-term plans.

The initiative that I found to be more realistic, achievable and profitable in the short term (possibly before the end of 2017) is the integration of a cryptocurrency solution into SCG's existing point-of-sale platform. Basically, SCG wants to sell Bitcoin and similar kinds of online currencies the same way that it used to sell prepaid phone cards. I asked at the AGM if SCG plans to get into the cryptocurrency dealer space - it does not. Which is what I prefer because I don't want SCG getting caught up with the volatile nature of these things.

SCG once achieved $100 million in annual revenue selling prepaid cards. So the company doesn't have an issue with reach. The problem was that this business was extremely low margin and became obsolete as the carriers improved their web services where customers could easily top-up their balances online. If a cryptocurrency sales solution catches on, it could be a cash cow for years, similar to how businesses like Thomas Cook have made money dealing in physical foreign currencies at kiosks. This is still in the concept phase but I am willing to wait to see how much progress can be made on this in 2017.

Like FGD and PKK, SCG's financials are due in two weeks. The income statement has been up and down since 2016, but still greatly improved over previous years. I looks forward to seeing Q2 2017. The balance sheet should also look the best it has in years.


Assure Holdings (IOM)

I recently sold all of my shares in IOM above $3.00 to purchase more of the three aforementioned stocks. This quick triple has saved my portfolio this summer and allowed me to redeploy more cash into the other stocks as well as the final two on this list. This was slightly below my planned $4.00 target but considering the tank in FGD and PKK I decided to sell a little bit lower and looks like I timed it well as the stock has pulled back to $2.50. This is a price that I would seriously consider buying back in if not for the fact that FGD and PKK are still outstandingly low.

Why did I sell my IOM shares when the company had such a strong Q1 and is trading at an annualized P/E ratio of well less than 10? Keep in mind a couple of the risk factors I outlined in my Seeking Alpha article. First, the stock has moved a lot so insiders or owners of the old shell that existed prior to the RTO might be encouraged to take their profits. Second, the accounts receivable balance is high and has been growing which is always a concern when it comes to businesses that bill Medicaid and the insurance companies in the U.S. Q1 showed positive operating cash flow so the company is collecting on at least part of its invoices. I'll continue to monitor the A/R balance closely when reviewing Q2 and beyond should I decide to buy back in.


Peeks Social (PEEK)

As I stated a few weeks ago, I sold out of my position in PEEK to buy FGD and PKK. I suppose it worked out since PEEK has dropped from the $0.80's to the $0.50's while FGD has dropped from $0.40 to $0.29 and PKK has stayed flat at 6 cents. I still have no plans to buy back in at this moment, but continue to follow the situation.

Recall my article from last October outlining the risks and opportunities that I see in PEEK. I guess the first elephant in the room that I have to acknowledge is that leveraging the old Keek user base wasn't nearly as lucrative as I had hoped. So Mark Itwaru is trying to find other ways to grow the user base to scale. Marketing expense was $1 million in Q1. Assuming the 30/70 split between PEEK and Personas applies to marketing costs as well, that means Peeks Social spent $3 million in advertising for the quarter. There are no details around the marketing expense, so I can only guess at the split between the Caribana sponsorship and what might be paid as an upfront signing bonus to celebrities like Scott Disick.

Maybe the strategic spending Mark is doing will be successful in bringing users onto the Peeks platform and encouraging revenue growth. However, having been burned by this business model before with other investments, I'll continue to sit on the sidelines until I see this strategy gaining traction or the stock becomes too irresistibly cheap to pass up a buying opportunity. My opinion on this is that YouTube helped to make Justin Bieber much more than Justin Bieber ever made YouTube. The Peeks platform is a great opportunity for people to get noticed and earn an income. In my opinion, Peeks needs to find its own stars to make rather than try to recruit existing stars to the platform (except in the case where the offer box is used for e-commerce initiatives).

With that being said, I noticed that the Mayor of Toronto John Tory gave a shout out to Peeks' Twitter account during the Carnival, and it has 230,000 followers. Clearly there is some boost in the Peeks brand name from this sponsorship deal. The next challenge is converting those followers into Peeks users who create content and/or tip others for their content.

There were several large investors in PEEK and even employees of the company present at the SCG AGM. That just goes to show you how incredibly stupid it is to try to gain traction in one of these stocks (PEEK, FGD, SCG) by trashing another. I firmly believe that the Itwaru brothers will help each other out. 


Lightning Ventures (LVI) and MGX Minerals (XMG)

Both of these companies are new to me and are in the oil/mineral extraction and technology space. I've known some of these "water into wine" type of companies before and they generally don't work out. However, trusted associates of mine who are shareholders and close to the management teams are quite bullish on each company. I expect to be talking with management along with writing more detailed reports on both of these stocks and in the case of XMG I have already once spoken with management.

Both companies have the typical risk associated with pre-revenue businesses that are trying to showcase new technology - financing/dilution/insolvency risks before things get off the ground and the risk that someone comes along and builds a better mousetrap if things do get off the ground. But for now I am fairly confident that both companies have a reasonable chance to become revenue-generating in 2017 along with signing (more) contracts with oil and gas players. At least confident enough to make both of these picks public. I'll give them both to the end of the year before re-evaluating my investment. For now I am slowly adding to my position while they are in a quiet period.

I own several other small positions, many of them I have already disclosed in other write ups. I'm also buying and selling other stocks to pass the time, but these seven are the ones I am watching the closest for the rest of 2017.

Thursday, 29 June 2017

I Have Sold Out of PEEK, Bought More FGD and PKK

In a world where I have limited resources and opportunity costs, I have made a difficult decision today. I have sold my PEEK shares in favour of buying more FGD and PKK. As I have mentioned in the past I have flipped some PEEK shares for FGD before, but today was the final trade. With the trades made today I believe I have more shares and warrants in FGD and PKK than I ever have before, or at least very close to that.

