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2021 Portfolio Update

Welcome to my 2021 portfolio update. 2020 was definitely a roller coaster and I expect when I write my 2022 portfolio update, it will be similar. Thankfully my family has not been negatively affected. I continued to work, but things were pretty crazy in the spring due to very low staffing levels.

I write this 2021 portfolio update optimistic about the companies I own but concerned about the amount of money that has been pumped into the financial system. No one is going to confuse me for an economist but I have no idea what effect all the government spending will have years from now.

During the big spring draw down I thankfully had some cash to deploy. This was a big help while things were getting bombed out. This wasn’t planned I just got lucky timing-wise.

I did very little selling this year but at times in 2020, I wanted to “break up” with some of my holdings. I didn’t sell but held tight as the companies I owned weathered the first wave of the pandemic. My ability to remain patient and not get too emotionally attached to the companies I own I feel is my greatest advantage as an investor. When a position is in decline I have been able to remain patient while deciding what to do.

But investing is hard. I’ve written about Datable Technology in previous portfolio updates. I bought it impulsively. The company then diluted itself into oblivion as they weren’t generating cash. I held on to the promise from management that revenue was increasing in 2020. Then they raised cash and diluted shareholders again. I should have recognized my mistake much sooner. In the end, I cut my losses after trying to recoup some money. In hindsight, this still feels like the correct decision. Why hold a company I have no faith in? Of course, Datable has more than doubled from the price I sold my position at, but hey, that’s investing.

2021 Portfolio Update

There was some change compared to my holdings at the end of 2019. My 2019 portfolio update can be seen here. The biggest expenditure of brainpower was when I sold Crescita Therapeutics. I wrote a post which can be seen here.

2021 portfolio
2021 Portfolio Update

2020 Returns: 35%

Vanguard S&P 500 Index ETF (VFV.TO): 15.79%

FTSE Canada Index (VCE.TO): 4.42%

For my 2021 update, I am going to take a look at each of my holdings and describe my investment thesis as briefly and succinctly as possible. I will add a couple of positives and negatives about each company. I’ll also point out the metrics I think are most important for each company.

Well Health Technologies logo

Well Health Technologies (WELL.V)

Thesis: The family doctor care system in Ontario is miserable. WELL is using technology to make this system more efficient for doctors while creating better patient outcomes. Billionaire Li Ka-Shing has financed the company and CEO Hamed Shahbazi sold his last company to PayPal indicating past successs.

Pros

  • CEO Shahbazi has found and executed numerous acquisitions leading to significant revenue growth;
  • Adoption of WELL’s telehealth service accelerated due to COVID-19.

Cons

  • With numerous acquisitions comes complex integration;
  • Competition is increasing with new companies entering healthcare. This could drive up acquisition multiples.

Metrics I’m watching:

  • Revenue growth;
  • Gross Profit;
  • Operating expense reduction once acquisitions become integrated
Polaris Infrastructure

Polaris Infrastructure Inc. (PIF.TO)

Thesis: Polaris will continue to use the cash generated by its Nicaragua geothermal assets to develop and acquire additional renewable energy assets and pay down debt. Polaris also trades at a discount to peers due to exposure to South America.

Pros

  • With a conservative dividend payout ratio of 47% in the last twelve months leaving cash to service debt and invest in new projects;
  • The average remaining life of purchase power agreements is 18 years providing great insight into future cash flows.

Cons

  • There is an additional risk due to assets being in Nicaragua and Peru. These are developing countries with their own unique risks;
  • Execution issues at the El Carmen facility are concerning.

Metrics I’m watching:

  • Power generation from San Jancinto geothermal plant in Nicaragua;
  • Total power generation;
  • Operating cashflow;
  • M&A progression
Namsys logo

Namsys (CTZ.V)

Thesis: Compounder type of business. High recurring revenue coupled with consistent growth and an asset-light business model. Namsys continues to expand alongside its biggest customer, Brinks. Namsys’s products allow cash to function like credit/debit saving customers money and increasing the functionality of cash they collect as payment.

Pros

  • Consistent revenue growth requiring little reinvestment into the company
  • Pristine balance sheet loaded with cash and no debt;
  • COO Jason Siemens has held nearly every position in the company.

