Watch our team presentations
Returns on Top Picks: H116: +52% | 2015: +7% | 2014: +38%
Victoria Gold Corp.
(VIT-TSXV, $0.70, SPECULATIVE BUY, PT $0.90)
Eagle prepares for flight in catalyst-rich H2/16
TSO3 Inc.
(TOS-TSX, $3.65, BUY, PT $6.25)
Industry-leading sterilization platform poised to drive unit sales in global markets
Cipher Pharmaceuticals Inc.
(CPH-TSX/CPHR-NASDAQ, US$6.85, BUY, PT US$10.50)
Dermatology portfolio poised to drive revenue growth from existing pipeline
Edgefront REIT
(ED.un-TSXV, $1.79, BUY, PT $2.20)
Strong covenant Triple-Net leases creates best in class risk adjusted returns
Pure Industrial REIT
(AAR.un-TSX, $5.33, BUY, PT $5.45)
Enormous growth potential backed by increasingly conservative financial metrics
DHX Media Ltd.
(DHX.B-TSX, $7.21, BUY, PT $12.00)
Bullish Content Thesis in Middle Innings! Merchandising & Licensing
poised for significant gains in 2017
TECSYS Inc.
(TCS-TSX, $9.91, BUY, PT $11.00)
Margin expansion-driven earnings growth is set to outperform that at its
closest peers
Pure Technologies Ltd.
(PUR-TSX, $5.99, BUY, PT $7.25)
It is safe to test the waters! Operating leverage to drive best in class earnings
growth
exactEarth Ltd.
(XCT-TSXV, $1.29, SPECULATIVE BUY, PT $2.00)
Industry leader in a growing market with a favourable risk/return trade-off
We are pleased to present Echelon Wealth Partners’ Research Top Picks for Mid-Year 2016.
We are very pleased to be reaching out following a time where H1/16 marked significant
gains for investors and smaller capitalization stocks in particular. Within this positive
context, we are proud to highlight the exceptional performance of our 2016 Top Picks
portfolio where our eight selections provided an average return of 51.5%.
By comparison, the overall TSX Composite generated a positive return of 10.4% for the first
half, offsetting its decline of 11.1% during 2015. Within the sectors, mining experienced a
dramatic H1/16 recovery of 106%, reversing its 41% decline in 2015. Moving the 10-year rates
down by 80 bps for H1/16 helped to drive the REIT Index ahead by 20%, very much overriding the 5.2% negative total return for 2015. Another benefactor of declining rates, the
Telecom sector returned 17% for H1/16 outpacing the broader TSX Composite Index. A prior
and prospective outperformer, the Health Care Index has recorded an H1/16 decline of 30%
more than erasing its 22.5% return for 2015. Elsewhere, the Information Technology Index
underperformed declining 5% for the YTD. The impressive YTD outperformance builds on our
past outperformance. The portfolio returned 7% in 2015 against the TSX decline of 11%.
Looking back to 2014, our portfolio returned 38% when the TSX gained 7%.
In classic contrarian form, as many moved to avoid or reduce small capitalization
weightings, the TSX Venture Exchange stormed back, with the composite index up 42.6%
for H1/16 following declines of 24.4% and 25.4% in 2015 and 2014, respectively. With its
dramatic recovery, the TSX-V finally moved to close its performance gap against US small
cap indices, significantly outpacing the Russell 2000 Index, which gained 6.2% during H1/16.
The relative outperformance of the TSXV against the Russell for the YTD clearly reflects its
heavy exposure to materials shares at 57% of the index. Turning to the broader indices, we
note that the DJIA and S&P 500 both gained 5.3% during H1/16, compared with declines of
2.2% and 73bps in 2015.
We look back to the beginning of the year view where we were right to highlight the value of
small caps, and where we are now thrilled to have been outpaced by the market recovery.
Starting the year, we commented on the prior two years of underperformance by Canadian
small caps and our bullish view. We noted both the challenges and potential opportunities
resulting from the capital market declines that left premium valuations being accorded latestage privates relative to public small cap valuations. In our most prescient comments we
noted that while it is difficult (and probably naively optimistic) to say this imbalance would
quickly correct with a positive revaluation of publics, we saw value in the small cap arena. At
that time, and still today, we derive some measure of support from private equity investors
who share our view in this regard. We look for increased takeover activity where public
markets continue to undervalue high-growth companies that are delivering to plan. Our
research team places greater scrutiny on exit scenarios within their small cap coverage given
the capital markets conditions. Overleaf, we present coverage names where investors have
experienced aggressive gains by take-outs.
Echelon Wealth Partners continues to look for outperformance in the Technology and
Healthcare/Life Sciences sectors, where Canadians are recognized leaders. On the natural
resource side, we are purposefully focused on gold and technology-focused extraction.
We look for continued outperformance by the gold sector with our bias for higher gold
prices based on greatly diminished prospects for further interest rate increases by the US
Federal reserve, potential Brexit contagion, and generally increased global economic
uncertainty and social instability.
H1/16 top picks provided an
average return of 51.5% vs
TSX Comp of 10.4%
Continued outperformance
2015 top picks returned 7%
vs TSX Comp of -11%; 2014
top picks +38% vs TSX Comp
+7%
TSX-V +42.6% in H1/16 vs
declines in 2015 -24.4% and
2014 -25.4%
We highlighted value of
small caps, and our view has
been outpaced by the
market recovery
We place greater scrutiny on
exit scenarios within our
small cap coverage given
capital markets conditions
Top Picks Presentation Video
Top Picks - H116 Performance Summary
Ticker
Ryan Walker
Douglas Loe
Douglas Loe
Rob Sutherland
Rob Goff
Andrej Krneta
Amr Ezzat
Fadi Benjamin
TSXV:KAM
TSX:TOS
TSX:CPH
TSX:AAR.un
TSX:DHX.B
TSX:TCS
TSX:CMG
TSXV:PYR
Name
ate Publishe
Kaminak Gold Corp.
TSO3 Inc.
Cipher Pharmaceuticals Inc.
Pure Industrial Real Estate Trust
DHX Media Ltd.
Tecsys Inc.
Computer Modelling Group Ltd.
PyroGenesis Canada Inc.
25/01/2016
22/01/2016
22/01/2016
26/01/2016
20/01/2016
20/01/2016
20/01/2016
20/01/2016
Beginning Price
( Publish Date)
$
$
$
$
$
$
$
$
0.83
1.86
5.66
4.39
7.46
7.60
8.44
0.22
End Price
(Jul 11, 2016)
$
2.85
$
3.30
$
6.81
$
5.19
$
7.12
$
9.47
$
9.65
$
0.26
Average Return*
TSX YTD Return
Performance
243%
77%
20%
22%
-5%
25%
14%
18%
52.0%
11.3%
Jan 2016
Price Target
$
1.85
$
3.10
$
13.25
$
5.30
$
13.00
$
11.00
$
15.00
$
0.60
Excluding KAM
Current
Price Target
$
$
$
$
$
$
$
NA
6.25
10.50
5.45
12.00
11.00
13.00
0.25
24.7%
* Average return excluding Kaminak is 24.7%
Top Picks – H216 – Returning Names, Additions
We present our Mid-year 2016 Top Picks below, and look forward to addressing their performance as the
year progresses. We include our Top Pick reports in the following pages following their recent release as
individual notes during the weeks of July 11, 2016 and July 18, 2016. These reports have also been
included in each analyst’s sector weekly.
Additions H216
Ryan Walker
Rob Sutherland
Amr Ezzat
Fadi Benjamin
Ticker
TSXV:VIT
TSXV:ED.un
TSX:PUR
TSX:XCT
Name
Share Price
Victoria Gold Corp.
$
0.60
Edgefront Real Estate Investment $
1.83
Pure Technologies Ltd.
$
5.98
exactEarth Ltd.
$
1.33
Returning Top
Douglas Loe
Douglas Loe
Rob Sutherland
Rob Goff
Andrej Krneta
Ticker
TSX:TOS
TSX:CPH
TSX:AAR.un
TSX:DHX.B
TSX:TCS
Name
TSO3 Inc.
Cipher Pharmaceuticals Inc.
Pure Industrial Real Estate Trust
DHX Media Ltd.
Tecsys Inc.
Share Price
$
3.30
$
6.81
$
5.19
$
7.12
$
9.47
Price Target
Implied Return
0.90
50%
2.20
29%
7.25
21%
2.00
50%
$
$
$
$
$
Price Target
6.25
10.50
5.50
12.00
11.00
Implied Return
89%
54%
12%
69%
16%
Our coverage on many mid and smaller capitalization names carries with it a heightened consideration of
exit strategies where take-out prospects are a core part of our analysis. Below, we highlight some of the
more recent takeout wins from within our coverage universe.
Company Name
Ticker
Ryan Walker
Probe Mines Ltd.
Newstrike Capital Inc.
Romarco Minerals Inc.
Kaminak Gold Corp.
