Seeking Alpha

Kuala Kaimi's  Instablog

Kuala Kaimi
Send Message
I am a serial entrepreneur who followed his dreams from a very young age. My career path found me in the food and beverage industry, golf course construction, landscape construction and excavation. I now invest my own funds full time and dabble in work.
My blog:
View Kuala Kaimi's Instablogs on:
  • Lonestar West Inc Positioned For Long Term Growth

    Lonestar is one of those equities you can put away and look at ten years later and know there will be a good return on your investment.

    Here is why in summary:

    Return on investment for shareholders has remained strong. Over a three year time period shares have risen a whopping 700%

    A very simple formula and business that is operating in a relatively new excavation segment dominated by high demand and not enough supply.

    The fleet of hydro vacuum trucks is growing rapidly each year from its beginnings in 2000 with one truck through to a projected 100 trucks this year. The compound annual growth rate on the fleet has remained over 30% for over five years and has accelerated the plan to over 60% CAGR for revenues in the past 3 years!

    Geographical expansion: the company is taking its success to new markets and now is pushing into the US states of Texas, California, and Oklahoma and a continued push in the four western provinces of Canada. A lot of untapped markets still ahead.

    The excavation method of hydrovacing is safer especially around sensitive utilities and environments in comparison to traditional mechanical digging equipment and has shown itself to be a cost effective alternative for project managers. The safe method of excavation for hydrovacs is the answer especially around utilities and buried hazards.

    Strong ownership and executive team led by Mr. Horvath who himself has a very large position and vested interest in growing value for shareholders ( over 7 million shares are held by Mr. Horvath).

    Design advantages of the hydrovac units give project managers another reason to chose Lonestar.

    The company has remained profitable beginning in 2011 while growing its revenues and fleet exponentially.

    The macro environment remains strong as pipeline expansion, sensitive infrastructure is replaced, and construction remains high in western Canada and the US.

    3 year stock performance

    (click to enlarge)

    LSI data by YCharts

    (click to enlarge)What a hydrovac truck does

    The company operates both vacuum trucks and hydrovac units. The first is simply a truck complete with vacuum and large storage tank that can be used to siphon materials quickly and safely. The second type of truck and comprising the majority of Lonestar's fleet combines high pressure water (and heated if frozen ground) to break up the material being excavated while the vacuum sucks the slurry safely into the storage tanks for removal. The advantage over typical excavation equipment is obvious. Water can safely break up hard ground around sensitive utilities and underground hazards. In addition, the operator has full control over the excavation and can accurately, quickly, safely and neatly complete the task. Mechanical methods of excavation of course are very dangerous in comparison.

    Analyst outlooks and reports

    There are two companies reporting on Lonestar West. Clarus and Industrial Alliance have both documented thorough examinations of the company and its strengths and weaknesses. In addition The Howard Group is a strategic investor relations site that has updates on Lonestar West Inc. The analyst reports can be found at the Howard Groups page under the analyst report section for Lonestar or alternatively on Lonestar West Inc website although the most recent reports are not there yet. The last link is from a Canadian TV commenter on the stock. Mr.Donville talks about Lonestar a minute into the segment. (The segment is from August 2013)

    Price targets and one year outlooks

    Industrial Alliance $4.25

    Clarus $5.00

    Share structure

    Outstanding shares21.8 mm
    Options1.7 mm
    Shares fully diluted23.5 mm
    Insider holdings9.5 mm


    Mr. James Horvath acts as President and CEO for Lonestar West and has been involved in the oil and gas industry for many years. He is still very involved with the day to day operations of Lonestar West after having grown the company from the ground up.

