TSX Bargain Hunting – Stock Screen Results

I’ve been doing some shotgun approaches to seeing what’s been trashed in the Canadian equity markets. Here is a sample screen:

1. Down between 99% to 50% in the past year;
2. Market cap of at least $50 million (want to exclude the true trash of the trash with this screen)
3. Minimum revenues of $10 million (this will exclude most biotech blowups that discover their only Phase 3 clinical candidate is the world’s most expensive placebo)

We don’t get a lot. Here’s the list:

September 1, 2017 TSX - Underperformers

1-Year performance -99% to -50%
Minimum Market Cap $50M
Minimum Revenues $10M
#CompanySymbolYTD (%)1 Year (%)3 Year (%)5 Year (%)
1Aimia Inc.AIM-T-74.89-72.74-86.9-84.6
2Aralez Pharmaceuticals Inc.ARZ-T-73.77-76.19-56.6
3Asanko Gold Inc.AKG-T-62.86-71.4-38.8-58.1
4Black Diamond GroupBDI-T-58.41-56.78-93.7-91.4
5Cardinal Energy Ltd.CJ-T-60.91-51.8-79.7
6Concordia InternationalCXR-T-42.81-85.24-95.6-69.2
7Crescent Point EnergyCPG-T-53.04-56.72-80.8-79.1
8Dundee Corp.DC.A-T-51.6-51.76-84.7-87.4
9Electrovaya Inc.EFL-T-42.72-61.8822201.2
10Home Capital GroupHCG-T-55.42-52.16-74.3-45.2
11Jaguar MiningJAG-T-54.31-62.14-55.8-99.7
12Mandalay Resources CorpMND-T-53.75-66.36-65.7-52.6
13Newalta CorpNAL-T-56.9-59.68-95.5-92.7
14Painted Pony EnergyPONY-T-64.97-60.94-77.4-65.9
15Pengrowth EnergyPGF-T-60.62-59.57-88.9-88.6
16Redknee SolutionsRKN-T-51.92-64.95-78.2-41.4
17Tahoe ResourcesTHO-T-53.04-66.27-78.2-66.9
18Valeant Pharmaceuticals Intl.VRX-T-15.25-56.68-87.4-67.3
19Western Energy ServicesWRG-T-61.61-55.09-88.6-82.7

Now we try to find some explanations why this group of companies are so badly underperforming – is the price action warranted?

1, 8, 10 and 18 are companies with well-known issues that have either been explored on this site or obvious elsewhere (e.g. Valeant).

2 is interesting – they clearly are bleeding cash selling drugs, they have a serious amount of long-term debt, but they have received a favorable ruling in a patent lawsuit against (a much deeper-pocketed) Mylan. There could be value here, and will dump this into the more detailed research bin.

3, 11, 12 and 17 Are avoids for reasons I won’t get into here that relate to the typical issues that concern most Canadian-incorporated companies operating foreign gold mines, although 12 appears to be better than 3 and 11. 17 has had huge issues with the foreign government not allowing them to operate their primary silver mine.

4, 13 and 19 are fossil fuel service companies.

5, 7, 14 and 15 are established fossil fuel extraction companies with their own unique issues in terms of financing, profitability and solvency – if you ever predicted a rise in crude oil pricing, a rising tide will lift all boats, but they will lift some more than others (specifically those that are on the brink will rise more than those that are not). 14 is different than the other three in that it is mostly natural gas revenue-based (northeast BC) which makes it slightly different than the other three which warrants attention.

6 If you could take a company that clearly makes a lot of money, and drown it in long-term debt, this would be your most prime example. It just so happens they sell pharmaceuticals. Sadly their debt isn’t publicly traded but if it was, I’d be interested in seeing quotations.

9 A cash-starved company selling a novel lithium-ceramic battery at negative gross margins would explain the price drop. Looks like dilution forever!

16 Lots of financial drama here in this technology company. They went through a debt recapitalization where a prior takeover was interrupted by a superior bid. Control was virtually given at this point and the new acquirer is using the company for strategic purposes that do not seem to be in line with minority shareholder interests. A rights offering has been recently conducted that will bring some cash back into the balance sheet, but the underlying issue is that the financials suggest that they aren’t making money, which would be desirable for all involved.

7 thoughts on “TSX Bargain Hunting – Stock Screen Results”

  1. I find Jaguar (JAG.TO) pretty interesting. Resolute Funds basically did a market sell order in late July for 35m shares and took it from 40 cents to the current level.

    I always find mining stocks tricky but if I believe management (perhaps tough to do since they missed so badly in H1), it looks like it trades around 1x 2018E cash flow. FCF is another story as they are using all operating cash flow to sustain and expand operations/reduce costs.

    It might make an interesting takeover target because an injection of capital could expand production and reduce costs significantly.

  2. “an injection of capital could expand production and reduce costs significantly” – this has been the bane of any gold mining investor since… the start of gold mining investment.

    All I see is a company that is dumping cash into a hole in the Brazilian ground with the only bail-out solution being a material increase in the price of gold (which in that case they look like geniuses). Surely there are better candidates for investment if one anticipates an increase in the price of gold.

  3. Yeah no doubt. I just haven’t found that many at this valuation but I own a few others. I definitely recognize that a significant loss (potentially 100%) is possible but the current gold price and a multiple of around 4x EBITDA might be a triple. The largest shareholders just bought a private placement at 44 cents a few months ago including Resolute before they turned around and sold it a few weeks later. 35m shares is a lot to chew through!

    I hate investing in resource stocks but I’m finding a lot of “value” there now.

  4. @Safety: I hate resource stocks likely for the same reason as yourself. Also I have no edge predicting underlying commodity prices.

    @TheThumbTwiddler: Thanks for the link. Stupid me, I didn’t see them on FINRA and after seeing your post checked them on IB and there is at least some wide quotations. Unsecured (April 2023s) have a $1M ask at 18 cents on the dollar (fair value is likely less!). Secured 1st Lien is asking 78.5 cents and this group is part of a $2.2 billion company of debt. The company itself is making huge amounts of money, but more than that goes out the door in debt payments. Will be interesting to see how the recapitalization on that one will work.

  5. @Sacha I believe they will do what Valeant is doing. The two are in a similar pickle after all. They’ll sell off some assets. However, they are facing the added problem of having bought products that are not as stable as the Valeant portfolio. This most recent quarter their revenues fell ~30% just on the basis of new competition.

    The terms of their debt aren’t too bad for now. On the vast majority of it ~($3.6 B) there are no principal repayments until 2022 at least. The $1.8 B linked to the UK acquisition is interest only and cheap (LIBOR+margin). No principal repayments unless they have ‘excess cash flow’ (formula in agreement)

    Their big problems are the Bridge Loans ($180 M) which, if unpaid in full by Oct, 2017, will increase interest to 11.5% from 9%, and the unsecured notes which require principal repayments of $2.5 B in 2022-23.

    I think they’ll sell their Covis pharma portfolio. It’s linked to $735 M in debt (due 2023) and has royalty payments to be made on revenues, not profits. Saves them $50 a year in interest and probably boosts margins somewhat

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