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Q3 2019 Portfolio Update

Here is my Q3 2019 portfolio update. At the end of each year, I will give a comparison of how my portfolio and each individual stock performed compared to the S&P 500 index and the S&P/TSX index. Prices are as of the first week of July 2019

I have not included the cumulative return for my portfolio for the quarter. I think judging your portfolio based on quarterly returns is far too short-sighted and not something I am going concern myself with.

Q3 was a mixed bag. Well Health Technologies was an excellent performer while iAnthus and Datable Technology lost huge amounts of value. I exited some positions near the end of the month and add three new positions: Atlas Engineered Products, Crescita Therapeutics and Namsys.

Atlas Engineered Products has been on my watch list for a while. I finally jumped in however I chased the stock price which in hindsight was a mistake. This is another case of getting caught up in a little run and thinking I have to get in now. I like the company long term so this should only be a short term mistake, which I’d like to learn to avoid. My analysis of Crescita Therapeutics is found here.

I’m still working on the format for this blog post. In the last quarter, I recapped all of my positions. Instead, I will recap positions I’ve entered or exited to be more concise on the direction my portfolio is taking.

To see my portfolio click here or the My Portfolio tab at the top.

Q3: Exited Positions

Good Life Networks graphic

Good Life Networks (GLN.V) Market Cap: $1.3 million

Not much more I need to say about this one. You can see the reasons why I got out of Good Life Networks here. Since selling, GLN halted their shares, they opened them back up for trading and traded down to $0.02, and then were halted again. I am glad I finally made the decision to sell however I recognized the red flags months ago and held on. I questioned management but bought into the Tormont research which was not impartial. I made a decision to sell but wanted to squeeze a couple more cents out of the deal and ended up losing. Ian Cassel says it’s not just about finding winners, it’s about identifying when you are wrong quicker. By finally selling GOOD I removed a lot of risk from my Q3 2019 portfolio.

Seven Aces logo

Seven Aces Limited (ACES.V) (QNIIF) Market Cap: $72.6 million

Seven Aces is a compelling story however management compensation is off the rails. In 2018 CEO Manu Sekhri was paid $3 million, $1.5 million of which was a bonus. This year CEO Sekhri was paid a new discretionary annual incentive of $1,468,999 in the first half of 2019. The incentive and fee structure are out of wack. The CEO gets a cut of every acquisition or disposition of the company makes in addition to performance incentives tied to acquisitions. In addition to Sekhri, the CEO of Lucky Bucks was also paid $400,000. Lucky Bucks is a partially owned subsidiary of Seven Aces.

Management incentive structures that are overly complicated are a red flag. The CEO of Seven Ace’s CEO is paid extremely well with a complicated and overly generous incentive plan. While completing acquisitions is a vital part of their business plan I fail to see the alignment with shareholders when the CEO of Seven Aces gets a cut of every acquisition. Isn’t this part of being the CEO of a company, making and structuring acquisitions.

Xpel Inc Logo

Xpel Inc (XPEL) Market Cap: $264 million

Xpel was one of my larger positions. Once they moved to the Nasdaq from the TSX Venture their stock started to run after trading sideways in the $5 range since slowing revenue in early 2019. After Q2 financials were released in August XPEL jumped to $8.30. I sold at $8.30 expecting XPEL to slowly trade back down to the $7 level that it was trading at. Boy was I wrong. XPEL peaked at $13 and has come back down to $10 range.

My main concern with XPEL is an economic slowdown will result in lower luxury car sales. XPEL’s automotive film products are used primarily on luxury cars. XPEL is expanding into other film products however this will take time. My fear is that XPEL is more cyclical than most believe however there are much more sophisticated investors who have owned XPEL for years and are still very bullish on it.

Q3: New Positions

Atlas Engineered Products logo

Atlas Engineered Products (AEP.V) (APEUF) Market Cap: $20 million

Atlas has been on my watch list for a while. Atlas is a newly listed company that is acquiring and operating profitable, well-established companies in Canada’s truss and engineered wood products industry. Their business model is a roll-up strategy to consolidate the roof truss industry in Canada. What I like about Atlas:

  • Attractive acquisition pipeline (a lot of their potential acquisitions are having difficulty succession planning, leads to attractive multiples);
  • Q2 was a record quarter, 45% revenue increase quarter over quarter, 127% year over year;
  • Profitable Q2 with profitability projected for the rest of the year;
  • Gross margin increasing, EBITDA margin of 15-20%;
  • Efficiencies of scale starting to come in (new lumber supply agreement, technology platform standardized across all locations);
  • Passionate leadership laser-focused on profitable growth and disciplined M&A;
  • Expanding uses for engineered wood products.

Crescita Therapeutics Logo

Crescita Therapeutics (CTX.TO) (CRRTF) Market Cap: $18.7 million

You can see my full write up on Crescita here. Some of the things I like are:

  • Undervalued prescription drug Pliaglis with lots of room to grow sales;
  • A very strong balance sheet with $11.7 million in cash;
  • Potential for additional upfront and milestone payments for Pliaglis;
  • Experienced management team;
  • Underutilized manufacturing facility;
  • Low share count and share buy-back ongoing;
  • Cashflow positive.

