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Edward Vranic, CFA
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I am a private investor based out of Toronto, Canada. I have been investing since 2003, first with a focus on mining and resource stocks but more recently I have focused on tech stocks and deep value stocks, usually trading in small caps listed on the TSX exchange in Canada. Since 2006 I have... More
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  • An Oversold Canadian Biotech That May Double From Here

    When Oncolytics Biotech Inc. (NASDAQ:ONCY) tanked in late September, I called it a potential tax-loss candidate looking to rebound once it finds a bottom towards the end of the year.

    (click to enlarge)

    Unfortunately I didn't act on my intuition when it dipped under 50 cents to at least open a starting position and missed out on a potential double as it climbed back over $1 before settling at its current price of $0.85 on the TSX.

    Another oversold, dual-listed biotech that isn't dead in the water yet but is trading as such is iCo Therapeutics Inc. (OTCQX:ICOTF) which trades on the TSX Venture under the symbol ICO. The company tanked on June 9 from 31.5 cents to 9.5 cents on poor results from its iCo-007 Phase 2 iDEAL Study and it has been a Venture dog and tax loss candidate since. This time I did not let an oversold biotech get away from me as I have purchased shares in expectation of at least a double to 10 cents.

    The company announced the advancement of their Oral Amphotericin B Program which includes "approximately $700,000 of funding and technological advice from the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP), under the Canadian HIV Technology Development (CHTD) Program."

    ICO has a $3.8M market cap when trading at 4.5 cents on the TSX Venture and has a strong cash position thanks to a $6.75M equity raise at 42 cents in January.

    (click to enlarge)The balance sheet as of June 30 shows $6.6 million in current assets against $2.7 million in current liabilities for a $3.9 million working capital position. Q3 financials are due at the end of November so it will be crucial to look at the company's updated burn rate as the failed study wraps up and the company tries its luck in its new initiatives.

    The $1.9 million of other investments comprise of 654,486 shares and 123,649 warrants of Immune Pharmaceuticals, Inc. (OTCQX:IMNP) which hovers around $3 in price right now. The value of this investment changes daily, but the shares are currently worth $2 million while the Black-Scholes Option Calculator shows that the warrants are worth $1.394 each or $172K in total based on the market/company parameters of a stock price of US$3.00, strike price of US$2.63, term of 1.15 years, volatility of 104.8% and a risk free interest rate of 0.29%.

    So the current market value of the investment holding in IMNP approaches $2.2 million USD or $2.5 million CDN. Because such a high percentage of ICO's market cap is in IMNP, expect ICO to move in lockstep with IMNP upon any increase in stock price.

    Between the $700K grant, the IMNP shares and the working capital position in excess of the market cap, the company has enough going for it to justify at least a double in stock price. The cash position should ensure enough funds to work with at least until the end of 2015, but further judgment needs to take place once Q3 financials are out. After that, I may purchase more shares.

    Disclosure: The author is long ICOTF.

    Tags: ICOTF, IMNP
    Nov 17 2:20 PM | Link | Comment!
  • Would I Buy PJT Or MBO Right Now?

    I received a question on Mobio Insider over whether I would buy 10K shares of Partner Jet (PJT.V) or 100K shares of Mobio (MBO.V), assuming the former could be bought at 30-40 cents and the latter at 3-4 cents.

    Well recently I have bought MBO shares and not PJT so that's the simple answer but keep in mind my unique situation. My small investment in PJT is worth more than my large investment in MBO. The amount of money I put into PJT is 20x smaller. I'm simply following basic investment philosophies/traps of averaging down. That may not apply for other investors.

    If someone asked me what will eventually happen first - PJT hitting $10 or MBO $1, I would say PJT hitting $10. But if someone asked me if Mobio will hit 10 cents or if PJT will hit $1 first, that I'm not so sure about. Each company has a number of factors that work in favor compared to the other in terms of short term price appreciation/risk.