PEEK's financials came out yesterday and they were within my expectations for a startup mobile app company in its second, third and fourth month of operations. The revenue came in a bit lower than I expected and expenses higher, but nothing egregiously bad. This has much more to do with FGD and PKK tanking than anything PEEK has done.

Like I said in a world where I have limited resources I have to take into account opportunity costs. My reasoning for selling PEEK shares to buy FGD and PKK is as simple as this:

My target on PEEK is $3.00 versus a stock price of $0.88. That's 3.4x upside.
My target on PKK is $0.50 versus a stock price of $0.06. That's 8.3x upside.
My target on FGD is $5.00 versus a stock price of $0.41. That's 12.2x upside.


PEEK could very well go to $3 and as long as the other two follow suit on my targets I make money and I am happy. One could argue that since I am most bullish on FGD that I should put every penny into there. I still need some diversification. Some people might say "why don't you take out a loan to buy more of these stocks if you're so confident". I've already done that and in fact recently got an increase to my line of credit.

Another factor that weighed into my decision is that FGD and PKK are consistently communicating with shareholders. I have voiced my concern before about companies needing to release press releases detailing their financial results. Both management teams at FGD and PKK have taken to my advice. PEEK has some good KPI metrics but they are buried in its MD&A filed on SEDAR. It's not my responsibility as a shareholder nor any other shareholder's responsibility to push how great these metrics are to other potential investors.

I'd like to semi-apologize to anyone who read my stuff on PEEK and my $3 target and bought in at a higher price. I say semi-apologize because I am not nor should anyone else be responsible for your own trading decisions, and I believe I fairly qualified the risks. Also, there is nothing to suggest that at this very early stage PEEK cannot get to $3 upon further business execution. I didn't sell because I think it's going to zero. I sold because PKK and FGD have headed towards zero much faster than I ever would have thought and I'm taking full advantage of the situation. So you can either hold out to make some money, try your luck with PKK or FGD which I think have higher upside at this stage or sell and buy something else and never listen to my advice again.

Still, it sucks if you bought in at something like $2 and are holding a 50% or higher loss. I have been there before so I can understand your misery. In an ideal world all three of these stocks would have hit my targets on them by now and we'd all be celebrating.

I fully intend to get back into PEEK at some point in time. If FGD or PKK rise so the upside ratio between these three stocks becomes more aligned, I will reverse the trades I've done today. I still hold IOM which has been saving my portfolio over the summer so far. If that stock moves over $5 in short order that may be where the source of cash comes to reload on PEEK (or conversely, if these stocks continue to tank for no good reason and IOM stays where it is or higher). Good luck to those who continue to hold.

By the way, I wasn't the one who sold down to 83 cents. While I was writing this blog I saw it tank and thought to myself "ah shit, people are going to blame me for that".

EDIT: Yes I still hold SCG as well.

Monday, 29 May 2017

PKK Releases Q1 Results: Holding My Target Steady at $0.50

Peak Positioning Technologies (PKK.C) (PKKFF) released Q1 results. They were nothing to write home about with $7.3 million in revenue and a net loss of $661K. However, the company had already prepared us for a weak Q1 as it is in the midst of another pivot into the much more lucrative lending opportunity. This has delayed transactions on the Gold River platform that require lending which caused revenue and margin to fall far short of original expectations.

While the company will be challenged to meet previous EBITDA and revenue targets, I remain bullish with my $0.50 target as I like the direction the business is headed. PKK management is trying to be as transparent as possible while some shareholders are still a little confused. I believe we will get clarity soon enough as PKK has promised an updated presentation on ASFC which should be coming in the next few days and advances on the ASFC business by the end of June.

Here is the outlook for 2017 from the Q1 MD&A:

































Key points:

  • Margins are expected to increase drastically once the lending business is live. While the raw materials transactions are expected to earn margins of 0.5% to 2%, the interest revenue expected by financing these transactions range from 9% to 24%.
  • Two major milestones need to be achieved in 2017 - the launch of ASFC and Cubeler. 
  • Cubeler will be a service available to lenders outside of ASFC.
  • ASDS has been in discussion with potential lending partners. 
  • Peak expects to announce ASDS' first lender platform agreements by the end of June. This leaves open for the potential of a "name drop" that could move the stock price. Although it is just as likely that any deals signed will be with an obscure Chinese firm that will be very important for business development but won't be the source of a news release fueled pop. 
PKK remains consistent with a lot of promises made in a short time frame. I remain cautiously optimistic that the company will adhere to these timelines and that we will hear a lot of about ASFC over the summer. 

Sunday, 21 May 2017

Private Placement Opportunity: Torino Power Solutions

Torino Power Solutions (TPS.C) private placement of units priced at 7.5 cents with 15 cent 24-month warrants. Closing price on Friday was 15 cents.

CLICK HERE FOR THE SUBSCRIPTION DOCUMENTS YOU MUST FILL OUT TO REQUEST PARTICIPATION

I participated in the private placement for TPS last week. Management has a goal to close it on May 24th, and by the looks of the market price, there is good reason to suspect it will be filled or oversubscribed. However, it doesn't hurt to try to get in at the last moment. I wanted to tell people about this sooner, but I've been busy and there are risks associated with this investment that I wanted to explain. So this write up will take me a while. At least people will have a couple of days to make a decision as well as can use this as a primer on the company should they wish to buy shares on the open market.