    Mr. Horvath also has a passion for racing

    The Business Strategy

    The push is on to grow revenues and capture market share while money is cheap to borrow. Expanding the customer base and relationships and loyalties formed along the way is job one at Lonestar. Operating in 4 out of 10 Canadian provinces and only 3 states in the US, the runway in front of this company is long. Aggressive growth while remaining profitable has been possible with a large credit facility in place and periodic share offerings as revenue and fleet expansion ramps up at a dizzying pace. New infrastructure has been on the agenda, as new bases of operations have been established in the US and the costs that affect the bottom line are temporary while the benefits are permanent. The US footprint mitigates some of the seasonal variances in Canadian winter operations and spring break up periods. The real growth is coming from the South with American dollar revenue which have an added benefit to Canadian companies. Naturally the margins are challenged by the rapid growth but the company remains committed to finding operational efficiencies now and later as the business matures.

    The Competition

    The number one operator in this space is Badger Daylighting (OTC:BADFF) with almost 800 trucks and a market cap of $1.5 Billion. Badger has prospered and led the way as the day lighting method of excavation has gained wider acceptance and recognition. The hydrovac system is still relatively unknown and unlike Lonestar, Badger now has half their fleet operating in the US. Lonestar strives to duplicate the success of their older sibling and offers an opportunity for an investor to get in at the ground floor of a very successful business model.

    The Comparison

    StatisticLonestar West IncBadger daylighting
    Price to Sales2.14.6
    Price to Book3.18.8
    Price to Earnings5436
    ROE14-20% (3 years)Over 20 % 9 years
    Revenue per truck/month$46,000$35,000
    Dividend YieldNone1%

    No one can argue that Badger is a great investment in its own right as the industry leader and investors pay a premium valuation to own it even when other high fliers suffer in market downturns but Lonestar offers value at a much lower Price to sales and book value and the margin differences are more a question of business maturity than that of bad management.

    For instance, Lonestar West supplies customers larger trucks and also bring in more revenue per truck so there is no reason to fear managements competency. Clearly the bottom line differences are a result of the business life cycle and Lonestar West will look to duplicate the success of Badger day lighting as it can focus on operational efficiencies vs todays infrastructure expansion.

    Earnings reports

    The year end of for the current period has been changed because the competitors reported on a different cycle and with this coming report the investor will have a more accurate comparison of financials from an identical time period. This periods financials covering the period up to December 31st, 2013 will be tabled at the end of April.

    Previous earnings statement by Mr. Horvath is found here.


    • Seasonal factors affect the revenues
    • Debt servicing and capital expansion can require dilutive share increases
    • Earnings and margins have been affected by the growth strategy
    • Liquidity has been very poor for the last several months


    The stock has had a pull back and a consolidation period and remains under the radar to a large extent. Sprott asset management and Mr. Donville will provide a large boost to the share price when they are pleased with the financial reports. The shares appear poised for a big breakout and rate a strong buy with for the long investor but current liquidity could pose an issue for traders who seek quicker exits. I see the stock as a five year or more investment and therefore I have a heavy weight to my portfolio and I am very confident of this businesses ability to reward me handsomely. The best part of the investment is how simple the business model is to understand and rate as an investment.

    Disclosure: I am long LSTWF.

    Apr 19 12:22 PM | Link | Comment!
  • Supreme Pharmaceuticals Inc. A New Entrant To MJ In Canada

    With all the excitement over Tweeds new listing, many less known names are springing up with stated intentions of entering the medical marijuana industry. The green rush attracts a wide assortment of interest but one that stands out is Supreme Pharmaceuticals Inc.

    Let's start with the CEO because investing in a company is often an investment in people and the management.

    Three years ago, David Stadnyk went from the front pages of the Vancouver Sun as that daily newspaper's acclaimed "Sports Mogul" to personal and financial downfall. Those days are over. Today, Stadnyk, now Director, President, and Chief Executive Officer of Patch International Inc., (PTII) runs one of Canada's fastest growing junior gas and oil exploration companies with major interest in the Biomedical research company Pharmaxis, the #1 performing stock in the pharmaceuticals area on the Australian Stock Exchange.

    Over the past twenty years David Stadnyk has accumulated a diverse background in corporate management and finance. The former tennis pro (he played Pete Sampras when Pete was only 14 years old) graduated from the University of British Columbia and went on to become a licensed stockbroker with Midland Walwyn Capital Inc., Yorkton Securities Inc., and Georgia Pacific Securities Corp. from 1988 to 1991. Stadnyk served as the chairman, president, secretary and a director of Goanna Resources, Inc., a publicly listed mining company from its inception in June 1997 to March 1999.