    News factor

    This advantage clearly goes to MBO. PJT just released Q3 and won't release the annual report until March. MBO will have two financial results out by then, with a third out just a few days after PJT's annual report. MBO also has a history of news releases. PJT has been very silent over the years. If you want catalysts, MBO has the advantage. But keep in mind catalysts could be positive or negative.

    Business risk

    This advantage goes to PJT. Several times in the company's financials it has mentioned it has sufficient capital to meet its needs going forward. MBO has also mentioned through Mike Edwards or the IR firm that there is no need to finance in the foreseeable future. But MBO is not profitable yet so there is no 100% guarantee that it will never need financing ever again. MBO may or may not have a going concern note attached to it on its next audited results, depending on the burn rate.

    Other than the remote possibility of a plane crash, PJT has very little business risk. The company is profitable, has outstanding revenue growth, improving margins and has long-term contracts. At this stage, myself and others are just speculating how soon MBO will turn a profit. The company hasn't done so yet and there's no guarantee it will. PJT would have to falter in its business to lose profitability. While there are no guarantees in life, that scenario seems highly unlikely given the trend over the last 8 quarters and highly experienced and respected management team.

    This is where the short run performance between the two is ambiguous but in the long run PJT wins out - because it has much lower downside risk.

    Liquidity

    MBO shares are far more liquid than PJT. While MBO has lots of buyers, it also has lots of sellers. With PJT when you buy in at 30, you take the risk that the next sell could tank it to 20. But there's not a lot of sellers either so a buy at 30 could mean one person's $5K investment into PJT at market could spike the stock to 40-50 cents.

    Because of the business prospects over the long term, if you buy into PJT at 30 cents and it drops 50% to 15, you still own shares in a profitable and growing company with an improving balance sheet and no debt (only trade payables). You can still sleep at night with that 50% loss knowing that one day there will be a catalyst to cause it to go well into the black for you. While I believe MBO will turn a profit soon, no one else can 100% guarantee it, myself included.

    I don't want to say which stock is definitely the better one for a certain investor to buy. I want to lay out the advantages of each and let everyone decide for themselves.

    Nov 11 1:12 AM | Link | 1 Comment
  • How A Small Canadian Tech Company Is Going To Facilitate Chinese E-Commerce And Mobile Payments

    Edit: After speaking with Peak's CEO Johnson Joseph, he suggested a few minor changes to the article for more clarity around LongKey's business plan. I have implemented these changes and the overall tone of the article remains the same.

    Peak Positioning Technologies Inc. (OTCPK:PKKFF) is a small tech company based out of Montreal which through its subsidiary LongKey Hong Kong Limited is looking to facilitate eCommerce business for entrepreneurs in China. It trades on the TSX Venture exchange under the symbol PKK.

    Peak currently owns 4% of LongKey and intends to close a deal pending financing that will see it own a majority 51% stake in the company by the end of the year. LongKey has developed a relationship with the Industrial and Commercial Bank of China [ICBC], China's largest bank in order to offer financing and business solutions to eCommerce entrepreneurs who wish to grow their existing businesses on Alibaba's (NYSE:BABA) Taobao online marketplace as well as other eCommerce platforms.

    Reviewing Peak's executive summary presentation and LongKey's website outlines the issues small businesses face when trying to obtain loans to grow their online businesses and what LongKey can offer to get them through those hurdles. Many eCommerce distributors go to manufacturers and buy goods at wholesale and then try to sell them on websites like Taobao. The biggest hurdle that these distributors face when trying to get funding is that the banks can't get the relevant data about their operations to determine whether they should qualify for loans or not, and are therefore refused the loan needed to expand their business. LongKey's platform with the ICBC allows those entrepreneurs to log their product orders with registered manufacturers. The ICBC can then analyze the data to determine if the business is qualified to receive appropriate funding. In addition to the platform, LongKey can provide the businesses with a number of other value-added services.