Why did I participate in this placement? It should be obvious by the stock price. This is pretty much free money if you can wait out the four month hold period and the stock price doesn't hemorrhage 50% back under 7.5 cents during that time. If I was not able to get into the private placement I probably wouldn't buy shares on the open market at this time, but I would keep a close eye on it on my watch list. In the event of big news, I'd rather be one of the first ones in at 9:30, at say, 20 cents, than alerted by price-volume leaders at 9:45 and have to pay 30 cents or more. I believe that TPS has potential for that kind of move.

TPS has a clean balance sheet (meaning no debt other than a small amount of payables), around 33 million shares outstanding and around 40 million fully diluted. After this financing closes it'll have around 40 million shares outstanding and 50-55 million fully diluted. The float on it is ridiculously thin. Look at this L2. As of this writing there is less than 100,000 shares on the ask to 19 cents.

If there is good news on this stock, I can see it racing to at least 30 cents and possibly as high as a dollar in short order, depending on the news. If there is no news and the stock price stagnates, all I have to do is hope it stays in this range or at least above 10 cents in four months when the hold period expires. Having such a thin float does present a risk too, should everyone in the private placement decide to sell shares as soon as the hold period is up and it does tank below 7.5 cents on that selling pressure.

If you fail to get into the private placement and wish to trade the stock, be my guest. Unless there is news between now and when the hold period expires I do not foresee myself trading or talking about this stock in depth. So come back in September because I think that's when things will start to get interesting.

REQUIRED READING:

All news releases and financial statements listed on SEDAR and the listing statement which looks like the equivalent of an IPO filing for the CSE:

http://thecse.com/sites/default/files/Form_2A-Torino_Power_Solutions_Inc._Listing_Statement.pdf

I'm not going to handhold people through the process so if there's a statement that I made that you're having a hard time finding the source, look through this required reading. 

Summary of the Business

TPS is pre-revenue. That means Torino hasn't made a sale yet. The business is summarized as follows in the listing statement:

"The Corporation is commercializing its patented Dynamic Thermal Circuit Rating (DTCR)
technology and proprietary system architecture for application in overhead transmission lines to address the growing demand by electric utilities to adequately increase the capacity of congested transmission lines of electric utilities in North America and Europe. The Corporation does not currently generate revenue. The technology is supported by five existing patents and two pending patents.
"

There is an issue with electric utilities. They don't want their power lines failing so they limit the capacity that they transfer. If there is no direct monitoring, power line stress and sag is estimated and conservative values are used based on past seasonal weather patterns. Management believes that Torino's patented sensors and Interrogator system will enable power utility companies to increase their capacity by 5 -20%. According to the listing statement:

"The patented technology enables the monitoring of the dynamic thermal circuit rating of
transmission lines. At time intervals predetermined by the requirements of the utility operator, the technology monitors the temperature and stress of the transmission line conductor as well as the meteorological conditions. The system consists of two major subsystems; a passive part which is a microwave resonant cavity sensor and an interrogator which is an active component. The sensor is installed on the conductor; the interrogator is installed on the pole in a safe zone area.
"

Torino is not the first company to come up with such an idea. There are four other competitors named in the listing statement that sell these types of sensors.This market is not saturated so I have two schools of thought on this. Either there is just not a great enough demand by utilities for this kind of product, or what's available on the market is not meeting the needs of power companies. Anyone from Ontario like me knows the absolute debacle surrounding Ontario Hydro, with the government of Ontario (rightly) taking a lot of heat. Capacity issues will only increase with time as the population grows, particularly in regions under stress already like the Greater Toronto Area. So I am willing to give this sensor industry a shot.

Torino believes that it offers a superior product. I believe that the key two advantages over its competitors based on my conversation with the CEO are 1) the system doesn't need a battery nor a power source and 2) the system can measure sag AND conductor temperature of a single line while competing technologies measure either sag OR conductor temperature of a single line. TPS has gotten FCC approval in the U.S. and Industry Canada approval in Canada to operate its Power Line Monitoring system within the specified frequency band last fall. This was obviously a major required step needed by the company in order to proceed with a marketable product. The company's technology was developed at the University of Manitoba and the company owns all patents and design outright. There are two milestone payments of $250,000 each upon achievement of $10 million and $20 million in revenue.

So far TPS has announced a trial relationship with one power company, Tri-State Generation and Transmission Association, Inc. The agreement was signed in June 2016. In March the company announced that this trial agreement was upgraded to a more active power line. My first reaction when speaking to the CEO was that this is a VERY long lead time between a trial agreement and a potential revenue-generating agreement. However, I also noted that TPS is only asking for $500,000 in this private placement. Based on the burn rate, I estimate that this money would only take Torino to the end of 2017 if no sales are made. It would make sense to raise a lot more unless there was the expectation that revenue will be coming in 2017.

After speaking with the CEO and considering the small raise, I think there is a reasonable chance to expect some kind of revenue-generating agreement in 2017. Though the exact nature of that is unknown to me, for obvious reasons he had to be vague. There is also no guarantee that there will be an agreement announced in the coming months and that the company will need to raise more money in the near future. Each system which contains one Interrogator and three sensors would cover a 12 kilometer radius. As in other words, a typical-sized power company which wanted full coverage would need to order thousands of devices. Even one which wanted to cover only the areas under high stress would need dozens or hundreds. So there is reasonable potential for a news release on a massive sale. 

The CEO called Torino an IIoT (Industrial Internet Of Things) company. It sounds like they are looking to capitalize on the growing IoT craze which would be a smart strategy to ensure a robust stock price along with executing on the business.


Management Team

The person who I spoke with was CEO Rav Mlait. His business associate, Bryan Loree is the CFO and these two have collaborated on numerous projects in the past. When I spoke with Mr. Mlait, he was courteous and appeared knowledgeable of the opportunity. However, the management team of TPS doesn't appear to be on the level of the management teams of my other major investments.