    In 2000, David Stadnyk invested his impressive profits from the stock market in a series of community projects close to home and in sports. Stadnyk created and served as the chairman of Grand Slam Radio which launched Team 1040, Vancouver's first 24-hour sports radio station. He also created and was the chairman of Starlight Sports & Entertainment, a sports entertainment company that owned the professional soccer teams Vancouver Whitecaps and Vancouver Breakers and created the lacrosse team the Vancouver Ravens from October 1999 to May 2002.

    That was then: "Then" being before 9/11. "I went from being in the spot light and making lots of money to having the stock market crash and having my wife leave me taking my kids with her. The market crashed and I crashed," remembers Stadnyk, who won Business in Vancouver's Under 40 Outstanding Achiever Award in 2001. "I wondered if I'd see the same people I saw on the way up back on the way down, and I did. Luckily, I was able to go to them during those frustrating times and get back on my feet again. I had unfinished business that I personally had to get to, that being in the form of charity work for children and for sports, and it fueled me."

    David Stadnyk had been the president of A.C. Global Capital Group Corp. from July 1999 to September 2001 where he partnered with successful oil and gas entrepreneur Mike VanDale. VanDale was the owner of the Calgary professional soccer team whom Stadnyk had become acquainted with during his many meetings while he was heavily into the sports business arena. Together, VanDale and Stadnyk created Arsenal Energy Inc. which started with very little oil production and now produces more than two thousand barrels of oil per day. Stadnyk's positive experience with VanDale and Arsenal Energy would become invaluable in his future business ventures.

    Come backs are always a thing to marvel and Stadnyk's is nothing short of miraculous. Taking $200,000, a wing-and-a-prayer, Stadnyk went to Australia and began convincing a Bio-medical team that he could fund their research if they allowed him to license their technology and list a company on the U.S. Bulletin Board, a move Bio Tech companies never make. But Stadnyk was convincing and came home with the deal. Next Stadnyk needed to fund his new company, Praxis, so he went to the top. He got back on a plane and knocked on the door of Rothschild International. Normally Rothschild would have never have put their century old money in some Wild West show junior market but again, Stadnyk was convincing. He came home with his deal fully funded. With a $200,000 initial investment, Stadnyk has built a small fortune of approximately 30 million dollars today with an expected increase up to 50 - 100 million dollars in the next 12 months and has positioned his Bio-Med Researchers with a company that not only became the all time leading Bio-Med stock trading on the ASX (psx on the ASX), but Pharmaxis (initially a Praxis subsidiary) has just announced that it is now listed on the NASDAQ Main Board (psxl on the NASDQ). More importantly, these Bio-Med Researchers have been able to advance some of their research medicines to Stage Three clinical trials and may one day soon have the answers for a cure on such debilitating illnesses as Diabetes and Cystic Fibrosis.

    Sensing the emergence of the Energy Market, David Stadnyk was able to take his position in Pharmaxis and leverage it into a new company (Patch International Inc. trades in North America on the OTC:BB-Symbol: PTII and in Europe on the Berlin Bremen Stock Exchange - Symbol: PQG.) centered on oil and gas exploration. His first step was to immediately buy positions in 19 oil properties out of Alberta. By slowly acquiring positions in oil and gas properties located in strategic areas around the World, Stadnyk has begun to position Patch International to become one of the premier junior gas and oil exploration companies and has done it just at the time when oil prices have hit record-breaking barrel prices with countries like China and India fighting to pay as much as 8 times the value for Alberta oil companies.

    "The capacity to come back is right there in each and every one of us," explains Stadnyk. "Along with many others, I have experienced the feeling of failure but it's not defeat unless you stop trying. Like any of us, I can definitely feel challenged at times but when you get knocked down, the only thing to do is pick yourself up and come back stronger. I could not be happier right now. I have a new partner in life and all of my children are back home with me."

