Data Communications Management (DCM) reported it’s Q1 results on May11.And the story told is the same as reported in my blog of March16,2021 on Blogdaleup.Revenues have plateaued. So has it’s adjusted EBITDA and net income.But DCM has managed to pare down it’s debt by 15% to a manageable $41 million.Also it has picked up new customers in the medical marijuana industry.And this appears to be a growing revenue area.There has been no mention of the revenues or profitability of it’s Econometrica business.This blog be;lieves that this is a slow and stradily growing area with a substantial amount of repeat customers.But there can be no doubt that the pandemic has had a negative impact on it’s growth of revenues.And little doubt that revenues in the next three quarters will exceed the last quarter.
Tighten the Bolts
Revenues have plateaued and DCM has pared down it’s business expenses.Consequently e.p.s. at $.06 per share has remained constant in this difficult quarter.Slight relief is expected for the second and third quarter.The fourth quarter should show an uplift in revenuesand earnings.Still ,based on this quarter, annual e.p.s. will likely be in the $.25-$.35 area.DCM has one of the lowest price/earnings ratio on the TSX at 3.7 times earnings.A slight improvement in the P/E ratio to 4.5 or even 5 times will put this stock well above $1.00 per share.It has fallen to the $.90 price range recently but this blog believes that it will steadily march towards $1.00 per share by the summer.
Any Acquisitions ?
Data Communications Management appears to be a conservative,yet solidly, managed company.Although they have very few outstanding shares on their balance sheet they don’t want to use shares at $.90 per share when they may soon be at $1.25-$1.35.Instead they use debt and gradually pay it off.So that now their debt/equity ratio is reasonable.However there are one or two small companies available that could add to their product line.These two are Fandom Sports (FDM) with a market cap of $7.5 million and iSignMedia Solutions (ISD) with a market cap even smaller.It should be easy to take on a little more debt and buy a majority interest in either.This would add to revenues and perhaps push DCM quicker into the $1.25-$1.35 price range. https://www.woodbridgegroup.com
Blackline Safety over the last year and a half has built up it’s European revenues.It seems to have a solid base in the U.K. and now is adding a subsidiary in France.It’s latest quarterly report shows record revenues of $11 million and substantial recurring revenues (from repeat customers).But adjusted EBITDA went from $520,000 to a $364,000 loss and net income showed a net loss of $.09.
There were 4 or 5 blogs on both Google Workathon (dated June6,2020 and August7,2019) as well as on Google Blogdaleupsome (dated July23,2020 and March1,2019) suggesting that BLN needed to increase revenues.And it has done so and appears chiefly by having made some clever strategic acquisitions also.But net income has not yet kept pace.
Blackline Safety has made substantial gains in revenues since 2018– both in total and recurring revenues.In 2018 BLN had $18 million in annual revenues and in 2020 it made $38 million.And in this quarter it showed total revenues of $11 million.So it is on track to hit $45-$50 million annual revenues for 2021.This gain has come partially from acquisitions.My blog on Workathon dated June6,2020 recommended an acquisition of a company called Awesense which is in energy monitoring.A later blog on Blogdaleupsome on Google Blogger recommended a merger with one of their suppliers called Nevada Nano which makes gas detector sensors.And it seems now as if some kind of combination has been arranged.Whereas Blackline tells shareholders itself that it has acquired a British firm called Wearable Technologies.The latter firm sells almost exclusively in the British and French market.Plus BLN has made an arrangement with a British firm called Enovert where it appears that it shares in revenues.Furthermore Blackline sells a lot of safety gas sensors and monitors into the British market.
Small junior technology companies rarely make any substantial net income in the first years of operation.And BLN also showed negative net income.But most do earn positive adjusted EBITDA in their third or fourth year and usually it is growing.BLN made adjusted EBITDA of $520,000 in Q1 of 2020 but showed negative adjusted EBITDA in the latest quarter of $360,000.Blackline told shareholders that their adjusted EBITDA margin rose a few points.But it looks to this blog that operating expenses rose even more.This cannot be confirmed because Blackline does not provide information on it’s operating expenses.And shareholders do need to know more about their operating expenses.