People like the Itwaru brothers or PKK's management are business builders. If you look at their CV, they have a history related to payment processing, fintech and business development in China, respectively. Their prime focus over years has been on their duties to the companies in which I'm invested.

Contrast that to Rav Mlait. Have a look at his LinkedIn profile. He and Bryan Loree have had multiple projects, some of them ongoing simultaneously. Mr. Mlait is the CEO of Cannabix Technologies (BLO.C), a marijuana breathalyzer development company and was the CEO of Rockland Minerals Corp, an exploration stage mining company. He jumps from industry to industry. Rather than being a business builder like the people I just mentioned, he appears to be an early-stage promoter. If he wishes to become a business builder with TPS and BLO, he will have to prove that to the market. In the listing statement it states that he expects to dedicate 35% of of his time to TPS, though that may be higher now since he has given up his position with Rockland. But that is still much less than the proportion of time dedicated by Andre Itwaru to FGD or Johnson Joseph to PKK, for instance.

Regarding his past mixed history of success, I am going to give him a pass. The very nature of start up investing is high-risk. Many companies fail for every successful one. If you were an investor in Mr. Mlait's companies in the past, you might have lost money on several of them, but then made 500% or more on BLO. A consistent early-stage investor in all of his projects would have made money under his watch.

The first major test for Mr. Mlait with TPS would be upon a major contract being signed. I asked him about manufacturing and right now it is all in-house which he described having capacity to build "a few" units. What would happen if a major deal gets signed and a power company orders 1,000 units? Would the company outsource? Or try to build capacity in-house? The latter option is filled with operating challenges and risks. The former option might result in lower long-term margins and the company would be reliant on its supplier to make good on orders. The CEO's answer wasn't very clear to me. That could be indicative that he has a plan in place but can't disclose that to me or anyone else, or that there isn't one in place yet.

Torino's lack of size might present a challenge to its sales strategy since its competitors are more mature and may have the capacity to fulfill larger orders. Power companies would know this. So even if the technology is superior, the manufacturing capacity puts Torino at a disadvantage. There are ways around this which an early-stage promoter would understand and may actually be better suited for this company - discussed in the next section. 


Conclusion: What I Think Will Happen

Based on my conversation with the CEO and the small size of the raise, I think TPS has a reasonable chance to procure a contract in the coming months. Once a contract is announced, it might be a good time to offload some shares on the spike. There could be another substantial private placement to raise funds to build the capacity to fulfill the order. Or there may be other challenges that arise as the management team tries to build a business.

However, as demonstrated early-stage promoters, Torino's management team may have other ideas in mind. Rather than build the devices themselves, maybe they plan to license the technology. Or perhaps they are fishing for a buyout that will come at a much higher valuation upon further proof of concept with Tri-State or upon a large contract being signed. Early-stage promoters look for an early entry and an early exit to gain a quick profit.

No matter what the eventual outcome, I think TPS can return me several times my money in a timeline measured in months if a contract comes. Hell, it's already given me a double (excluding the value of the warrants) and I just wired the money a couple of days ago.

If I'm wrong and no contract comes in 2017, I think the TPS management team's skill as early stage promoters will be helpful in keeping the stock price robust enough so that I can sell the shares if I so choose to at a price well above 7.5 cents and keep the warrants as gravy over the next two years. The risk-to-reward payoff of this private placement made a lot of sense to me and that is why I participated in it. If TPS makes a lot of sense to you as an investment, either as a private placement or by purchasing shares on the open market, I have made a Facebook group for this investment, Torino Power Solutions Private Placement Opportunity and Investor Group:

https://www.facebook.com/groups/302777856828727/



Wednesday, 17 May 2017

First Global Data: "First in the World" Social Messaging Multi Integrated Remittance Platform

First Global Data (FGD.V) (FGBDF) announced that it completed the first phase of beta testing with LianLian Pay to provide remittance functionality on WeChat. The company made the bold statement that it "believes that this is the world's first social messaging multi integrated remittance platform whereby SOCIAL converges on FINTECH in the flow of cross border money."

A deal between Western Union and WeChat sounds kind of similar at first, and was brought up by some naysayers against the stock. Instead of going to FGD management for clarification, they assume the worst about this deal. I decided to make myself useful and sent the following email to CEO Andre Itwaru earlier today:



This was Andre's response:



So when people bring up what looks like competition or that the company is over-embellishing their accomplishments, make sure to dig deeper. I am very pleased with Andre's response. Many companies I have dealt with have been evasive when interrogated like this. Andre gave a very straight answer.

If one is wondering, "well, it may not be as integrated, but Western Union still has a deal with WeChat. FGD and LianLian won't be the only player in town". Remember that a fully integrated tech solution is far more sticky than a marketing deal. In my opinion, a deal like this for FGD makes it a buyout target for Western Union. If Western Union has the marketing deal and FGD has seamless integration into the platform, it just makes too much sense for Western Union to go after FGD in order to solidify its position on WeChat. Or at a minimum look for a friendly collaboration. The platform must be proven first and it is just in the beta testing phase so it's not there yet. Don't go rushing out to buy the stock just because I said it was a buyout target. Use your head and come to your own conclusions.


Tuesday, 9 May 2017

Facebook Private Message FAQ

When I created the investor groups on Facebook, I thought it would be a great tool for users to discuss stocks honestly using their real identities, instead of the untrustworthy atmosphere of other message boards where people can hide behind profile handles or multiple profiles. I didn't set them up to be a personal babysitter for people's investments. I was in a good mood today because while FGD tanked, I have had a great streak of luck on day trades and options trades recently, which has enabled me to free up some cash and take advantage of a buying opportunity today. But that good mood was soured a bit when I had to answer a bunch of messages on Facebook. Now that I'm back at my computer I see a whole bunch more. So I'm setting up this FAQ to minimize the amount of personal messages I get. A good day for me will be when I finally get zero personal messages that day.