TSXV:PRB
TSXV:NES
TSX:R
TSXV:KAM
Date
announ.
Jan 19, 2015
Feb 17, 2015
Jul 30, 2015
May 12, 2016
Rob Sutherland
Less Mess
TSXV:LMS Dec 11, 2015
True North Apartment REIT TSX:TN.UN Aug 10, 2015
HealthLease Properties REIT TSX:JLP.UN Aug 13, 2014
Douglas Loe
Transition Therapeutics
TSX:TTH
Andrej Krneta
Wanted Technologies
TSXV:WAN Sep 11, 2015
Rating
Price
Target
SPEC BUY
SPEC BUY
SPEC BUY
SPEC BUY
C$4.00
C$1.30
C$0.95
C$2.50
C$5.00
C$1.15
C$0.68
C$2.62
$3.36
$0.96
$0.38
$1.98
48.8%
19.8%
78.9%
32.3%
25.0%
-11.5%
-28.4%
4.8%
BUY
BUY
BUY
C$1.30
C$9.00
C$12.50
C$1.42
C$9.00
C$14.20
$1.15
$7.51
$10.76
23.0%
26.9%
37.8%
8.8%
7.1%
19.4%
C$2.75
US$1.55*
$0.89
126.3%
-26.8%
C$1.80
C$1.79
$1.17
53.0%
-0.6%
Jun 30, 2016 SPEC BUY
*CAD equivalent of Transition's takeout price was C$2.01/shr
BUY
Takeout Price Prebid Mkt
(per shr)
Price
Prebid
Mkt Price
Price
Target
Company
Victoria Gold
Corp.
Stock
TSXV:VIT, $0.60,
PT$0.90
Top Pick Highlight
Eagle prepares for flight in catalyst-rich
CH216
Analyst
TSO3 Inc.
TSX:TOS, $3.30,
PT$6.25
Industry-leading sterilization platform
poised to drive unit sales in global markets
Doug Loe, PhD
Cipher
Pharmaceuticals
TSX:CPH, $6.81,
PT$10.50
Dermatology portfolio poised to drive
revenue growth from existing pipeline
Doug Loe, PhD
Edgefront REIT
TSX:ED.un,
$1.83, PT$2.20
Strong covenant Triple-Net leases creates
best in class risk adjusted returns
Rob Sutherland FRI€
Pure Industrial
Real Estate Trust
TSX:AAR.un,
$5.19, PT$5.50
Enormous growth potential backed by
increasingly conservative financial metrics
Rob Sutherland FRI€
DHX Media Ltd.
TSX:DHX.B,
$7.12, PT$12.00
Merchandising & Licensing poised for
significant gains in 2017
Rob Goff, CFA
TECSYS Inc.
TSX:TCS, $9.47,
PT$11.00
Margin expansion-driven earnings growth
is set to outperform that at its closest
peers
Andrej Krneta, B.Eng, MBA
Pure
Technologies Ltd.
TSX:PUR, $5.98,
PT$7.25
It is safe to test the waters! Operating
leverage to drive best in class earnings
growth
Amr Ezzat, Hon. Fin.
exactEarth Ltd.
TSX:XCT, $1.33,
PT$2.00
Industry leader in a growing market with a
favourable risk/return trade-off
Fadi Benjamin, CFA, P.Eng
Ryan Walker, MSc
18 July 2016
Precious Metals
Victoria Gold Corp.
VIT-TSXV: $0.76
Speculative Buy
CH216 Top Pick
Eagle Prepares for Flight in Catalyst-Rich CH216
Event: We are pleased to introduce Victoria Gold Corp. as our CH216 Top Pick. VIT shares
performed very well during an emerging gold bull market in CH116. Indeed, shares soared
~218%, compared with a 22% increase in gold price, and ~100% increases by a basket of peers
represented by the Global X Gold Explorers ETF and BMO Jr. Gold Producers ETF (Exhibit 1). We
would expect positive share price performance to persist in C2016 with our bias for higher gold
prices based on greatly diminished prospects for further interest rate increases by the US
Federal Reserve, potential Brexit contagion, and generally increased global economic
uncertainty and social instability. Looking ahead, VIT has already gotten off to a very promising
CH216, rising another 25% to $0.76/shr at the time of writing. We note that the recent surge is
likely owing to a very bullish write-up in a widely read US-based newsletter following a recent
site visit to the Company’s Eagle gold deposit in the Yukon (which we also attended).
A Large De-Risked Canadian Gold Project: VIT affords investors exposure to a potentially
low-cost gold producer. Importantly, the Company’s 6.35Moz Eagle project is fully permitted
and shovel ready, attributes that cannot be overstated in light of the seemingly everextending permitting timelines. We also highlight the 555km2 project’s strategic size
(especially in light of precious few recent large discoveries) and situation in geopolitically
stable and mining-friendly Canada. And, with financing conditions still generally tight for
juniors, and M&A activity quickly consuming what available quality targets there are, Eagle’s
scarcity value is ever-increasing. With the abovementioned attributes — a fully permitted
multi-Moz deposit situated in a stable jurisdiction, bolstered by substantial exploration
potential — we contend that VIT represents a real takeover candidate. And, with senior and
intermediate miner share prices greatly appreciating so far this year, and exploration
efforts among those generally lagging, increased M&A activity is only accentuated.
Recent Votes of Confidence: We also note the addition of noted resource investor Thomas
Kaplan, via the Electrum Strategic Opportunities Fund, as a significant new Victoria
shareholder, taking a 13.5% equity interest via a $24M non-brokered private placement that
closed on May 10, 2016. Existing large shareholder Sun Valley Gold also increased its stake to
~18% via the deal. We contend that the placement’s high-profile participants provide a
meaningful vote of confidence in the Eagle gold project and Victoria’s management team.
Catalyst-Rich CH216: Near-term potential share price catalysts for VIT shares include an
updated Feasibility Study (FS) of the Eagle gold project. The updated FS has the potential to
deliver lower opex on lower fuel prices, and lower capex on reduced equipment costs (owing to
the extended mining sector downturn) than those employed in the existing FS. Importantly,
the update will include an initial 43-101 resource estimate of the nearby Olive zone, which
has the potential to deliver higher-grade ore for blending with the existing Eagle deposit,
thereby offering significant upside to project economics forecast by a May 2015 updated FS
(see side bar for those results). We have incorporated ~350,000oz grading 1.2g/t Au at Olive
into our production model. We assume such material is mined and blended with Eagle ore for
leaching during years 4-7 of operation. We model project financing in CH216. Longer-term
catalysts include the commencement of construction (FQ117), and first production (FQ119).
Valuation: We rate VIT shares as a SPECULATIVE BUY rating with a price target of $0.90/shr.
Ryan Walker, MSc | 416.479.8997 | ryan.walker@echelonpartners.com
$0.90 Target
Projected Return: 18.4%
Discount Rate: 5.0%
Market Data
Market Capitalization ($M)
Net Debt ($M)
Cash & Equivalents ($M)
Debt ($M)
Enterprise Value ($M)
Basic Shares O/S (M)
Fully Diluted Shares O/S (M)
Avg. Daily Volume (k)
52-Week Range
338.6
na
37.9
0.0
300.6
445.5
518.5
1,347.8
$0.11 - $0.77
Key Asset
Eagle Gold Project, Yukon
Pre-tax
FS Highlights
IRR
US$/C$ NPV8% (C$)
Gold Price
US$1,325
0.92
273.1
24%
US$1,162
0.92
105.6
15%
US$1,723
0.99
557.6
37%
US$1900
0.92
863.9
49%
Valuation
Payback
3.1
4.0
2.3
1.8
Discount
5.0%
$ (M)
378
$/shr
0.67
Exploration Upside
In Situ
Unadjusted NAV
Corporate Adjustments
Cash & Equivalents
Options & Warrants
Future Equity Finance Proceeds
Adjusted NAV
P/Adjusted NAV
17
395
(30)
38
21
30
455
0.03
0.69
(0.05)
0.07
0.04
0.05
0.80
0.95x
Eagle Gold Project
Events/Catalysts
Risks
Financing Risk
Updated FS - CH216
General Risk
Project Financing - CH216
Development/Operating Risk First Production - CQ119
Company Description
Victoria Gold Corp. is a gold
exploration and
development company. The Company's Eagle Gold
Project in Yukon Canada hosts a National Instrument 43101 compliant gold Reserve of 2.3Moz . The Eagle Gold
Project is shovel-ready and when in production will
produce +200,000oz of gold annually at an operation
cost of approximately $600 per ounce. The Project is
fully permitted for construction and operations.