BLN management has taken the recommendation of this blog ,and others, to increase revenues and recurring revenues.But it appears now that expenses are rising too fast because Blackline has too many new projects and acquisitions at the same time.This blog expects that the adjusted EBITDA margin on it’s European operations is not nearly as high as on it’s domestic operations.It is possible that BLN revenues will hit $45 million on an annual basis but only show a small EBITDA.Blackline must show shareholders that it can control operating expenses and so generate at least a small adjusted EBITDA for 2021.Still investors must be impressed with it’s growth.So, in summary, if revenues continue on track and operating expenses show more constraint a price range of $8.50-$9.75 is not out of sight by the fall. https://www.zacks.com/
Data Communications Management needs to start sitting down with several new future partners.And it has in it’s basket a few eggs (partners) that are no longer so tasty.The reason that I say Easter basket is because DCM needs new partners and products soon; so Easter would be appropriate.And that is because since 2019 it’s revenues have stagnated (between $60 and $70 million each quarter).Although it is also true that they have picked up a few quite tasty partners.So,in summary, their revenues have plateaued but their margin has improved.So adjusted EBITDA has improved although revenues remain level.
Back in 2018
Revenues have been pretty constant since 2017.In 2018 DCM acquired 2 or 3 small printing companies.They were not extremely profitable but they picked up a few government contracts every year.This stabilized revenues and produced a medium amount of adjusted EBITDA.Since then Data Communications has acquired two or three more technology oriented companies.In fact, this blog suggested acquiring Informetrica,an Ottawa based information provider, in 2020.These recent acquisitions have improved DCM’s gross margin and it’s adjusted EBITDA.As this blog title suggests, now would be a good time to interview new partners in order to make another one or two acquisitions. In particular, acquisitions that complement their recent technology subsidiaries.At the same time some or all of their printing companies acquired back in 2018 could be divested.
My website on Google Blogger called Workathon, in a blog dated August23,2020, set up a meeting with an Ottawa information provider called Informetrica.This same blog on Workathon recommended a merger or even a complete acquisition by DCM.There is no mention of a merger in the quarterly reports but DCM has increased it’s debt in 2020 and it is very likely that Data Communications has taken a major position or even acquired the failing Informetrica.This opens up new services and new skills to DCM.But this blog believes that these services must be expanded both with new hirings and new acquisitions in these new service areas.If necessary some or even all of their low margin printing companies should be divested in order to help finance these actions.DCM needs to be seen as a progressive,technology stock with a high gross margin.This will increase it’s P/E ratio and enhance future equity issues.As Data Communications still has very few outstanding shares and needs to use more of it’s capital base.
Right now the debt/equity ratio is high as it is above 1.So DCM is financing it’s expansion with too much dependence on debt because interest rates are low now.But with a prudent acquisition their revenues and earnings will rise and the stock price should move towards the $1-$1.25 area.Data Communications may be able to make one or two new equity issues and reduce their debt also.This will put them in a much stronger position in the second half of 2021. https://www.zacks.com/
VQS is an American “small cap” that uses artificial intelligence (AI) to transcribe and copy largely legal documents.It is starting to use AI more consistently in it’s operations.And so it should be intewresting for it to meet another “small cap” in the AI field.Such a company would be NexJ.Iam inviting 3 officers from each company to meet in Oakville at the Oakville Inn for the weekend (Fri.-Tues.).All travel and accomodations are paid for.