Q1: Are you still holding PKK, FGD, SCG and PEEK? What about other stocks you've mentioned?

A1: I will start this off by saying I feel insulted when I get questions like this, like I'm some kind of penny flipper after I wrote extensively about these stocks. I have VERY large positions in these four stocks, in that order by dollar value. It would take me multiple days to sell my positions if I wanted to, and I have no reason to at this moment. Like any normal person I do buy and sell to manage cash flow and maybe take advantage of a short term trade, but I'm still going to hold large stakes in these stocks. For instance, I recently had to make some tough choices in order to participate in the SCG private placement. Luckily the winning streak I've had allowed me to buy back some of what I sold already and I'm optimistic that I can get most of it back. But I certainly would not sell everything.

If one day I sell one of these stocks for good I WILL MAKE A STATEMENT THAT I SOLD.

This also greatly irritates me because it comes with the assumption by the sender that I'm on Facebook 24/7 just waiting to answer their messages. I often take more than 24 hours to respond. I do this partially to slow the message flow down because as soon as I send a message I get a response back 10 minutes later and I'm back at square one. Other times I'm just not on Facebook or near a computer in general. Especially during the summer.

New policy: You get ONE chance, of which I will direct you to this FAQ. And if you continue to ask me through private message if I sold out of any of these four stocks, I will block you and remove you from the Facebook groups. This type of question is very annoying and insulting to me, and I don't want to see any more of it.

I'll add this in because I have officially written about these stocks: I still hold a small amount of SJL (sold most of it) and that I sold my DGO and HRE positions (still hold my HRE warrants), partially to fund the aforementioned SCG private placement. All other stocks that I may have talked about buying on the boards but didn't make an official article or target or anything like ITT, RHT, ONC etc. I have sold. I've also stopped posting on that Canadian Traders group because I got too many PM's asking me about this and that trade. I might buy these stocks back in the near future. Nothing against them, I just saw better opportunities. Namely the SCG private placement and if people have seen the performance of SCG since then, they can understand that I made the right move. 

Q2: So how are PKK, FGD, SCG or PEEK going? Do you have any special insight?

A2: Any insight I have I WILL POST ON THE GROUPS OR IN AN ARTICLE. If you have a question about a stock, POST IT ON THE RELEVANT GROUP. So I'm not the only one burdened with answering it.

Q3: Hey, how's it going?
A3: Lousy, because I'm answering Facebook messages like a secretary instead of doing something I enjoy. If you have something important to say get to the point. No more small talk please. No offense don't take it personally. I just get a lot of this and it gets tedious real quick. 

Q4: Do you want to hang out some time?
A4: I've never been asked out on so many man-dates in my life lol. It would be cool if more women were into the stock market. I plan to have a get-together one day in a larger group, but when these stocks are higher. These stock prices aren't acceptable for celebration for me just yet. As far as one-on-one meetups, I can be open to it, just be cognizant of where I live. I'm in the northeast end of the GTA. If you ask me to meet at something like 600 King St West I am going to be very irritated with that location. I didn't leave the workforce because I enjoyed the time it takes me to get downtown.

Unlike questions 1 and 2 I won't be pissed off with things like this. Or business opportunities or random, interesting conversation that leads to something important not like Q3.

Q5: What do you think of x stock? Or have a look at x stock.
A5: A 99% chance I don't know it, or I know the name and a very basic knowledge of it and don't have any good insight to share. Particularly if its a commodity stock. You people JUST saw me try and fail miserably with DGO. I don't know the junior/explorer mining or oil industry. Why are you asking me about these stocks?

Acceptable way to approach me with Q5:
There's this stock with a good balance sheet, strong earnings, good growth and I think is undervalued.
A: Thank you, I'm always looking for more of these types of stocks. I will take a serious look at it.

That's all I can think of for now. I might add more later.

Monday, 24 April 2017

My Preliminary Thoughts on PKK's Latest Pivot

Peak Positioning Technologies (PKK.C) (PKKFF) released an updated investor presentation and news release this morning following its attendance at the GCFF conference in Vancouver. I don't have enough information to release a full blown article but I thought I would share some quick thoughts. I plan to update it once the company has released Q4 and provided official guidance.

Peak has pivoted once again into more lucrative businesses with the introduction of Asia Synergy Data Solutions (ASDS) and a proposed financial institution Asia Synergy Financial Capital (ASFC). ASDS teaming up with Cubeler sounds a lot like what LongKey would have been, except with the backing of ZHWY Enterprises. ASFC is the method for Peak to try to increase its margins as it looks to bring the lending component of the Gold River platform in-house.

With these pivots which will obviously be very good for the long-term, it sounds like there will be some short term "pain" in that Q4 revenue probably won't come in as expected. I'm not too disturbed by this. We know from a prior news release that PKK will be recording at least $50 million in revenue for 2016. Going from $0 to $50 million in revenue in a year is still a monumental accomplishment, even if it's a little less of an accomplishment than going from $0 to $100 million a year.

On page 23 of the presentation, there are two numbers referenced for AST in 2017. $503 million in revenue and a $10.8 million number which isn't clear if that's gross margin or EBITDA or something else. Assuming that is the case, this would be below previous guidance of a 3-5% EBITDA margin on $550 million in revenue stated in the Q3 news release. Offsetting that is the $1.4 million in projected revenue for ASDS in 2017 and the unknown benefit of ASFC assuming it goes live as planned some time in 2017.