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jul-15 Sep-15 Nov-15 Jan-16 Mar-16May-16
Volume
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
Price
Source: Capital IQ
Page 6 of 41
Victoria Gold Corp. (VIT-TSXV) | 18 July 2016
Ryan Walker, MSc | 416.479.8997 | ryan.walker@echelonpartners.com
Page 7 of 41
Victoria Gold Corp. (VIT-TSXV) | 18 July 2016
Exhibit 1 — Victoria Gold H116 Share Price Performance Relative to Peer Baskets
Source: Yahoo Finance
Exhibit 2 — Select Junior Exploration and Development Peers — Victoria’s Situation in
Geopolitically Stable Canada and Fully Permitted Status Befitting of a Premium
Comparables
Permit
Ticker
Almaden Minerals Ltd.
TSX:AMM
Atacama Pacific Gold Corporation
TSXV:ATM
Atlantic Gold Corporation
x
TSXV:AGB
Belo Sun Mining Corp
TSX:BSX
Columbus Gold Corp.
TSX:CGT
Continental Gold Inc.
TSX:CNL
Dalradian Resources Inc.
TSX:DNA
Eastmain Resources Inc.
TSX:ER
Falco Resources Ltd.
TSXV:FPC
Golden Queen Mining Co. Ltd.
x
TSX:GQM
Kaminak Gold Corp.
TSXV:KAM
Lundin Gold Inc.
TSX:LUG
Lydian International Limited
x
TSX:LYD
Marathon Gold Corporation
TSX:MOZ
Midas Gold Corp.
TSX:MAX
NewCastle Gold Ltd.
x
TSXV:NCA
Orezone Gold Corporation
TSXV:ORE
Osisko Mining Inc.
TSX:OSK
Pershimco Resources Inc.
TSXV:PRO
Premier Gold Mines Limited
TSX:PG
Red Eagle Mining Corporation
x
TSXV:RD
Roxgold Inc.
x
TSXV:ROG
Sabina Gold & Silver Corp.
TSX:SBB
TMAC Resources Inc.
x
TSX:TMR
West Kirkland Mining Inc.
TSXV:WKM
Victoria Gold Corp.
x
TSXV:VIT
Share
$2.01
$0.40
$0.79
$0.91
$0.63
$3.79
$1.04
$0.62
$0.98
$1.46
$2.70
$5.63
$0.38
$0.44
$1.08
$0.83
$1.04
$2.58
$0.22
$4.40
$0.79
$1.56
$1.29
$15.10
$0.14
Mkt Cap.
$161.2
$28.2
$126.9
$348.6
$89.2
$535.3
$223.5
$98.0
$110.5
$147.9
$505.9
$564.1
$253.1
$47.2
$188.3
$130.7
$161.0
$325.7
$68.1
$791.0
$175.8
$572.0
$281.5
$1,181.2
$41.6
$0.79
$340.4
EV M&I&I (Moz)
$156.9
2.0
$27.3
5.9
$119.2
2.0
$330.0
6.8
$81.5
5.0
$505.9
9.0
$192.4
3.5
$92.6
1.6
$109.4
4.3
$272.2
1.3
$484.3
4.9
$554.0
9.8
$254.2
5.0
$45.4
1.3
$154.3
6.5
$130.7
5.0
$152.0
5.1
$251.4
3.7
$76.3
0.9
$748.1
5.7
$206.1
0.7
$598.1
1.0
$265.5
7.2
$1,159.3
5.9
$41.0
0.9
Avg.
$326.3
6.4
EV/oz
$79
$5
$59
$49
$16
$56
$55
$58
$26
$216
$99
$56
$50
$36
$24
$26
$30
$67
$87
$130
$306
$611
$37
$195
$47
$97
$51
NAV/shr
$2.83
$0.38
$1.16
$1.19
$1.10
$4.39
$2.14
$1.05
$2.14
$1.75
$2.58
$8.86
$0.37
$0.58
$0.67
$1.14
$1.10
$3.71
$0.48
$5.02
na
$1.11
$1.65
$11.13
$0.25
$0.80
P/NAV
0.71x
1.05x
0.68x
0.76x
0.57x
0.86x
0.49x
0.59x
0.46x
0.83x
1.05x
0.64x
1.03x
0.76x
1.61x
0.73x
0.95x
0.70x
0.45x
0.88x
na
1.40x
0.78x
1.36x
0.54x
0.83x
0.99x
Source: Capital IQ, VIT NAV = EWP Estimate
Source: Capital IQ, VIT NAV/shr = EWP Estimates
Ryan Walker, MSc | 416.479.8997 | ryan.walker@echelonpartners.com
Page 8 of 41
Victoria Gold Corp. (VIT-TSXV) | 18 July 2016
Exhibit 3 — Valuation Summary & Price Target Sensitivities
Discount
$ Million
$/Share
5.0%
In Situ
$378
$17
$395
($30)
$38
$21
$30
$455
$0.67
$0.03
$0.69
($0.05)
$0.07
$0.04
$0.05
$0.80
Eagle Gold Project
Exploration Upside
Project NAV
Corporate Adjustments
Cash & Equivalents
Options & Warrants
Future Equity Finance Proceeds
Adjusted NAV
Current Share Price
P/Adjusted NAV
$/Share
$0.76
0.95x
Project NAV
Target Multiple
Unadjusted Valuation
Adjustments
Total Valuation
$0.69
1.10x
$0.76
$0.10
$0.87
12-Month Target
Implied Return
$0.90
18.4%
Discount Rate (%)
Long-Term Gold Price (US$/oz)
0.90
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1,100
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.20
0.20
1,175
0.50
0.50
0.50
0.40
0.40
0.40
0.40
0.40
0.40
1,250
0.70
0.70
0.60
0.60
0.60
0.50
0.50
0.50
0.50
1,325
0.90
0.90
0.80
0.80
0.70
0.70
0.60
0.60
0.60
1,400
1.10
1.00
1.00
0.90
0.90
0.80
0.80
0.70
0.70
1,475
1.30
1.20
1.20
1.10
1.00
1.00
0.90
0.90
0.80
1,550
1.50
1.40
1.30
1.20
1.20
1.10
1.00
1.00
0.90
1,625
1.70
1.60
1.50
1.40
1.30
1.20
1.20
1.10
1.00
1,700
1.90
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.20
Source: Echelon Wealth Partners Estimates
Exhibit 4 — Price Target Sensitivities
$1.40
Total Adjusted NAV5% ($/shr)
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
-20%
-15%
Opex
-10%
-5%
0%
5%
Percent Variation
Initial Capex
Gold Price
10%
15%
20%
Olive Grade (g/t)
Source: Echelon Wealth Partners Estimates
Ryan Walker, MSc | 416.479.8997 | ryan.walker@echelonpartners.com
Page 9 of 41
Victoria Gold Corp. (VIT-TSXV) | 18 July 2016
Exhibit 5 — Echelon Wealth Partners Modelling Assumptions
Development Start
Commercial Production
Eagle FS (May 2015)
Echelon Wealth
Partners
% Difference
na
na
CQ119
CQ119
-
Mineable Resources
Average Gold Grade
M tonnes
g/t
91.6
0.78
102.6
0.84
12%
8%
Stripping Ratio
waste:ore
1.45
1.45
0%
Crushing Rate
Recovery Rate
tpd
%
29,500
72.9%
29,500
72.1%
-1%
Average LOM Gold Production
oz/year
192,000
198,400
3%
Average LOM Operating Costs
Mining
Processing
G&A
Total Unit Costs
$/t milled
$/t milled
$/t milled
$/t milled
4.77
6.33
1.11
12.21
5.07
7.02
1.15
13.24
6%
11%
4%
8%
Average Cash Costs
LT Gold Price Assumption
US$/oz
US$/oz
$614
$1,325
$696
$1,400
13%
6%
Capital Expenditures
Initial Capex*
Expansion & Sust. Capex
Closure
LOM Capital Expenditures
$M
$M
$M
$M
$399.7
$132.9
$84.2
$616.8
$432.6
$159.5
$85.0
$677.1
8%
20%
Notes:
C$, uunless otherwise noted.
