Opinions
Stockchase Insights
Quarterhill Inc
QTRH-T
DON'T BUY
Jun 30, 2023
Stock price when the opinion was issued
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He was the lead activist investor. Since then, they have a brand new board and management board with serious experience. They're in a great space; huge infrastructure spending will happen in coming decades in intelligent transportation. They lead in electronic tolls in the US and lead in electronic weighing of vehicles. Insiders are buying a lot of stock in recent months, so they have a lot of confidence; this is rare and bodes well. Much upside ahead.
That's right. They've been severely beaten up over the last few years. Massive outflow of funds out of Canada, and it hits the smaller stocks even more. A lot of retail investors put in fund redemptions last year, so that created many bargains.
Over the last 6 months, he added to many of his small- and mid-cap positions. Companies like QTRH, JWEL, and EQB.
"Thesis creep" is when you change your investment thesis to fit what the company's doing. Intelligent management systems for traffic. Buying businesses, winning contracts with US government. Unique small cap. You could hold. Outlook is generally positive, but not for him.
He owns the convertible debentures yielding 6%, gives defensiveness. Well capitalized, bunch of cash on balance sheet.
One of his biggest positions. Huge backlog, growing addressable market. Divested one segment, so now a pure play in technology, and valuation should increase. Experienced management and strong board. Starting to attract institutional interest. Significant, hidden value through its massive amounts of data. Insider buying, very telling.
A global leader in intelligence transportation systems, like weighing trucks on highways. Are gradually becoming a tech company; recently developing AI tools to analyze the ton of data they've collected to help with road safety. Insiders are buying a lot shares and they have strengthened management. Lower-margin contracts are coming off soon. This space will consolidate drive up shares eventually to $3-4. They can cross-sell for synergy.
(Analysts’ price target is $2.28)Very experienced team now running the company. Insider buying. Solely focused on intelligent transportation solutions. Biggest market share in US for electronic tolls. Sitting on a ton of data analytics, looking to monetize. Wouldn't hesitate to buy on this pullback.
Great infrastructure asset. The industry will be consolidating, especially by private equity.
QTRH is now down 16.5% over the last year. Since we last spoke about it, QTRH has been awarded two contracts valued at US$3.4M for system upgrades and maintenance at commercial vehicle enforcement stations operated by the Idaho State Police. While this news is positive, QTRH continues to have negative cash flows while earnings are also expected to be negative again next year. We do not think it is worth buying right now.
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He owns the quarterly debentures. It was a good story, but now stuck in neutral. Sales and revenue growth are lumpy, because they depend on contracts (in infrastructure). Has disappointed investors. He will let his debentures mature in 2026. They have cash to buy companies as revenue grows. It's worth holding onto.
Earlier in the year, QTRH's subsidiary, Quarterhill ITS, had fallen outside of certain covenant ratios (covenants required to maintain credit with the bank), but this updated credit agreement will secure a covenant relief period till the end of the year. Essentially, it helps the company maintain its debt levels and it provides the company with more working room to attempt to grow its operations and bring those ratios back in line with its covenants. Without the company being in line with its covenants, additional debt cannot be taken on, and this hinders future growth opportunities, thus a relief program gives the company more time to bring those ratios in line.
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