Based on this, it looks like PKK will take a little longer to get to my $0.50 target as first planned, at least justifiable from financial ratios. There always remains the possibility that speculative investors will like this new business and bid up the stock to very high valuations in the near term. But by 2019 revenue for AST and ASDS is expected to be a combined $887 million. It's difficult to project such a fast growing business two years out, but if these numbers do in fact come true with $50M in EBITDA or greater, a $0.50 stock price should be more than justified.

Assuming the $10.8 million number is EBITDA for 2017, this still justifies my first target of $0.20:

$10.8M x 15 EV/EBITDA multiple = $162M EV
$162M EV + $10M in cash from exercise of warrants and options = $172M market cap
$172M / 678M fully diluted shares = $0.25 per share

There was a small sell-off this morning to 14 cents after the warning about the negative impact on the near-term numbers and some of the ambiguity around these projections. Buying has picked back up and the stock is trading at 15 cents, down a penny. I think it is reasonable to assume that Q4 will be disappointing relative to previous guidance (but still great compared to where the company was in 2015). However, 2017 guidance could go in either direction depending on how quickly PKK can get ASFC up and running. For now, I think we should assume revenue just slightly over $500M and margin/EBITDA slightly over $10M, but even that should support the stock price where it is now.

With this pivot there is no guarantee of success for ASFC or even that it will get off that ground. But that's why PKK is trading at a fully diluted market cap of $100M and not much higher. I remain confident of my heavy investment in PKK, other investors can figure out for themselves if they share that same level of confidence.

EDIT: This is what PKK's CEO Johnson Joseph had to say shortly after I released this piece:




Wednesday, 5 April 2017

First Global Data Valuation Matrix

A few weeks ago, I presented a $5.00 target on First Global Data (FGBDF) (FGD.V) by the end of 2018. This target assumed that the company can achieve 5 million users at an average EBITDA per user of $26 by that time. It was based off of a 15x EBITDA multiple, 400 million fully diluted shares and $52 million in cash received from the assumption that all warrants and options would be exercised. Presented below is a chart that displays a matrix of potential stock prices based on a range of 100,000 to 100 million users and an average EBITDA per user from $10 to $90.


The scenario closest to my target price assumes 5 million users at a $25 average EBITDA per user, which leads to $4.82. To get to $4.82 it is calculated as follows:

5,000,000 users x $25 EBITDA per user = $125 million EBITDA
$125 million EBITDA x 15x multiple = $1,875 million enterprise value
$1,875 million / 400 million shares = $4.69 per share
$52 million in cash from warrants / 400 million shares = $0.13 per share in cash
Add back $0.13 per share in cash to get to $4.82

(Read up on what enterprise value means to understand why I add the cash back in this situation - I'm sick of answering questions like this)

If someone thinks that a 15x EBITDA multiple is too high, it is easy enough to change it. If you wanted to use a 10x multiple, all you need to do is subtract the $0.13 per share in cash, multiply that number by 10/15 and add back the $0.13 per share. For instance:

$4.82 - $0.13 = $4.69
$4.69 x 10/15 = $3.13
$3.13 + $0.13 = $3.26 per share valuation based on a 10x EBITDA multiple

FGD's CEO Andre Itwaru has gone on record to state that based off of one million users, he thinks FGD can achieve $146.1 million in revenue and $93.5 million in EBITDA (page 11 of the January corporate presentation). This is a $146 average revenue per user (ARPU) and a 64% margin, leading to a $93.50 average EBITDA per user. Keep in mind this assumes a 50-50 split in revenue between FGD and its partners, so gross ARPU would be $292. Until I see ARPU figures proving otherwise, I personally think that these numbers will be a challenge to meet. That's why my chart ranges as low a $10 EBITDA per user and up to the company's estimate of $90. Assuming a 64% margin, a $25 average EBITDA per user equates to a $39 ARPU.

We know that based on the Google Play install stats that VPayQwik, FGD's app in partnership with Vijaya Bank, is over 100,000 users. I estimate the installs to be at least 130,000. Keep in mind that this is only for India. VPayQwik was launched in mid-September 2016 so the revenue and profits disclosed by FGD for the first nine months of the year was largely based off of the company's North American remittance business. FGD hasn't disclosed how many users it has in North America, but we can assume this is substantial and growing based on the Alexa traffic stats for FGD's business site firstglobalmoney.com.


So how many users does FGD have? Something well over 100,000 and growing. If FGD has 500,000 users at an average ARPU of $39 and average EBITDA per user of $25, that leads to a $0.60 stock price. Of course, at this early stage FGD won't be valued based solely on current business metrics, but the reasonable expectation of growth since the Indian and North American businesses are robust and the various partnerships announced over the last several months will be deployed soon enough.

I have already stated my belief that the company can achieve 5 million users in a timeline of a little over a year and that leads to substantial upside even if the ARPU comes in at around 25-30% of the company's expectation. Let's look at the long term upside. Let's say that FGD eventually does achieve 100 million users. This could take several years, but it is well within the realm of possibility upon continued execution and deployment of partnerships. 

Let's say that of those 100 million users, a lot of them are low value and that drags down the average ARPU. Given FGD's focus on the developing world that may be a fair assumption. Even if the annual EBITDA per user is a mere $10, the stock price would be $37.63 based off of a 15x EBITDA multiple. If the company is extremely successful and somehow manages to pull off a $90 EBITDA per user on this large base of 100 million users, the stock price would be $337.63 based off of a 15x EBITDA multiple.

I don't know if FGD will ever get to these crazy prices, or if it will be bought out well before then or if I would even hold that long. But at $0.80 this isn't a concern yet. FGD has a ton of upside from here as my valuation matrix indicates.