10%
* Excludes $16.9M in pre-stripping cost
Source: Company Reports, Echelon Wealth Partners Estimates
Ryan Walker, MSc | 416.479.8997 | ryan.walker@echelonpartners.com
Page 10 of 41
13 July 2016
Healthcare & Biotechnology
TSO3
TOS-TSX: $3.26
Buy
Top Pick Mid-Year Update: Seminal US Regulatory Milestone
Enhances Our Expectations For Pace Of VP4 Unit Sales Ramp
Douglas W. Loe, PhD MDA | 416.775.1004 | Doug.Loe@echelonpartners.com
Siewching Yeo (associate) | 416.479.8995 | Siewching.Yeo@echelonpartners.com
296.7
Ent Value (C$M)
264.9
Pro forma cash (rec. Q, C$M)
31.8
Net Debt (rec. Q, C$M)
0.0
52 Week Range (C$)
$3.49-$1.42
Avg. Daily Volume (M)
1.1960
Fiscal Year End
Dec-31
Financial Metrics
2016E
In US$000's
Sterizone VP4 systems
$16,051
2017E
$64,350
Maint/service/consumab $1,261
Total revenue
$5,800
$14,438
$44,520
$78,788
($505) $13,000
$30,857
$17,312
EBITDA
EBITDA margin (%)
Net income
Fully-taxed EPS (fd)
2018E
$38,720
NA
29.2%
39.2%
($86)
$8,495
$20,995
($0.00)
$0.09
$0.22
P/E
NA
27.9217
11.3x
EV/EBITDA
NA
15.6325
6.6x
Quarterly Data
EBITDA ($M)
EPS (fd)
Q1
Q2
Q3
Q4
2015
(1.7)
(1.6)
(1.6)
(2.8)
2016
(0.6)
(0.6)
0.1
0.6
2015 ($0.02) ($0.02) ($0.02) ($0.03)
2016
$0.01 ($0.01) ($0.00)
$0.00
Company Description
TSO3 is a QC-based low-temperature hospital sterilization equipment developer, focused on its ozone-based
Sterizone VP4 platform; alliance partner identified
(Getinge AB) & regulatory approvals granted in North
America and Europe, so firm is poised to accelerate
revenue/EBITDA growth trajectory in F2016/17
$4.00
3
$3.50
2.5
$3.00
2
$2.50
$2.00
1.5
$1.50
1
$1.00
0.5
$0.50
May-16
Feb-16
0
Aug-15
$0.00
Nov-15
No change in VP4 unit sales ramp or embedded economics in our model: We have summarized
our assumed VP4 economics before, but in brief, we project transfer price to Getinge of
US$110,000 per device, peak capital equipment gross margin of 40-45%, and with each installed
VP4 system generating US$25,000 per year in higher-margin consumable biological/chemical
indicators, the economics of which we assume are shared equally by TSO3 and Getinge. We
upwardly revised our VP4 unit sales ramp on last week’s FDA expanded-claims-for-endoscopes
announcement, and we now believe TSO3/Getinge can sell 352 VP4s in F2017, 585 in F2018, and
94.9
Market cap (C$M)
May-15
Infection control leader and VP4 exclusive channel partner Getinge AB is sending out all the
positive signals we like to see on partnership commitment: We were encouraged to see that
partner Getinge published its own press release earlier this week on VP4’s new FDA regard,
indicating therein that it expects to market VP4 not just to US hospitals but to GI clinics and
endoscopy suites as well (or more likely, to the sterilization services firms that reprocess
endoscopes for them). Rarely does a multinational distributor take the time to recognize
milestones achieved by smaller development partners, unless relevant milestones are seen by the
distributor as being as transformative to its own commercial profile as to the developer with
which it is partnered. We are thus encouraged that Getinge looks to be as committed to
marketing VP4 worldwide as TSO3 was committed to developing it (and getting it FDA-approved)
in the first place. We already had renewed confidence in Getinge’s commitment to VP4
commercial success through investments in a US-based VP4-specific sales team.
91.0
Fully-diluted Shares O/S (M)
Feb-15
We thus anticipate abundant market value augmentation as TSO3/Getinge drive VP4 unit sales
over the next several quarters, and more specifically during FH216 during which our Top Pick
period applies. None of TSO3’s sterilization peers (J&J’s [JNJ-NY, NR] Sterrad, Steris’ [STQ-EU, NR]
V-Pro, Getinge’s own Noxilizer, and probably 3M Healthcare’s [MMM-NY, NR] legacy ETO-based
Steri-Vac) have been specifically recognized as being able to truly sterilize flexible multichannel
endoscopes as VP4 now has, and though no other device is specifically precluded from sterilizing
endoscopes by the FDA, none have been specifically recognized for that capability either and
probably because none have submitted validating endoscope-sterilizing data as TSO3 has.
Market Data
Basic Shares O/S (M)
Nov-14
Formal FDA recognition of endoscope sterilization capabilities confers differentiated regulatory
status on VP4 that we expect to accelerate market share capture: We identified TOS as our top
medical technology pick in 2015 as well, during which it generated a return of 45.8%, and so during
the period under which TOS was identified as a Top Pick by us, it has generated total return of 113%.
The value-enhancing milestones achieved during that era – excluding the formal FDA approval for
VP4 granted just before days earlier in Dec/14 – include the signing of the global distribution alliance
with Getinge AB back in Nov/15, the VP4 testing initiatives focused on demonstrating effective
sterilization of flexible multichannel endoscopes throughout FH116, and then garnering formal
recognition of endoscope sterilization capabilities by the FDA itself just days ago, an event that if
anything still underappreciated by capital markets despite recent TOS share price strength.
Target Return: 91.7%
Valuation: NPV (20% disc rate), 20x
EPS, 12.5x EV/ EBITDA (F2019 ests)
YTD Return: 48.2%
Aug-14
Event: We are maintaining Top Pick status for low-temperature hospital sterilization developer
(and now marketer!) TSO3, with our expectations for its lead ozone/hydrogen peroxide-based gas
sterilization platform VP4 poised to transition from being a regulatory risk investment into a
backlog build-out growth story, and then into a revenue/EBITDA growth story as VP4 captures
market share in the 30,000-unit global hospital sterilization market, with partner Getinge AB’s
(GETI.B-STO, NR) assistance of course.
Target $6.25
Page 11 of 41
TSO3 (TOS-TSX) | 13 July 2016
up to 1,143 by F2023, representing 12%/20%/38% of annual sterilization system turnover in the corresponding
period, not overly aggressive in our view when considering the limited number of competitors targeting this niche
healthcare segment. We are mindful of TSO3’s limited VP4 assembly capacity at its existing facility in QC, but we
believe the firm has long recognized the capacity constraints poised to impact operations as early as FH117 and could
expand operations either in QC or elsewhere during our forecast period, and perhaps as early as FH216.
Exhibit 1 – Revised Income Statement & Financial Forecast Data for TSO3
(US$000, except EPS)
2014A
2016E
2017E
2018E
2019E
2020E
2021E
2022E
0
1,233
16,051
38,720
64,350
80,300
103,180
113,520
119,460
433
400
1,261
5,800
14,438
23,563
35,288
48,188
61,763
$433
70%
NA
(686)
(158%)
($5,482)
NA
NA
($5,948)
($5,948)
($0.07)
NA
NA
$1,633
277%
22
(423)
(26%)
($7,689)
NA
NA
($8,133)
($8,133)
($0.08)
NA
NA
$17,312 $44,520
960%
157%
141
352
7,151
22,484
41%
51%
($505) $13,000
NA (2,675%)
NA
29%
$31 $12,136
($86)
$8,495
($0.00)
$0.09
NA
27.9x
NA
15.6x
$78,788
77%
585
41,229
52%
$30,857
137%
39%
$29,993
$20,995
$0.22
11.3x
6.6x
$103,863
32%
730
57,341
55%
$46,000
49%
44%
$45,136
$31,595
$0.33
7.5x
4.4x
$138,468
33%
938
78,190
56%
$65,792
43%
48%
$51,255
$45,450
$0.48
5.2x
3.1x
$161,708
17%
1,032
94,453
58%
$80,040
22%
49%
$56,028
$56,028
$0.59
4.2x
2.5x
$181,223
12%
1,086
109,343
60%
$93,673
17%
52%
$65,571
$65,571
$0.69
3.6x
2.2x
Sterizone VP4/125L+ systems
Maint/service/consumables
Total revenue
Revenue growth (%)
VP4 Unit sales
Gross margin
Gross margin (%)
EBITDA
EBITDA growth (%)
EBITDA margin (%)
Net Income
Net income, fully-taxed
Fully-taxed EPS (fd)
P/E
EV/EBITDA
2015A
Source: TSO3, Echelon Wealth Partners Inc.
Our model assumes F2016 VP4 unit sales of 143, and there is modest risk to achieving revenue from this many units
just on logistics of ramping VP4 assembly to that scale in the next 5-6 months, but we are separately confident that
backlog will climb up to and beyond that level in the next two quarters. Our $6.25 PT is still based on NPV (20%
discount rate) and multiples of our F2019 adjusted EBITDA/EPS projections ($46.0M, $0.33 respectively), and key
value-enhancing milestones to end-of-year are expected of course to be: (1) evidence of VP4 unit sales ramp above
historic levels (25 VP4 systems shipped in FQ116, probably similar in FQ216) in FH216, and (2) possible expansion of
FDA claims on endoscope sterilization to include next-generation duodenoscopes, the category of endoscope for
which so many incidence of scope-associated infections have been reported in recent quarters, driving demand for a
truly-effective sterilization modality like VP4 to be recognized as such by regulators.