There may not be any combination or merger involved here.Just a chance to see how AI is used and can be improved upon.I will ask R.H. to send a consultant over for this weekend at the Oakville Inn.I need notes for each and advice given to both companies.This consultant should be tops in his field in order to do that.I offer him $7500 for the weekend and giving out meaningful advice. www.www.RobertHalf.com
Sangoma Technology(STC) has a lot of cash on hand after it’s latest $80 million equity issue.And this blog believes that it is on a threshold.If it does not continue to grow revenues and earnings it will fall behind others in this competitive field.So this blog has a plan to grow STC successfully.A plan has been hatched to meet some potential suitors in this field.The candidates are Data Communications Management (DCM),CIK Telecommunications and Electronic Box .The meeting will take place this weekend at Hockley Valley Resort near Orangeville,Ontario.Sangoma has reportedly up to $93 million in cash and may be willing to part with some of it if they see the right product and the right fit.I will ask R.H. to send a telecommunications consultant for the weekend.I offer $5000 for advice given to all participants and a one page note on DCM and one page on CIK and one page report on Electronic Box given to STC management.The note will address synergies between those companies and STC.The consultant will get another $2500 to look at the combination of DCM and CIK Telecommunications.Here a 2 page report will go to DCM to show how the fit benefits to DCM.In all cases the consultant will offer a price for the company to be acquired.The consultant will be offered a $5000 bonus for any successful combinations. www.sangomatechnology.com
Aimia is a company that has been covered both in my Blogdaleup(WordPress) and Workathon-Blogger (Google) blogs.And as many people know it used to own and administer the Aeroplan program that handled the loyalty and award program for Air Canada.But that has come and gone and Aimia is making a good job of transforming itself.Like in the picture above it will take a lot of work to see Aimia return to it’s old price levels.But right now,with the pandemic,it looks like Aimia got a pretty good deal for Aeroplan.However in late 2019 and early 2020 it appeared that the Aimia board abandonned it’s shareholders
New Board and New Activities
The Aeroplan award and loyalty program had been once valued at $2.5 billion;Aimia owned it completely.Air Canada wanted to end this long running contract unilaterally by June 2020.It offered $450 million for Aeroplan and the board accepted the offer.This blog encouraged Aimia board to break the contract citing duress.At that time two banks backing the program offered $500 million for Aimia to continue the program.This blog advised Aimia to take on partners and accept a deal with the banks.To be clear Aeroplan represented Aimia’s future.When the deal was finalised this blog called for the board and CEO to be replaced.At the time there was little controversy over the ill-begotten sale.But eventually law suits emerged and a new board and CEO was put in place.Now the Mittleman Brothers, a significant shareholder, controls the board and is the CEO.
With the loss of Aeroplan, Aimia was faced with a reduction and unstable source of revenues.This caused the Aimia board to decide to eliminate the dividend. Consequently the share price dropped to as low as $1.80 per share.This blog felt that accepting the deal with the banks and other partners (like Porter Airlines) could have saved the dividend or only reduced it.And it was the sudden drop in the share price that lead to lawsuits and a change in ownership.
The former Aimia owned or managed a number of Airmiles’programs including one in Mexico called PLM and a small stake in an Asian loyalty program. The Mittleman Brothers are an American investment holding company and a substantial shareholder.They had every right to sue Aimia.They did so successfully and replaced the board and CEO of Aimia.So the new Aimia is a merger of Aimia and Mittleman assets including a new 49% stake in a loyalty company called Kognitiv.And to top this off Aimia just received a $67 million payment from Air Canada related to the indemnification of Aeroplan obligations.
This blog feels some pride in Aimia remaking itself as well as the rebound in price from as low as $1.80 to the $3.50 level.If someone had not reacted to this blog’s call for a new board the stock may have stayed at the $1.00 to$1.50 level.Now that Aimia has shown staying power it is even possible that future contingencies will be paid from Air Canada.But this blog feels that Aimia has too many scattered investments and there should be some consolidation.One or two assets could be divested now and a return to loyalty programs such as their new asset Kognitiv Loyalty.This and the hope of a small dividend in 2021 could send AIM as high as $3.75-$3.95.