Monday, 30 January 2017

Analysis of Keek's Q3 results

Keek (KEEKF) (KEK.V) posted its financial results and MD&A on SEDAR. Here are my thoughts and/or highlights of what I find to be the most important issues:

  • There is a line in the MD&A which states: "The Offer Box is currently in development and deployment to the Peeks service is now expected during the 2018 fiscal year." At first I had a WTF moment, until I realized that fiscal 2017 ends this February. Fiscal 2018 runs from March 2017 to February 2018. My best guess is that we're probably looking at a March-April timeline, but Mark Itwaru is keeping his cards close to him this time, and not giving us a more definite timeline.
  • The iOS disruption details are as follows: "On January 16, 2016, the iOS version of the Peeks app was removed from the App Store by Apple. The iOS app was deemed to be non-compliant with Apple’s App Review Guidelines, specifically in that it required improvements to control the display of user generated content of a mature nature, and the addition of in-app purchase capabilities. The removal of the iOS version from the App Store has caused a significant negative impact on new registrations and the general growth of the platform. The Company expects the iOS version to be available again in the very near future. The Company expects that growth rates across all metrics will be restrained until such time as a new iOS version can be released to the public. Should that require an extended period of time, the Peeks service may see a period of decline in user activity. However, in the week following Apple’s decision, it is estimated that transactions on the service had still increased approximately 40% as compared to the last week of December 2016."  
  • The bad news - the company is non-committal over the timing that the iOS issue will be resolved. There is also some ambiguity around the "in-app purchase" capabilities. One shareholder and I have been discussing Apple's TOS for developers and if paid streams constitute an in-app purchase and are therefore subject to going through Apple's payment systems. The good news - even without Apple the disruption was temporary. Transactions are still up 40% versus the last week of December.
  • Revenue was $6,810, split evenly between ad revenue and tipping revenue. This covers only the first few weeks of Peeks being live in November, so this low amount doesn't worry me.
  • Total opex was $1,520K. This includes $850K of stock compensation expense. Excluding this number, as well as the gain on disposal of a long lived asset (-$67K), FX impact ($26K) and amortization ($20K) leads to $691K in cash costs for the quarter. This is $230K a month, or slightly over the $150-$175K the company has previously forecasted. It's not egregiously over budget, but I think with the growth of the app, we can expect hiring so I don't think this forecast is applicable any more. However, I expect revenue to more that offset that in the future. 
  • The company made excellent progress in paying down its trade payables, as evidenced by a gain on the settlement of debts of $592K. In the subsequent events section, the company settled another $449K of payables for $161K, netting a gain of $288K. 501K of options and warrants with a strike price of $0.30 were exercised since November 30th, improving the balance sheet some more going forward. This is a smaller amount than I would have expected, so selling pressure hasn't come from warrant exercises.
  • No ARPU number, but I really like this paragraph in the MD&A: "Through December 2016 and into January 2017 the Peeks service saw significant growth across all aspects of the service including in the percent of transacting users and the number of transactions. On November 30, 2016, approximately 1.4% of registered Peeks users had a credit card associated with their Peeks account. By December 31, 2016, this number had increased to approximately 3.4%, and by January 15, 2016, had increased to approximately 6.0%. Similarly, the estimated daily average aggregate dollar amount of user transactions on the Peeks service (tipping and purchasing of paid broadcasts) in the last week of December was approximately 1,000% of the daily average in November 2016."
  • Revenue share to Peeks was 45% of all tips. Keek is entitled to 30% of that, or 13.5% of all tips generated in November. If Keek earned $3,400 in tips, the gross amount of tips on the Peeks platform for the period ending November was $25,000.
  • Using the above as a guide, if total tips were $25,000 for the month of November and by the end of December the run rate was 10 times that, that's $250,000 in tips generated on the platform. Judging by anecdotal evidence and observations collected by shareholders from a couple of weeks ago (~$20K tips/day), third party app usage stats and the credit card information presented above (6.0% vs. 3.4%), it looks like mid-January was 2-3x more active than the end of December. Note that the $250,000 run rate I calculate at the end of December ($8,000 a day) is quite aligned to anecdotal observations made by KEK investors on the Facebook investor group around that time ($5,000-$6.000 a day). However, this was prior to the Apple issue. The company claims that by the end of January that transactions were still up 40% over December. That would mean the run rate would be $350,000 without Apple. Probably around $700,000 with Apple once it does get back online.
  • If Peeks has averaged $300,000 in tips a month for December and January and if the revenue share stays steady at 13.5%, that would mean KEK earned $80,000 in total revenue for the two months. The run-rate of $350,000 means that KEK is at a $47,000 monthly revenue run rate heading into February. 
These are my observations after a quick look at the MD&A and financial statements. I may have more observations after reading this material again and letting it sink in. 

Monday, 16 January 2017

KEK Shareholders Can Sleep Well Tonight: Peeks Was Pulled Off The Apple Store By Keek

After a strong start to the day, Keek (KEK.V) ended down 7% as people noticed that the app was no longer available for download on the Apple store and people were fearing the worst - that Apple stopped supporting the app thanks to the amount of nudie shows taking place.

Keek shareholders can sleep well tonight. The app was pulled down by the developer (Keek), per the messages that a fellow shareholder posted in the Keek Facebook Investor Group that I am posting below. Does this mean that the new UI is coming any day now? Possibly. But what it does confirm is that Peeks Social is not in the line of fire from Apple. If anything, I would take a guess that this was a proactive move from the company to ensure that it doesn't become a stench to Apple while it figures out how to hide the porn as adeptly as possible while still protecting freedom of speech and expression for its users.