Exhibit 2 – Valuation Scenarios For TSO3
NPV, discount rate
Implied value per share
10%
15%
20%
25%
30%
40%
$10.98
$8.41
$5.50
$5.18
$4.17
$2.82
Discounted projected share price to mid-2017
Price/earnings multiple, F2019
10x
15x
20x
25x
30x
40x
Implied share price 1
$2.31
$3.47
$4.63
$5.78
$6.94
$9.25
5x
10x
12.5x
15x
17.5x
20x
$1.86
$3.55
$4.39
$5.23
$6.07
$6.91
EV/EBITDA multiple, F2019
Implied share price
1
One-year TSO3 target price (US$)
$4.84
One-year TSO3 target price (C$)
$6.31
1
Based on fully-taxed F2019 EPS (fd) forecast of US$0.33, EBITDA of US$46.0M. Valuation based
on NPV (20% disc rate), EV incorporates FQ116 net cash of US$24.4M (no LT debt), fd S/O of 94.9M
Source: TSO3, Echelon Wealth Partners Inc.
Douglas W. Loe, PhD MBA | 416.775.1004 | Doug.Loe@echelonpartners.com
Page 12 of 41
TSO3 (TOS-TSX) | 13 July 2016
TEARSHEET - TSO3 (TOS-T, $3.26, BUY, PT: $6.25)
$4.00
Last Sale Price
50-day MA
3
200-day MA
2.5
$3.00
2
$2.50
1.5
$2.00
1
$1.50
May-…
Jan-16
Mar-16
Sep-15
Nov-15
May-…
Jul-15
Jan-15
Mar-15
Sep-14
Nov-14
May-…
Jul-14
Jan-14
Mar-14
Nov-13
0
Jul-13
0.5
$0.50
Sep-13
$1.00
Company Description
Consensus
Rating:
Buy
Target:
$5.13
Median:
$5.13
High:
$6.25
Low:
$4.00
# Est:
4
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Sector UnderPerform/Sell
TSO3 is a QC-based low-temperature hospital sterilization equip-ment
developer, focused on its ozone-based Sterizone VP4 platform, for which
regulatory approvals have now been granted in all major markets,
including the US in Dec-14, and global channel partner Getinge AB is
actively building out VP4-specific marketing & support infrastructure to
drive unit sales in F2016/17. Specific claims have been granted in
Canada & US for sterilizing flexible multichannel endoscopes,
differentiating VP4 from other sterilization platforms.
Volume (M Shares)
Stock Price ($)
$3.50
Return
57.2%
57.2%
91.7%
22.7%
4
0
0
Historical Valuations
LTM EV/EBITDA
60.0x
50.0x
40.0x
30.0x
TSO3
20.0x
Steris
10.0x
Financial Summary/Key Metrics
C$000's except for per share data
Total Revenue
Growth y/y
Cons.
Cons. 3 Mts. Ago
EBITDA
Margin
Cons.
Cons. 3 Mts Ago
Net Income
Adjusted EPS
Cons.
Cons. 3 Mts. Ago
Operating Cash Flow
2011
2012
2013
2014A
2015E
2016E
2017E
2018E
3,355
N/A
2,890
2,890
(7,473)
-222.7%
-6,851
-6,851
(7,655)
($0.12)
($0.14)
($0.14)
(8,645)
2,854
(14.9%)
2,189
2,189
(5,519)
-193.4%
-6,886
-6,886
(5,796)
($0.08)
($0.11)
($0.11)
(6,469)
254
(91.1%)
375
375
(6,931)
-2724.9%
-7,036
-7,036
(9,270)
($0.11)
($0.12)
($0.12)
(8,651)
433
70.2%
417
417
(5,482)
-1266.2%
-4,857
-4,857
(5,948)
($0.07)
($0.08)
($0.08)
(2,903)
1,633
277.2%
3,341
3,341
(7,689)
-470.8%
-5,898
-5,898
(8,133)
($0.08)
($0.08)
($0.08)
(7,045)
17,312
960.0%
17,311
20,170
(505)
-2.9%
-3,808
-2,050
(86)
($0.00)
($0.04)
($0.03)
(4,163)
44,520
157.2%
37,748
41,863
13,000
29.2%
1,987
8,766
8,495
$0.09
$0.02
$0.08
4,679
78,788
77.0%
75,285
63,642
30,857
39.2%
19,304
15,891
20,995
$0.22
$0.12
$0.12
20,209
Key Statistics
15.0%
$8.41
15.0x
$3.47
10.0x
$3.55
One year TOS Target Price 1
20.0%
$5.50
20.0x
$4.63
12.5x
$4.39
Value
$2.68
$1.09
1.20
91.0
296.7
36.1
202.0
0.0%
www.tso3.com
Dec 31
62
52-Wk High:
52-Wk Low:
Avg Vol (3-Mo)
Shares O/S:
Market Cap:
Net Debt:
Ent. Value:
Div Yield:
Website:
FYE:
Employees:
Top Inst. Ownership
Caisse de dépôt et placement du Québec
Fidelity Investments
Sprott Asset Management, LP
Gilder Gagnon Howe & Co. LLC
IG Investment Management, Ltd.
HSBC Global Asset Management (Canada) Limited
AGF Management Limited
Formula Growth Limited
Desjardins Global Asset Management Inc.
Valuation
NPV, Discount Rate
Implied value/share1
Price/Earnings Multiple
Implied value/share1
EV/EBITDA Multiple
Implied value/share1
Jul-16
Jul-16
Jul-16
Jul-16
Jul-16
Jul-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
Jun-16
May-16
May-16
May-16
May-16
May-16
May-16
May-16
May-16
May-16
May-16
0.0x
25.0%
$5.18
25.0x
$5.78
15.0x
$5.23
BlackRock, Inc.
$6.25
82.1%
33.4%
M Shares
9.16
9.05
8.11
4.89
2.88
1.10
0.94
0.70
0.15
% Held
10.1%
9.9%
8.9%
5.4%
3.2%
1.2%
1.0%
0.8%
0.2%
0.09
0.1%
1
Based on fully-taxed F2019 EPS (fd) forecast of US$0.33, EBITDA of US$46.0M. Valuation based on NPV (20% disc rate), EV incorporates FQ116
net cash of US$24.4M (no LT debt), fd S/O of 94.9M
Comparables and Peer Analysis
TSO3
3M
Balchem Corp
Getinge AB
Ion Beam Applications
Johnson & Johnson
Nanosonics
Steris
Average
Comparables - Multiples Analysis
TSO3
3M
Balchem Corp
Getinge AB
Ion Beam Applications
Johnson & Johnson
Nanosonics
Steris
Average
1
Ticker
TOS
MMM
BCPC
GETI.B
IBAB
JNJ
NAN
STE
2015
2.6%
4.4%
3.9%
3.5%
1.2%
4.9%
-0.3%
0.0%
Trading Current
Target
CCY
Price
Price
$6.25
CAD
$3.25
$172.00
USD
$179.44
$67.00
USD
$63.71
SEK
SEK 178.60 SEK 190.88
€40.07
EUR
€42.72
$117.83
USD
$123.18
$2.48
AUD
$2.38
$86.83
USD
$69.75
FCF Yield
2016E
-3.1%
4.7%
4.4%
5.6%
5.6%
4.9%
-1.3%
3.3%
2017E
-1.5%
5.0%
4.5%
6.6%
1.1%
5.3%
1.3%
5.7%
Div
Yield
Implied
% Return
0.0%
92.3%
2.5%
(1.7%)
0.5%
5.7%
1.6%
8.4%
3.3%
(2.9%)
2.6%
(1.7%)
0.0%
4.2%
1.4%
25.9%
1.5%
16.3%
% Return
Market Enterprise
Cap
Value
1-Week 1-Month 3-Month
294.9
263.3
0.0%
42.5%
39.5%
108,663.1 118,331.1
2.4%
7.4%
6.7%
2,000.6
2,313.7
7.0%
4.4%
2.0%
42,493.0 62,558.0
4.1%
6.9%
(7.2%)
1,227.5
1,177.5
2.4%
11.3%
15.2%
338,108.7 321,632.7
0.4%
5.5%
12.1%
704.3
672.6
5.8%
(1.2%)
3.9%
5,966.7
7,301.5
2.5%
2.0%
(2.5%)
62,432.4
64,281.3
Target - EV/EBITDA
T12M
2016E
Current - EV/EBITDA
T12M
2016E
NA
13.8x
17.9x
11.3x
41.8x
14.5x
NA
16.6x
-90.1x
13.4x
17.9x
10.9x
27.3x
12.8x
NA
16.9x
2017E
NA
12.9x
17.2x
9.5x
21.6x
12.0x
99.1x
12.8x
N/A
13.8x
17.9x
11.3x
N/A
14.5x
N/A
16.6x
19.3x
1.3x
26.4x
14.8x
NA
13.4x
17.9x
10.9x
NA
12.8x
NA
NA
NA
3.1%
2017E
NA
12.9x
17.2x
9.5x
21.6x
12.0x
NA
12.8x
NA
9.8%
1-Year
T12
107.0%
-5.1
14.5% 8,570.0
14.9%
129.6
(18.0%) 5,532.0
73.4%
28.2
23.5% 22,235.0
38.8%
-10.0
2.7%
439.1
8.7%
32.1%
EV/Revenue
T12M
2016E
2017E
47.7x
3.9x
4.3x
2.1x
4.4x
4.6x
28.7x
3.3x
15.2x
3.9x
3.8x
2.1x
3.6x
4.5x
17.0x
0.0x
12.4x
6.3x
7.0x
3.8x
3.5x
2.0x
3.1x
4.3x
12.1x
2.6x
4.8x
Consensus Valuations
EBITDA
EPS
2016E
2017E
T12
2016E
2017E
-2.9
1.5
($0.05)
($0.03)
$0.01
8,815.9 9,194.1
$7.94
$8.25
$8.93
129.1
134.2
$1.80
$2.48
$2.81
5,752.0 6,595.7
SEK 5.92 SEK 7.29 SEK 10.23
43.1
54.5
€2.17
€ 1.12
€ 1.41
25,158.2 26,803.2
$5.56
$6.59
$6.99
-2.3
6.8
($0.04)
($0.01)
$0.03
432.4
569.9
$1.57
$3.52
$3.92
Forward P/E
N12M
2016E
2017E
NM
21.6x