Namsys logo

NamSys (CTZ.V) (NMYSF) Market Cap: $21 million

Namsys sells fully integrated cash management software that reduces cost and time associating with handling money. They partner with the largest cash in transit operators to deploy their software throughout the cash management industry. Their business model is a pure software-as-a-service model with a large portion of the revenue being recurring revenue. What I like about Namsys:

  • Very high recurring revenue, 80+%;
  • Operating margins 40+%;
  • Partnership with the largest cash-in-transit operator (Brinks) in the world;
  • Low share count, 27.3 million, with no warrants or options;
  • Excellent balance sheet, no debt with $4 million in cash;
  • Expansion underway into new countries

Q3 2019 Portfolio Update: Biggest Movers

iAnthus logo

iAnthus Capital Holdings (IAN.CN) (ITHUF) Q3 Return: -35.5% Market Cap: $299 million

The entire global cannabis sector is under siege and iAnthus is one of the hardest hit. In Q3 iAnthus’s share price declined from $4.46 to $3.29. The share price has continued to tank. There are some catalysts on the horizon for the U.S. cannabis space. The Safe Banking Act cleared the House of Representatives and now must pass the Senate. If it does pass I hope this allows iAnthus to recapitalize at a much more attractive figure. I’m way down on iAnthus but plan to hold. iAnthus accounts for most of my losses in my Q3 2019 portfolio. If sentiment around the cannabis spaces swings more favourable and iAnthus finishes their buildout their share price may return to the $7 area. Finger crossed anyway.

Well Health Technologies logo

Well Health Technologies Corp (WELL.V) (WLYYF) Q3 Return: 62% Market Cap: $128 million

Well Health Technologies has been on a terrific run. The stock price rose 62% in the quarter after they announced a major acquisition. Well purchased KAI Innovations, another electronic medical records provider. This marked Well’s entrance into Ontario which garnered a lot of investor attention. With the backing of mega investor Sir Li-Kashing and successful CEO Hamed Shabazi Well has a significant following.

The business model is not completely defined but I believe that there is a huge opportunity for Well. The family doctor/ medical clinic operations in Ontario are a horrible experience. Wait times are awful and just booking an appointment is a hassle. Well is looking to improve this experience by introducing technology to make it easier for doctors to treat their patients. This will, in turn, improve patient outcomes and make everything more efficient.

Another big priority for Well is telehealth. Again, I think this is a massive opportunity for Well. Telehealth allows patients to see a doctor using their computer or mobile phone saving both time and money. Well has been consistently raising money and I hope they start to develop a telehealth offering.

Watchlist

Polaris Infrastructure Logo

Polaris Infrastructure Inc (PIF.TO) Market Cap: $205 million

Polaris Infrastructure Inc. is a Canadian-based and publicly-traded company engaged in the
acquisition, development and operation of renewable energy projects in Latin America. Polaris Infrastructure operates several energy projects in Central and South America.
These include both Geothermal and Hydroelectric energy projects.

Polaris in an interesting company that is growing its presence in South America. They have acquired and are building out hydro assets in Peru that will greatly increase their energy production.

Boardwalktech logo

Boardwalk Tech Software Corp. (BWLK.V) Market Cap: $4.99 million

Boardwalktech Software Corp. develops and provides enterprise blockchain software products and services worldwide. The company provides Boardwalk Enterprise Digital Ledger Platform, which enables customers to automate manual business processes and turn into enterprise digital applications.

Boardwalk’s technology is very interesting and their client list is very impressive. They have a low share count however they have no cash and are likely to need to raise money again before they reach profitability. I’ll continue to watch.

Xebec Adsorption Logo

Xebec Adsorption (XBC.V) Market Cap: $109 million

Xebec provides gas purification, generation and filtration solutions for the natural gas, field gas, biogas/renewable natural gas, helium, hydrogen. Xebec designs, engineers and manufactures innovative products that transform raw gases into marketable sources of clean energy.

XBC is an interesting company in the renewable energy space. They are growing both revenue and net income at a very healthy rate. I missed an attractive share price in the $1.30 range and if it falls to near that level again I may start a position. Xebec is involved in submitting a proposal for a project in my home town of London for our dump. I’m hoping to speak with someone from the city as they make their decision to get a real-world perspective on Xebec.

Q3 2019 Portfolio Update

There has been more turnover in my portfolio than I had planned. This is due to my changing and evolving investment philosophy and a couple of impulsive buys. Datable Technology is the glaring example of buying something after reading some tweets and not fully researching it. I hoped to ride the momentum but it has plummetted since. I chased Atlas’s share price after some good news. As a result, I kept increasing my bid and didn’t wait for the share price to come down to my bid and got impatient. I’ll try to avoid this in the future but in the long run, this should only cost me 10%. I hope to stop making this mistake but on a long term hold it’s not devastating.

I exited a few positions where the red flags were too large to ignore any longer. Good Life Networks was another learning experience but I am proud of my decision but I needed to act sooner instead of trying to squeeze a couple of hundred dollars of profit from it. This put my whole position at risk because GOOD soon imploded.

I am happy with the composition of my portfolio and the new companies I have added. It has been a very volatile year and my Q3 2019 portfolio was more of the same. Q3 financials for the microcap companies I own should be out in the next month. I’m looking forward to seeing their progress and will write up some summaries of their financials.


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This Post Has 2 Comments

  1. SPENCER

    Hi Blair, despite the loses and unforeseen volatility in the market I like the way you are approaching these quarterly emails. It’s all about the journey, we know this. At the very least you appear to be learning a lot about the market and of yourself. As a micro cap/small cap investor I’ve done poorly of late. That said, I’ve still learned an incredible amount that I otherwise wouldn’t have been able to glean without first getting into the weeds. Keep up the great work!

    1. Blair

      Hi Spencer,
      Thanks for the kind words and for visiting my blog. I appreciate it.
      I’m just trying to keep getting better and I build my investing network. Feel free to reach out anytime with companies you like or anything really.

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