    Stadnyk is also picking up where he left off by contributing to the local community in general and the sports scene in particular. He is hosting a Gala event (The Gala of Golden Dreams) December 1st of this year where he will be raising funds for Canadian Olympic athletes at this black tie affair held at one of Vancouver's premier venues, The Sutton Place Hotel. Stadnyk plans to host this event annually for the next five years, raising $210,000 in the lead up to the 2010 Winter Games in Vancouver.

    "It feel so good to be back in the position where I can make this kind of community investment and support causes that are important to me, let alone see my business interests shining," says Stadnyk.

    He adds, "If I had to sum it up in a sentence it would be 'I'm coming back!'"


    What's new

    Past the initial investment in the management, the next place to focus is on the direction. Mr. Stadnyk is in a period of DD on a grow operation that has been operating under the previous (before April 1st, 2014 switch to MMPR) licensing requirements somewhere in the Okanagon region of British Columbia. Full details have not been released to identify the subject of his diligence but on April 4th pictures were posted on the company's website of the greenhouse.

    The photo uploaded to Supreme's website drew comparisons to this growing operation in Kelowna depicted in the video. (Speculative but fun pursuit)

    As investors we do not have all the answers to what operations Mr. Stadnyk is perusing but I see the CEO as a smart business man who likely has a solid plan. Time will tell and he has asked patience in this regard and a time window of about another 10 days to complete his due diligence on all the workings of this anticipated acquisition. He may even be looking at grouping several smaller operations together and an eye to our Southern neighbor (US) as a possible theater for the new business to operate in.

    Another important tool for an investor is communication. In this regards Supreme Pharmaceuticals has been excellent in timing PR as real news becomes available. Not daily like some would like, but very soon after the news is relevant and concrete. The website is updated often and shows many characteristics not often seen on venture exchange companies that operate in the dark.

    A couple of the press releases that have been attained at the website are shown here:

    March 26, 2014

    April 4th, 2014

    Licensing question

    The growing operation Mr. Stadnyk is currently reviewing has operated with a MMAP license under previous legislation and continues to do so while the new laws are being reviewed through the judicial process. Supreme has indicated their offer to purchase is contingent on receiving MMPR status and would take steps to insure the operations meet those standards. So also, one has to believe any other opportunities the CEO would consider in the future would be similarly focused.

    Due Diligence period

    The reason for the delay has been conveyed to investors through the website but briefly, the offer to purchase has a lengthy timeline attached with a $100,000 deposit and a $1,000,000 dollar plus stock price tag. Mr. Stadnyk wants to make sure the operation will be able to operate legally under the new guidelines before completing the transaction is my understanding.

    Share structure

    There are some 80 mm warrants outstanding @5 cents to be concerned about and 128 mm OS. (I welcome anyone who can find different)

    Market Cap

    Currently stands at 6-8 million depending on the trading day. This is microscopic in comparison to most MJ valuations. Supreme Pharmaceuticals has the potential to be the value play in the sector in exchange for the risk associated with the developing story. There is downside risk but the upside potential is enormous.

    Pending deal

    Tweed vs Supreme

    I will concentrate on the pro argument for Supreme because I think the pro argument for Tweed is obvious (long TWD too).

    The growing operation that Supreme is pursuing is bound to be much smaller in size but that may be a positive in a time when there are still too many growers and not enough customers affecting profitability of behemoths like Tweed. Lots of capacity to grow at Tweed but not enough customers yet. The delay in completing a move to MMPR legislation will hamper the bottom line of larger facilities and they also will rely on full legalisation before maximum profits can be realized.

    The amount you pay for Supreme is substantially less. Most of that is because it is very speculative at this time but it also does not yet garner the headlines it could if the pending deal goes through.


    Strong Buy but speculative. Buy because you believe in the management, buy because you see the potential and exuberance of investors in the sector, and buy because its a good trading stock too.

    Disclosure: I am long SPRWF.

    Apr 05 10:19 AM | Link | 199 Comments
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.