24.2x
23.7x
38.0x
18.5x
NM
17.7x
NM
21.7x
25.6x
24.4x
38.0x
18.6x
NM
0.0x
173.5x
20.1x
22.5x
17.4x
30.2x
17.6x
93.1x
17.7x
23.9x
21.4x
49.0x
T12M
NA
16.8x
NA
11.6x
8.4x
16.7x
-45.5x
15.2x
NA
P/CFPS
2016E
2017E
8.9x
20.0x
0.0x
16.6x
0.0x
10.6x
16.6x
18.6x
NM
0.0x
0.0x
15.4x
0.0x
9.3x
29.5x
15.6x
89.9x
0.0x
Targets, forecasts and valuations reflect consensus estimates derived from Capital IQ
Douglas W. Loe, PhD MBA | 416.775.1004 | Doug.Loe@echelonpartners.com
Page 13 of 41
13 July 2016
Healthcare & Biotechnology
Cipher Pharmaceuticals
CPH-TSX: C$7.20
Top Pick Mid-Year Update: Innocutis’ Aggressive Valuation
Does Not Distract Us From Its Commercial Opportunities
Target US$10.50
Buy
Event: We believe Cipher Pharmaceuticals’ YTD return of 4.8% is a modest warm-up
measured against our forecast return. Our Top Pick status reflects our positive view on where
this North American-focused, dermatology-focused specialty pharmaceutical can go if it
remains focused on that geography and on that specific ‘ology’ in future periods, building on
the brand equity that lead US isotretinoin formulation Absorica has already created, and
using the quarterly free cash that Absorica product sales generates to fund strategic product
acquisitions as Cipher has done many times in recent quarters.
Target Return: 83.2%
Valuation: 20x EPS, 10x EV/EBITDA
(F2018 forecasts)
YTD Return: 4.8%
Mkt cap (US$M)
149.9
A former Top Pick has strong potential to perform as well as in 2014: The elephant in the
room of course, is the fairly public shareholder challenge to Board configuration described in
the Jul/16 early warning announcement, which we will mention here only for the sake of
mentioning it here, and will henceforth emphasize elements of Cipher’s dermatology
franchise that we still see as attractive and meriting the Top Pick status we previously
ascribed to the firm. CFO departure/retirement creates a transient void in executive
leadership that we expect to be addressed imminently and does not dissuade us from
maintaining out Top Pick status on CPH/CPHR either. Recall that Cipher was a previous Top
Pick of ours in 2014, during which CPH (and its previous ticker symbol DND) generated total
return of 121.4%.
Ent Val (US$M)
156.0
Douglas W. Loe, PhD MDA | 416.775.1004 | Doug.Loe@echelonpartners.com
Siewching Yeo (associate) | 416.479.8995 | Siewching.Yeo@echelonpartners.com
26.2
Cash (US$M)
28.8
Total debt (US$M)
34.9
52 Week Range (US$)
$3.55-$10.25
Avg. Daily Volume (M)
0.1765
Fiscal Year End
Dec-31
Financial Metrics
2014A
2015A
2016E
Revenue ($M)
29.2
34.4
42.9
EBITDA ($M)
19.8
10.4
8.4
Net Income ($M)
18.7
2.0
(4.0)
$0.74
$0.08
($0.15)
7.7x
72.8x
NA
7.8x
15.0x
18.4x
In US$
EPS
P/E
EV/EBITDA
Quarterly Data
Q1
Q2
Q3
Q4
2014
7.1
8.0
6.6
7.5
2015A
7.4
8.8
8.5
9.7
2014
4.8
5.8
4.6
4.5
2015A
5.1
2.5
2.5
0.2
In US$M
REVENUE
Adj EBITDA
Company Description
Cipher is an ON-based specialty pharmaceutical
firm, with early pipeline drugs based on partner
Galephar's CIP platform (Lipofen/(CIP-fenofibrate,
ConZip-Durela/CIP-Tramadol, Absorica-Epuris/CIPisotretinoin), and with active expansion of North
American dermatology footprint by acquisition,
including SC-based Innocutis
$14.00
0.6
$12.00
0.5
$10.00
0.4
$8.00
0.3
$6.00
0.2
$4.00
May-16
Mar-16
0
Jan-16
0.1
$0.00
Nov-15
$2.00
Sep-15
US Absorica sales still providing risk-stabilizing free cash to fund future pipeline
acquisitions, and expected to do so until at least FQ420: Other dermatology assets could
eventually drive free cash flow growth, lead by mucoadhesive acyclovir HSV1 drug Sitavig,
but for now the headline drug in Cipher’s portfolio is the Ranbaxy/Sun Pharma (524715-BOM,
NR)-marketed orally-active CIP-isotretinoin cystic acne drug Absorica, which though passing
through its revenue maturation phase after substantial growth since its Dec/12 launch, is still
generating quarterly sales in the US$4.2M-to-US$4.8M range, and this is a level that we
expect Cipher to sustain at least until FQ420, when generic drug developer Allergan/Actavis
can launch its generic Absorica formulation if it chooses to, as per the agreement reached by
Cipher-Ranbaxy/Sun Pharma-Allergan/Actavis back in Oct/15 (which definitively countered
wide market perception – not shared by us, by the way - that Absorica was in danger of
Basic Shares O/S (M)
Jul-15
Innocutis’ EBITDA contribution has been soft since its acquisition, but its marketing
infrastructure and dermatology portfolio can be engines for growth, eventually: We have
described the Innocutis transaction before (for example, in our May/16 note) and questioned
then as we do now the wisdom of funding an at-the-time EBITDA-negative commercial-stage
pharmaceutical firm with interest-bearing debt, but however long we might wish to dwell on
its valuation (and we have!), we still endorse the strategic decision to establish Cipherspecific dermatology sales infrastructure and the decision to layer on new commercial pipeline through a combination of acquisition or in-licensing regional marketing rights. On
existing pipeline, we will reflect on Absorica separately below, but we remain positive about
the collection of singles-and-doubles that Cipher has added to the portfolio since F2012, each
with potential to be immediately accretive (Beteflam, Epuris, Dermadexin, Pruridexin,
Vaniqa, & Actikerall, with recently-filed ozenoxacin and Phase III-stage CF-101 on the horizon
in Canada), or eventually accretive (Sitavig, Nuvail, Bionect in the US) while the legacy CIP
portfolio of Lipofen-ConZip/Durela-Absorica generates stabilizing free cash.
Market Data
Page 14 of 41
Cipher Pharmaceuticals (CPH-TSX) | 13 July 2016
imminent genericization even though Allergan/Actavis had submitted an Absorica ANDA back in 2013). Absorica has
since its Dec/12 launch generated cumulative revenue/free cash of US$56.0M, and our model assumes that
cumulative revenue achievable from FQ216-FQ420 of US$99.5M provides valuation support at present levels. RoW
regulatory approvals/launches, mainly in Latin America where the drug is already partnered in Chile and Brazil,
provide upside to our CIP-isotretinoin royalty revenue projections. As a separate positive, the transparency on
Absorica’s free cash flow prospects conferred by the Allergan (AGN-NY, NR)/Actavis agreement last year should
mitigate Cipher’s cost-of-capital for any future product acquisitions it may contemplate.