Cons

  • Concentration risk with Brinks is both positive and negative. Brinks is 40% of revenue;
  • Long term employee bonus plan is casting a shadow over the company and needs to be resolved (while writing this Namsys resolved the long-term bonus plan);
  • Key person risk, if COO Siemens leaves that is a thesis altering change.

Metrics I’m watching:

  • Consistent revenue growth;
  • Operating margin;
  • Resolution of the long term employee bonus plan;
  • Brinks rollout and comments of Brinks Complete.
Atlas Engineered Products logo

Atlas Engineered Products (AEP.V)

Thesis: Atlas provides builders with the necessary materials to get buildings framed faster saving the builder money. Pre-manufactured wall panels allow a builder to get to lock up in 1/3 of the time as traditional framing. Atlas is starting to create scale advantages single truss builders cannot. Atlas needs to make acquisitions to fuel growth. This must be done creatively and efficiently.

Pros

  • A fragmented industry with no national player other than Atlas;
  • Expansion of pre-manufactured wall panels in BC should drive organic revenue growth;
  • Microcap investor Paul Andreola has joined the board.

Cons

  • Executive compensation is very high. CEO and VP total compensation was over $1 million in 2019;
  • A levered balance sheet with $7 million in debt and $2.6 million in cash;
  • Lumber price volatility has affected profitability in 2020.

Metrics I’m watching:

  • Revenue growth;
  • Cash and debt on the balance sheet;
  • Expense reduction and improving cash flow;
  • Acquisitions.
Amazon logo

Amazon (AMZN)

Thesis: Amazon was the very first company I purchased. They are disrupting industries all over the world cloud computing, health care and real estate. Amazon Web Services is hugely profitable and has been growing rapidly.

Pros

  • Optionality. Amazon generates revenue from various business segments and continues to disrupt additional industries;
  • Financial performance has accelerated even during the pandemic. 3 Year Annualized Growth Rates: Revenue 27%, Op Income 51%, Net Income 70%.

Cons

  • Amazon is a $1.5 trillion dollar behemoth. It is difficult to double a company of this size;
  • Amazon is trading at a very high valuation, 92x P/E.

Metrics I’m watching:

  • Revenue growth;
  • Disruption of new industries;
  • Possible regulatory headwinds for “breaking up big tech”
Riwi logo

RIWI Corp (RIW.V)

Thesis: RIWI is a founder-led company with disruptive technology. Their prediction of the 2020 U.S. election was much more accurate than popular polling data. RIWI has spent considerably on the sales staff and is in growth mode. They will need to execute to maintain the growth needed to support its valuation.

Pros

  • Patent protected technology that provides unique data sets from all over the world;
  • Super intelligent CEO/Founder Neil Seeman whose main focus is on generating cash;
  • Tight share structure with minimal dilution and high insider ownership

Cons

  • Missed goals by wide margins in the past (cash generation goal early in the companies life & revenue growth goals in 2019)
  • Insider selling has been constant and a large insider still has 2 million shares to sell.

Metrics I’m watching:

  • Revenue growth;
  • Operating margin;
  • Comments on the integration of the new sales staff.
Namesilo Technologies Logo

Namesilo Technologies (URL.CN)

Thesis: Namesilo recently announced the sale of its operating asset, Namesilo domain service. If the deal closes Namesilo will be comprised of a large ImmunoPrecise holding and a legendary Canadian microcap investor, Paul Andreola, as CEO. The bet is on Paul completing the sale of Namesilo and putting the cash to work.

Pros

  • Accomplished microcap investor CEO Paul Andreola. He understands how microcap companies create value for shareholders;
  • ImmunoPrecise’s share price and business have accelerated. It seems positioned to continue to do well.

Cons

  • Recent raise was done to satisfy debt obligations. It was a very dilutive raise that nearly was avoided;
  • If the sale of the domain business is complete Namesilo is a holding company and will continue to trade at a discount to NAV.

Metrics I’m watching:

  • Completion of the sale of Namesilo domain business;
  • ImmunoPrecise (IPA & IPA.V) business performance;
  • Capital allocation of proceeds from Namesilo sale.
CO2 Gro logo

CO2 Gro Inc. (GROW.V)

Thesis: CO2 Gro will get its technology in front of enough growers to gain traction in the industry. The increased yield can pay for the technology often times in one harvest. This leaves substantial room for CO2 Gro to increase prices once some large growers adopt the technology.