    LongKey charges the distributors $180 a year to access the Internet Financial Services (IFS) platform with the ICBC. Manufacturers listed on the site pay a one-time set up fee of $1,800 and an annual $1,800 fee that is waived if they have at least 10 distributor partners registered on the IFS platform. For manufacturers, registering on the IFS platform is necessary even if they have no need for a loan from the ICBC because it acts as a tool to find distributors for their products. Not being a part of the platform may cost them current distributors as they would have to jump ship to a manufacturer on the ICBC platform in order to collect the needed data for the loan.

    On page 9 of the investor presentation, Peak has outlined LongKey's client projections out to 2017:

    (click to enlarge)

    Right now the client base is small, but with time Peak and LongKey will leverage ICBC's client base to greatly expand theirs. Based on the outlook and the revenue parameters outlined above, I estimate revenue to be as follows:

    My only assumption was the % D<10 line which represents the percent of manufacturers which have less than 10 distributors on the platform and are therefore charged the set-up fee. By the end of 2017, $19.3 million in revenue is expected to be from manufacturer annual fees, $3.1 million from set-up fees and $32.4 million from distributor fees for total revenue of $54.8 million assuming the client base targets are met. I take the average amount of distributors for my revenue estimate because I assume they will be added throughout the year.

    Details of the LongKey Transaction and Quickable

    On May 21, Peak provided details on the LongKey acquisition. The deal was valued at $10.2 million with $2 million to be paid in cash and the rest to come in the form of 82 million Peak shares deemed at a price of 10 cents. As part of the deal to secure the cash, Peak announced a private placement of 20 million units at 5 cents each. Because the market price has been below 5 cents, management has found it a challenge to fill the placement but can be commended for attempting to undertake financing above market prices. CEO Johnson Joseph has participated in the placement. The company has reduced the placement to $500K for now but I assume the remaining $500K will eventually need to be filled at some point in time.

    Once the financing hurdle is out of the way, the company will have about 220 million shares with warrants at 10 cents. LongKey holds the following according to the news release:

    "For the 12-month period ended December 31, 2013, LongKey Soft's audited year-end financial statements showed a net loss of CAD$841,273 on revenues of CAD$3,228,490, compared to revenues of CAD$1,774,940 in 2012, representing a revenue increase of 81.9% in 2013. As of December 31, 2013, LongKey Soft's financials showed current assets of CAD$1,038,510 and total assets of CAD$6,474,190 against current liabilities of CAD$821,510 and no long-term liabilities."

    Half of that would belong to Peak going forward.

    Peak also purchased Quickable.com for $2.5 million in a mix of cash and shares back in March. Quickable.com is a website and app designed to make the process of selling goods online quick, convenient and simple with a capability of selling from your Smartphone on multiple eCommerce platforms concurrently. More details be found in my article about it here. In addition to the initiative explained above, Peak has licensed Quickable to LongKey so that LongKey can present it to ICBC as a solution to facilitate mobile e-Commerce transactions between the bank's clients. Peak also reserves the right to continue on with Quickable's US business which already had over 115,000 registered subscribers.

    Between these two business transactions this year, Peak will hand over the working capital and technology necessary to make LongKey a significant eCommerce and mobile payments player in China while teaming up with the largest bank in the country. Peak maintains majority control of LongKey and will have ownership of 51% of those revenues. BABA has a market cap of $250 billion. With 220 million shares after the transaction closure and at a 2 cent share price, Peak has a market cap of $4.4 million. For those investors looking to invest in a speculative Chinese eCommerce opportunity with the firepower to grow into a significant player, LongKey is a prime candidate for such an investment and Peak, through its OTC symbol of PKKFF or TSX Venture symbol of PKK is the publicly traded vehicle available to invest in LongKey. I expect Peak to be trading north of 10 cents at this time next year.

    Disclosure: The author is long PKKFF.

    Tags: PKKFF, BABA
    Nov 04 9:12 AM | Link | 5 Comments
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