Exhibit 1 – Income Statement & Financial Forecast Data For Cipher
2012A
2013A
2014A
2015A
2016E
2017E
2018E
Revenue, ConZip/Durela
1,278
1,963
1,909
1,658
1,773
1,685
1,694
Revenue, Lipofen
4,103
3,317
5,072
4,561
3,309
4,171
4,913
Revenue, CIP-isotretinoin (N.Am)
1,945
13,842
20,444
21,111
22,678
23,389
25,452
Revenue, CIP-isotretinoin (RoW)
0
0
0
0
954
2,372
2,904
Revenue, other Cdn
0
0
0
452
580
849
1,244
Revenue (Ozenoxacin)
0
0
0
0
0
318
688
Revenue, Sitvig (US)
0
0
0
1,675
6,281
13,943
28,524
Revenue, Sitvig (Cda)
0
0
0
0
48
351
968
Revenue, Innocutis (non-Sitvig)
0
0
0
3,652
5,618
9,132
13,370
(US$000, except EPS)
1,142
6,870
1,800
1,300
1,620
1,600
0
$8,469
$25,992
$29,224
$34,409
$42,859
$57,810
$79,758
Revenue growth (%)
135%
207%
12%
18%
25%
35%
38%
Operational expenses
4,798
7,035
9,416
24,059
34,435
37,710
46,761
$32,997
Milestone payments, other
Total revenue
EBITDA
$3,671
$18,957
$19,808
$10,350
$8,424
$20,100
EBITDA growth (%)
NA
416%
4%
(48%)
(19%)
139%
64%
EBITDA margin (%)
43.3%
72.9%
67.8%
30.1%
19.7%
34.8%
41.4%
Non-operating expenses
$1,273
$1,559
$1,883
$6,633
$8,411
$9,100
$9,100
Net interest expense (income)
($155)
($240)
($441)
$3,453
$3,866
$3,426
$3,426
$777
$42
($380)
($2,916)
$162
$1,893
$5,118
$1,777
$17,595
$18,746
$2,035
($4,015)
$5,680
$15,353
Fully-taxed EPS (basic)
$0.07
$0.72
$0.74
$0.08
($0.15)
$0.22
$0.59
Fully-taxed EPS (fd)
$0.07
$0.67
$0.70
$0.07
($0.15)
$0.21
$0.56
P/E (basic)
78.7x
8.0x
7.7x
72.8x
NA
26.2x
9.7x
EV/EBITDA
42.3x
8.2x
7.8x
15.0x
18.4x
7.7x
4.7x
Tax expense, exc carryforwards
Adj net inc, tax-affected
Source: Cipher, Echelon Wealth Partners Inc.
We stand by our view that Sitavig can emerge as a leading acyclovir/HSV1 therapy, even though recent Rx trends
have been sequentially flat: As we describe in our Healthcare Weekly, F2016 Sitavig sales-to-date are certainly up
solidly y/y but recent weekly Rx volumes have trended flat since the uptick experienced in FQ415 and we will be
watching closely for evidence that Cipher’s Sitavig promotional efforts are gaining traction in an HSV1/acyclovir
market that is well-populated by generic competitors already, though none with Sitavig’s muco-adhesive formulation
and the sustained antiviral activity it engenders. But then so did Absorica, and like Absorica, Sitavig has demonstrably
superior patient outcomes based on formulation innovations (initially developed by BioAlliance[Private]) conferring
more sustainable anti-viral activity and with fewer cold sore break-out episodes than alternative generic formulations.
This feature should resonate with prescribing physicians and patients in time. Our model still assumes US$1.4MUS$1.8M-US$2.2M in FQ216-to-FQ416 Sitavig sales and we still project Sitavig US sales of US$28.5M by F2018, well
within range of Cipher’s own projected sales ramp that predicts gross sales of US$100M are achievable by F2020.
Summary & valuation: We are maintaining our BUY rating and PT of US$10.50 on CPH/CPHR with our valuation still
based on the average of 20x F2018 fully-taxed EPS (US$0.59/shr) and 10x EV/F2018 adjusted EBITDA (US$33.0M),
with our EV calculation now incorporating FQ116 balance sheet data (cash of US$28.8M, total debt of US$34.9M). At
current levels, our PT corresponds to a one-year return (excluding the 4.8% return generated YTD) of 83.2%. Share
Douglas W. Loe, PhD MBA | 416.775.1004 | Doug.Loe@echelonpartners.com
Page 15 of 41
Cipher Pharmaceuticals (CPH-TSX) | 13 July 2016
price catalysts are likely to be revenue/EBITDA-driven – we and capital markets will need to see sustained Absorica
revenue stability (a reasonable expectation) coupled with evidence of sequential revenue growth in the Innocutis
pipeline (Rx data we have reviewed in FH116 indicated fairly flat Rx performance in FQ216) and perhaps evidence that
Cipher’s team can identify new accretive pipeline opportunities on attractive terms.
Douglas W. Loe, PhD MBA | 416.775.1004 | Doug.Loe@echelonpartners.com
Page 16 of 41
Cipher Pharmaceuticals (CPH-TSX) | 13 July 2016
Last Sale Price
50-day MA
0.6
200-day MA
0.5
0.4
0.3
0.2
Company Description
Volume (M Shares)
0.1
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Jan-15
Mar-15
0
Feb-15
Stock Price ($)
TEARSHEET - Cipher Pharmaceuticals (CPHR-Q, US$5.73, BUY, PT: US$10.50)
$20.50
$18.50
$16.50
$14.50
$12.50
$10.50
$8.50
$6.50
$4.50
$2.50
$0.50
Consensus
Cipher Pharmaceuticals is an ON-based specialty pharma-ceutical
firm, with three already-approved & marketed con-trolled-release
oral therapies from its legacy portfolio - Lipofen (CIP-fenofibrate),
ConZip-Durela (CIP-Tramadol), Absorica-Epuris (CIP-isotretinoin) plus newly-acquired Innocutis-derived derm-atology therapies in
Sitavig-Nuvail-Bionect and several licensed dermatology assets
expected to be accretive by F2017/18 (Dermadexin, Pruridexin,
ozenoxacin, CF101)
Return
Rating:
Outperform
Target:
$9.25
28.5%
Median:
$9.25
28.5%
High:
$11.00
52.8%
Low:
$7.50
4.2%
# Est:
2
Consensus Distribution
Sector Outper/Buy
6
Sector Perform/Hold
0
Sector UnderPerform/Sell
0
Historical Valuations
NTM EV/EBITDA
30.0x
LTM EV/EBITDA
Cipher
14.0x
Merus
Cipher
12.0x
25.0x
20.0x
8.0x
15.0x
6.0x
10.0x
4.0x
5.0x
2.0x
Financial Summary/Key Metrics
2013
2014
1Q-15
2Q-15
4Q-15
2016E
Growth y/y
Cons.
Cons. 3 Mts. Ago
26.0
29.2
7.4
8.8
8.5
9.7
34.4
42.9
57.8
382.7%
22.8
22.8
12.4%
32.0
32.0
308.6%
9.0
9.0
442.4%
11.4
11.4
299.4%
11.8
11.8
235.0%
12.8
12.8
17.7%
22.8
22.8
24.6%
32.0
32.0
34.9%
45.2
45.2
19.0
19.8
5.1
2.5
2.5
0.2
10.4
8.4
20.1
Margin
72.9%
14.8
14.8
67.8%
22.3
22.3
68.7%
6.4
6.4
28.7%
4.2
4.2
30.1%
3.0
3.0
1.9%
3.8
3.8
30.1%
14.8
14.8
19.7%
22.3
22.3
34.8%
14.2
14.2
Cons.
Net Income
Adjusted EPS
Cons.
Cons. 3 Mts. Ago
17.6
18.7
$0.72
$0.74
$0.54
$0.54
$0.82
$0.82
2.7
$0.11
$0.18
$0.18
(0.7)
(2.2)
($0.03)
($0.09)
$0.09
2.3
$0.06
$0.06
($0.05)
($0.05)
($0.03)
($0.03)
2.0
$0.08
$0.54
$0.54
Valuation
17.5x
$8.98
9.0x
$9.72
Price/Earnings Multiple
Implied value/share
EV/EBITDA Multiple
Implied value/share
One year Cipher Pharmaceuticals Target Price (US$)
(4.0)
$0.22
$0.82
$0.82
($0.03)
($0.03)
20.0x
$10.26
10.0x
$10.83
Ticker
Cipher Pharmaceuticals
CPH
Allergan
ACT
Concordia
AGN
CAH
Celgene
CELG
Endo Pharmaceuticals
ENDP
Gilead Sciences
Teva
Valeant
GILD
TEVA
VRX
Average
Comparables - Multiples Analysis
Cipher Pharmaceuticals
2017E
T12
2016E
2017E
0.3%
2.9%
5.5%
NA
17.7x
9.9x
N/A
16.2x
21.3x
NA
9.7x
27.4x
21.2x
5.7x
8.8x
7.7x
14.5x
17.4x
7.0x
9.1x
NA
7.7x
6.0x
7.2x
8.0x
10.0x
14.8x
6.4x
8.5x
NA
6.7x
6.2x
5.7x
7.4x
8.2x
21.3x
11.5x
Allergan
6.0%
6.5%
7.4%
Concordia
7.6%
35.4%
45.2%
Cardinal Health
6.8%
7.4%
8.2%
Celgene
4.3%
5.5%
6.9%
Endo Pharmaceuticals
Gilead Sciences
Teva
Valeant
Average
3.2%
25.3%
25.7%
15.2%
14.6%
14.7%
9.2%
11.1%
12.7%
44.2%
44.9%
51.5%
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Jul-15
Sep-15
34.9
142.5
0.0%
www.cipherpharma.com
Dec 31
Employees:
12
Top Institutional Ownership
Montrusco Bolton Investments Inc.