For those who aren't in the group already, I really recommend that you join so you can stay in the loop with important developments such as this:

https://www.facebook.com/groups/190918448004346/










How Much Money Is Peeks Making? A Lot More Than It Did A Month Ago

How much money is Peeks making? A lot more than it did a month ago if you've been paying attention to the activity on the app over that period of time. For those who don't know, Peeks is the social commerce app essentially 30% owned by Keek (OTCQB:KEEKF)(KEK.V). If you don't know what I mean by "essentially", read the company's MD&A or my blogs on Seeking Alpha for background.

Us shareholders have been patiently waiting for the update to the new UI for a few weeks now which would officially mark the start of Peeks' active promotion. But in the meantime we have been witnessing tremendous organic growth, even if that growth is mostly in the form of pornographic content. For those of you who haven't already, join the Peeks/Keek Investor Group at this link:

https://www.facebook.com/groups/190918448004346/

Here is a screenshot of some work done by one of the members of the group who has been tracking the money earned by the streams that have required a payment to watch. This is done by multiplying the entry fee by the number of viewers for each stream. He came up with $21,398 earned in the 24 hour period leading up to his post on the evening of January 14th:



This analysis does have one hole in that streams can go from free to paid mid-stream and there is no way to track who exactly paid after the fact when it does happen. However, this is offset as voluntary tips aren't counted, so I would lean to it underestimating tips on the platform rather than overestimating them. Also, regardless of the actual number, we see that the daily enforced tips has tripled from the $6,000 to $8,000 he calculated just three weeks ago using the exact same methodology. So Peeks is definitely making more money.

If Peeks generated $20,000 in tips a day going forward and collected 35% revenue share, that would lead to a daily revenue of $7,000 or $630,000 per quarter. KEK would be entitled to 30% of that, or $189,000. And this is just 2.5 months since the app went live. Even if the new UI and offer box were to be complete duds, Peeks would justify a bullish thesis going forward just as a porn app. The bulk of the tips are being generated by a couple dozen very active content providers. Imagine if that was multiplied by 1,000.

How many strippers and similar type of workers are there across North America? Maybe 500,000? Those people would have two choices:

Livestream on Peeks from the comfort and safety of their own home. The app takes a 30-50% cut and they get cat-called by a bunch of seedy guys.

Or

Work at a strip club. Have a bunch of seedy guys groping them in addition to the cat-calling. Their employer takes a 30-50% cut or more, depending on the place they work for, and they get to deal with catty co-worker drama.

Peeks has the ability to turn the web cam industry into something mainstream. Porn without the Pornhub stigma. Naysayers can deny or question it all they want, but it is clearly working. The people who are on Peeks night-in and night-out wouldn't be on there if they weren't making good money. The proof of concept is there, now Peeks just needs scale. And remember, this is without considering the offer box or that the new UI should allow Peeks management and the public relations firm to market this app to the mainstream as it hides the porn into its own room behind a curtain like bricks and mortar video stores use to do.

Daily ranks on App Annie have continued to trend upward. You can view Peeks App Annie stats at this link, but you will have to sign up for an account. Here's a screen capture of some of the top rankings by country:



Notice that there are now 29 countries that have Peeks in their top 500 most downloaded social apps. In a previous article, I showed that Peeks has improved from the #398 ranked social app in the United States on December 11 to #72 on January 10. On January 14, Peeks hit a new high in the United States, now ranked at #66. Canada has also been steadily rising to #133. I find the rest of the countries to be too volatile in the 200-500 ranks; some are up or down over 100 points in a day. But Peeks is definitely trending in the right direction.










Sunday, 15 January 2017

First Global Data Passes 100,000 Subscribers

In a recent interview, First Global Data (OTC:FGBDF)(FGD.V) CEO Andre Itwaru estimated that the company could earn $140 million in revenue and $90 million in EBITDA upon reaching one million subscribers. According to the Google Play app store, VPayQwik, which is FGD's app in conjunction with Vijaya Bank in India, has just surpassed 100,000 installs. Assuming one install per subscriber, FGD is already 10% of the way to its one million subscriber goal. The app surpassed 100,000 installs at 840 ratings so now we have a reasonable estimate of installs going forward based on the growth of ratings as a proxy. I would expect the app to surpass 500,000 installs (the next category on the Google Play store) somewhere around 4,000-4,500 ratings.

Given that the company has achieved 100,000 subscribers two weeks into January, is it fair to estimate that from this one deal alone $14 million in revenue and $9 million in EBITDA can be generated in 2017 even with no further growth? That alone would already justify a market cap in excess of $100 million.

Keep in mind that the VPayQwik app has surpassed 100,000 installs without iOS availability. The CEO has mentioned to me that he expects VPayQwik to become available for iOS shortly.

If you haven't already, you can join the First Global Data Investor Group at the following link:

https://www.facebook.com/groups/377851355894645/

It was a member of that group who alerted me to VPayQwik's graduation from the 50,000-100,000 category to the 100,000-500,000 category, so as you can tell we share good due diligence and real conversation about our investment in that group.

Growth in popularity of the VPayQwik app can be tracked using App Annie. The direct link is here, but you will need to create an account to access it. In the meantime, here is a screenshot of the app's history of growth since its debut on September 19th to today. It debuted at spot #202 in the shopping category within India and has steadily grown to spot #91, reaching as high as #55 in early December at the peak of holiday shopping season (as I write this, I realize that the spike couldn't really be due to the holiday shopping season since ALL apps under the shopping category should see a spike in activity around this time). I had erroneously assumed that VPayQwik went live in November when the company first told us about it in a press release, but this does not change my previous analysis where I assumed this app would drive record Q4 revenue and profits for the company. The app was available for only two weeks in Q3 and didn't really take off until mid-October.