Pros

  • Patented technology that increases yield and reduces pathogens. This creates a very clear value proposition for growers;
  • The company has trials underway with numerous large and influential growers. One of these growers buying systems for their greenhouses could be a big catalyst in 2021.

Cons

  • Management has missed their own guidance by wide margins in the past couple of years. They overestimated the pace of adoption;
  • Trials have been delayed for various reasons leaving investors waiting for positive results;
  • Close to zero revenue. Essentially a startup looking for its first big customer.

Metrics I’m watching:

  • Contract wins from current commercial feasibility studies;
  • Cash on the balance sheet;
  • New commercial feasibilities.
Kraken Robotics Logo

Kraken Robotics (PNG.V)

Thesis: Kraken has shown the ability to innovate and win contracts. They won contracts with the Danish and Polish navies. The recent raise was done to support the growth of their robotics as a service segment. 2021 should bring additional contract wins and the expansion of RaaS. As CEO Karl Kenny says “innovate or die”.

Pros

  • Proven ability to design world-class products;
  • Management that has shown the ability to win large contracts;
  • Passing extensive testing with International navies.

Cons

  • Long sales cycles;
  • The company felt the need to raise money to grow the Raas segment;
  • Competitive industry. Kraken completes with very large military suppliers.

Metrics I’m watching:

  • Revenue growth and contract wins;
  • Robotics as a service growth;
  • Product innovation.
BeWhere logo

BeWhere Holdings (BEW.V)

Thesis: BeWhere has been growing its recurring revenue base very quickly, 75% in 2019 and 56% so far in 2020. The launch of the BeMini tracking device should see increased sales due to its expanded applications. Internet of things industry is growing consistently providing industry tailwinds.

Pros

  • Recurring revenue growth that is very high margin;
  • New product launch with more advanced technology;
  • Industry tailwinds. The Internet of things industry is anticipated to grow by 21% from 2020 to 2028.

Cons

  • Hardware sales are done at very low, or even negative margins for large orders. This hurts profitability in order to grow recurring revenue;
  • Share count has grown rapidly since 2016. BeWhere should be self-funding going forward but there is always a risk they dilute again.

Metrics I’m watching:

  • Recurring revenue growth;
  • Gross margin;
  • BeWhere Mini launch.

AirIq (IQ.V)

Thesis: Similar to BeWhere, AirIq is a bet on a growing Internet of Things industry. AirIq is building its recurring revenue while also selling its hardware at profitable margins. They recently launched a new in car camera.

Pros

  • Cannibal company. Shares outstanding are decreasing due to zero dilution and share buybacks;
  • Attractive valuation and solid balance sheet. No debt and $2 million in cash for a $10 million market cap;
  • IoT market expected to grow for many years.

Metrics I’m watching:

  • Recurring revenue growth;
  • Allocation of cash on the balance sheet;
  • IQ-Cam launch.

Cons

  • Recurring revenue growth is single digits, 8% in 2019 and 7% in 2020;
  • Can AirIq invest an adequate amount of money into its technology to keep it up to date;
  • Risk other IoT competitors compete away their hardware margins.

Network Media Group (NET.V)

Thesis: Spending on content required to fill streaming services offerings is increasing. Network should continue to capitalize on the demand for new content and build out its backlog. Network is growing its high margin distribution revenue for its intellectual property.

Pros

  • Very favourable industry tailwinds. Spending from streaming services will continue to increase;
  • NTE has been recognized numerous times for the quality of their documentaries;
  • Distribution revenue is growing from a growing library of IP.

Cons

  • Complicated accounting leads to confusion about the status of the company;
  • The backlog has shrunk in 2020 due to COVID. Management expects to announce new projects in the first half of 2021;
  • Lumpy revenues are generally not liked by the market.

Metrics I’m watching:

  • Backlog;
  • Distribution revenue growth;
  • Balance sheet health.

20201 Portfolio Update Conclusion

2020 was a roller coast ride. The stock market sharply declined in the spring but has fully recovered. What 2021 has in store I have no idea. I am happy with the performance of my portfolio in 2020. On twitter I’ve seen numerous people posting 100%+ returns in 2020.

While I didn’t come close to those types of returns I’ll take 35% return every year if I could. My goal is not to beat every investor out there but to generate a return that is proportionate to the amount of risk I am taking. I will continue to save and invest in quality Canadian microcaps and have added some new positions already in 2021.

I wish everyone the best of luck in 2021.


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