A-Z on the Canadian Securities Exchange
This January I thought I’d go A-Z on a small backwater exchange here in Canada, the Canadian Securities Exchange. This is the exchange one tier below the TSX Venture, which itself is a tier below the TSX. I downloaded the excel list of companies from the CSE website and started at the top.
The game of investing is turning over the most rocks until you find something that seems extremely compelling. This could come from reading investor letters, investment pitches, running screens, following news flow, etc. But you aren’t going to see what truly are the best opportunities unless you go through every stock on each exchange. The beauty of looking at every stock is that you can than compare it to your existing portfolio as opposed to waiting for investments to come around. The problem with this is it is extremely time consuming and you usually end up finding a lot of junk/unprofitable companies as you can see from my notes on the right below.
While there is no exact tell for what I was looking for when going through each company’s financial statements, I wanted to see actual businesses that were profitable or at least almost profitable with a strong balance sheet. Everything else was an immediate pass. How else can I value a business if there is no real business?
A couple observations
For a country with vast natural resources, Canada has a TON of unprofitable mining companies.
A lot of these companies should probably just be liquidated/not publicly traded.
Going A-Z is never easy and I found myself thinking I should just skip the names that just seem like an obvious pass but if everyone thinks like that there might be some hidden gem.
Once you get into the habit of starting, it can become a bit addicting trying to see each company everyday. At the end of each session I found myself wanting to look at “just one more” which would usually turn into 10 more.
My goal was to do at least one letter of the alphabet each day and I would usually surpass that because some letters didn’t have many companies.
I managed to make a list of at least some interesting companies to keep an eye on and thought I’d share the top 10 companies I thought were the most interesting.
1) ZTEST Electronics Inc.
Develops and assembles printed circuit boards and is currently undergoing a strategic review. Almost doubled revenues from 2023 to 2024 with net income going from $165K to $1.7m. Shares outstanding of 36.5 + 2.7m warrants +1.1m options with a stock price of $0.40 for a market cap of $16.12m. Trading at 9.5 times last years earnings and if they can grow again at the same rate this year, it seems really cheap. Strong balance sheet with cash balance of $2.7m against debt of just over $100K.
2) BioHarvest Sciences
They synthesize plant based molecules and have a market cap of $110m with insiders owning 37.9% of the company. Their revenues and gross margins have exploded the past couple of years. In 2021 they did revenue of $2.1m and gross margins of 31.9%. In the TTM of Q3 2024, they’ve done revenue of $22.4m and gross margin of 54%. Huge growth that is hard to argue with.
The only downside is they are still losing money but on a lesser scale as a couple of years ago. Also, their shares outstanding have gone up as they have raised money to fund the growth. This is one I will be keeping my eye on for when 1) potential profitability will inflect, 2) no need to raise capital anymore, 3) if the valuation makes sense and 4) if I can get comfortable with the business/industry.
3) Eagle Royalties
A junior mining company but it holds 35 royalty interests in certain projects in Western Canada covering different commodities. It was spun off from Eagle Plains Resources in 2023 on a 3 for 1 ratio. Extremely strong balance sheet with total assets of $4.8m with cash comprising $3.5m of that and a note receivable of $1.25m against total liabilities of $303K. Market cap is $6.6m but they just diluted shares from 28m to 57m, with fully diluted 66m. Royalties seem lumpy as they just received one so far this year for $3.75m which turned into net income of $2.9m in the last 12 months. Insiders own 20-30%.
4) Happy Belly Food Group
Seems like an interesting small business. Has a bunch of different brand food locations/consulting and also earns royalty and franchise stream income. Sales have been growing as of September 30, 2024 as they have done 5.2m in past 9 months vs 3.8m last year same period. However, still burning money and diluting but looks like cash burn has come down. Total assets of $9.1m with cash making up $3.6m of it against $3.6m of convertible debt.
5) MTL Cannabis Corp.
One of the rare profitable cannabis companies I’ve seen, although they did lose money in 2023 but they under went a RTO mid 2023. With 117m shares outstanding, 7.7m warrants and 6.5 options, there is a market cap of $48.5m using a stock price of $0.37 (not using the treasury method). While I don’t love the balance sheet of $22.6m debt against $3.2m cash, there is $18.5m of PP&E backing that up as well. Sales have been growing, going from $32m September 2023 last 6 months to $42m September 2024 last 6 months. This takes into account $10m of excise taxes as well and if the government were to change this in the next few years, it could fall right to the bottom line.
Operates 2 segments: 1) Licensed producer that just did $11m in operating income and $8.5m net income past 6 months, 2) CHC segment that did $430K operating income and $100K net income past 6 months as well. On a consolidated basis when taking corporate expenses into account, its 9m operating income and $3.4m net income. Annualize that for the year could be $18m in operating income and $7m in net income against a market cap of $48.5m for 7 times earnings.
6) Namesilo Technologies Corp.
Nice little domain name business run by Paul Andreola. Holds 1.2m in bitcoin investments as well as some other of his investment picks (Atlas Engineered, Ceapro Inc.). Does just over $40m in revenues and is profitable on an operating basis of $3-4m. Only debt is 3.8m convertible and large amount of liabilities is the deferred revenue of almost $30m of a the total $43m in liabilities.
7) Nova Net Lease REIT
I will most likely be writing this up in a couple of days but it is a Cannabis REIT that owns one investment property and a JV that owns two other properties that are profitable. Just agreed to sell most of the assets and liquidate. Stock price of $0.36 with units outstanding at 7.4m, market cap is $2.6m. The book value without making any adjustments to the properties or JV is $12m, which means on my rough math it is trading at 22% of book value. But this could be as a result of them consolidating the JV onto their statements so their true economic ownership doesn’t show through. Granted it is losing some money and burning a bit of cash but the JV is profitable according to the notes in the financial statements.
8) Urbana Corporation
Investment company with a net asset value of $427m or 10.32/share. Currently trading at $6.19 which means it is valued at 60% of net asset value. Investments are made up of both public and private amounts. Public is $202m on balance sheet and private is $297m with some private debt investments of $6m. Management in September was granted by TSX to allow a NCIB to repurchase 10% of the company’s shares which means management agrees it is undervalued. Smart capital allocation to purchase below asset value which would bump up the NAV per share after the buyback. Reading past investment pitches on them, they have always traded at a large discount.
9) ICEsoft Technologies Canada Corp.
Licenses its technology and its SAAS product to businesses and government clients. They do the mass notifications that pop up on your phone if the government needs to let people know of certain emergencies. Seems like losses have come way down and they are near breakeven. Trades at a roughly $5m market cap when taking the warrants into consideration. Annualizing their current quarters revenue, trades for about 2.5 times revenue. The balance sheet isn’t the greatest with only $111K in cash against $1.2m of convertible debt. Not a buy to me as I need a clean balance sheet and profits but one to keep an eye on.
10) Victory Square Technologies Inc.
Investment company with investments made in the tech. sector and consilidates a bunch of their investments on to the financials. Has a market cap of $45.7m but they own a 64% stake in Hydreight Technologies (Ticker is NURS.V) that is worth roughly $60m as the stock has gone crazy the past year. They also own other investments that I am sure are worth more. Could be interesting if they ever try to unlock some of this value.
Honourable Mentions
—> Grown Rogue, Plaintree Systems Inc, Royalties Inc.
I am hoping to do the TSX Venture exchange in February/March. The CSE only has about 771 listings whereas the TSX Venture has I think triple that amount so it will take me a bit longer to do obviously.