Grandeur Peak Global Advisors, LLC
Taylor Asset Management, Inc.
Acadian Asset Management, Inc.
Intact Investment Management Inc.
Northwest & Ethical Investments L.P.
Raffles Associates LP
AWM Investment Company Inc.
1832 Asset Management L.P.
Manulife Asset Management
22.5x
$11.55
11.0x
$11.93
Target - EV/EBITDA
Current - EV/EBITDA
2016E
26.2
188.4
FYE:
% Return
Trading Current Target Dividend
Market Enterprise
CCY
Price
Price
Yield % Return
Cap
Value
1-Week 1-Month 3-Month
$10.50
0.0%
46.9%
CAD
$7.15
177.9
185.8
4.8%
(0.7%) (11.1%)
USD
$243.07 $297.59
0.0%
22.4% 94,815.0 140,037.1
2.6%
(0.2%)
12.3%
CAD
$26.70
$38.00
1.4%
43.8%
1,385.1
5,441.0
2.9% (10.0%) (13.9%)
USD
$82.12
$90.06
2.2%
11.9% 26,642.3 29,724.3
2.7%
5.0%
(2.1%)
USD
$102.76 $135.05
0.0%
31.4% 80,101.5 88,640.5
(1.8%)
1.1%
(4.0%)
USD
$17.48
$29.70
0.0%
69.9%
3,872.1 12,214.8
2.2%
4.8% (35.6%)
USD
$86.38 $110.89
2.2%
30.5% 115,375.7 129,707.7
0.8%
2.9% (12.0%)
USD
$54.77
$71.44
3.2%
33.7% 47,948.4 55,966.4
8.9%
2.9%
(1.7%)
USD
$22.37
$42.21
0.0%
88.7%
7,922.5 38,694.7
(3.0%)
(5.9%) (30.9%)
1.0%
42.1% 42,026.7 55,623.6
2.2%
(0.0%) (11.0%)
FCF Yield
Shares O/S:
Market Cap:
Website:
$10.50
2015
$3.67
$0.18
Div Yield:
Based on F2018 adjusted fully-taxed EPS forecast of US$0.59; adjusted EBITDA forecast of US$32.9M
2
Based on 10× EV/EBITDA, 20x EPS (F2018 adj forecasts); FQ116 US$28.8M, LT debt of US$34.9M
Comparables and Peer Analysis
52-Wk Low:
Avg Vol (3-Mo)
Net Debt:
7.6
($0.15)
$10.25
Ent. Value:
1
Cardinal Health
Value
52-Wk High:
EBITDA
Cons. 3 Mts Ago
Aug-15
Key Statistics
2017E
US$MM except for per share data
Total Revenue
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Dec-14
2015
Feb-15
0.0x
Jun-16
Jun-16
Apr-16
3Q-15
May-16
Apr-16
Mar-16
Feb-16
Feb-16
Jan-16
Dec-15
Dec-15
Nov-15
Oct-15
Sep-15
Sep-15
Aug-15
Jul-15
Jul-15
Jun-15
May-15
Apr-15
May-15
Mar-15
Mar-15
Feb-15
0.0x
1
Merus
10.0x
M Shares
% Held
2.31
2.25
1.19
0.71
0.53
0.47
0.45
0.25
0.21
0.13
8.8%
8.6%
4.6%
2.7%
2.0%
1.8%
1.7%
1.0%
0.8%
0.5%
Forecast
EBITDA
2016E
1-Year
T12M
2017E
2.2
8.8
15.8
(30.9%)
(24.3%) 6,573.4 8,062.0 9,484.1
(74.3%)
363.4
598.2
653.9
(4.7%) 3,062.0 3,268.7 3,512.2
(16.4%) 3,237.1 6,158.7 7,516.4
(79.6%)
575.5 1,594.5 1,810.4
(26.4%) 22,899.0 21,631.7 20,913.3
(14.0%) 6,386.0 7,745.5 9,775.8
(90.6%) 4,943.6 4,757.3 5,143.5
(40.1%)
EV/Revenue
T12
EPS
2016E
2017E
($0.13)
($0.21)
($0.03)
($6.21)
($0.91)
$4.22
$2.14
($2.57)
$12.06
$1.95
($2.21)
$14.19
$6.19
$5.24
$5.68
$4.57
$12.08
$5.28
$6.62
$17.48
$7.45
$5.71
$7.01
$5.09
$12.35
$6.11
$7.88
P/E
P/CFPS
T12M
2016E
2017E
T12
FY1
FY2
2015
9.1x
4.3x
3.3x
2.6x
NA
NA
NA
NA
0.0x
0.0x
17.4x
14.8x
7.6x
20.6x
1.9x
1.9x
9.7x
9.1x
8.5x
0.2x
0.2x
10.3x
8.9x
9.5x
N/A
14.4x
11.8x
8.1x
6.8x
30.6x
22.9x
15.7x
21.2x
7.7x
6.7x
3.1x
2.9x
80.0x
7.7x
3.6x
5.7x
6.0x
6.2x
4.2x
4.2x
8.4x
7.9x
6.6x
8.9x
7.1x
5.9x
2.5x
2.2x
11.0x
11.0x
9.2x
7.8x
8.1x
7.5x
3.9x
3.7x
24.8x
3.0x
2.4x
12.3x
10.3x
8.5x
4.2x
3.8x
13.8x
2.7x
14.4x
14.6x
3.4x
7.0x
8.9x
2.8x
8.5x
13.5x
4.0x
17.1x
3.3x
15.7x
18.0x
3.8x
7.1x
10.3x
3.3x
9.8x
17.7x
4.3x
NA
NA
19.5x
47.9x
NA
7.2x
27.9x
NA
25.6x
23.3x
6.4x
8.6x
7.1x
0.3x
9.2x
3.5x
3.9x
2.9x
3.6x
4.8x
8.4x
7.0x
NA
9.0x
6.9x
T12M
2016E
2017E
2016E
2017E
Targets, forecasts and valuations reflect consensus estimates derived from Capital IQ
Douglas W. Loe, PhD MBA | 416.775.1004 | Doug.Loe@echelonpartners.com
Page 17 of 41
19 July 2016
Real Estate
Edgefront REIT
ED.un-TSX: $1.78
Buy
H216 Small Cap Top Pick – Stable, De-Risked, High Yield
C$2.20 Target
Projected Return: 32.8%
Valuation: 11.0x TP/FFO (F2016)
Event: We are naming Edgefront REIT as our Small Cap Top Pick for the REIT sector.
Best-in-Class Risk Adjusted Returns: Edgefront predominantly owns Single-Tenant, TripleNet leased properties with exceptionally strong tenant covenants all tied to long-term debt
commitments. This equates to highly de-risked, stable and escalating cash flows coupled with
constant, fixed debt costs, or more succinctly, something approximating an inflation
protected bond yielding almost 9%.
While the REIT has a heavy Western Canada focus, its long-term leases with strong tenant
covenants mitigate any macro weakness in those markets and do not view these leases as
negative in terms of valuations. Many of the REIT’s leases are now ultimately backstopped by
the Ontario Municipal Employees Retirement System (OMERS), one of Canada’s largest
pension funds. The majority of the remaining leases are held by companies associated with
TriWest Capital Partners, the REIT’s largest unit holder which also has direct exposure to the
REIT’s external management company. This level of tenant covenant coupled with Triple-Net
leases, where the tenant is responsible for all property costs and the REIT has little
responsibility other than accepting its rent cheques, have significantly de-risked the REIT’s
cash flows. This stability is further bolstered by the fact that the REIT has no lease roll-over
until December 2018, no significant lease roll-over until 2025, and no debt maturities until
2019. Until then, barring additional acquisitions, Edgefront is closely approximating an
inflation protected bond. A bond yielding almost 9%.
Edgefront, currently an ~$72M market cap REIT, acquired over $50M worth of new
properties over the course of 2015 without tapping the Equity Capital Markets. It did this by
convincing vendors to take back units in the REIT at an average of 8% premium to the
currently trading unit price. We calculated that those vendor take-back transactions saved
the REIT ~7.2% of the gross acquisitions costs of these properties. We expect that Edgefront
will continue to be able to do similar transactions in the future as well as larger ones utilizing
the capital markets.
Edgefront then is unique among its small cap peers in that its risk profile bests many of the
most conservative, large cap players in the REIT sector while it continues to pay one of the
largest yields (8.8% at time of publishing) in the REIT universe. With a low payout ratio,
exceptionally safe cashflows, and the potential for further accretive acquisitions, we name
Edgefront REIT as our Small Cap Top Pick for the second half of 2016.
VALUATION – Maintain Buy Rating and Target of $2.20
We are maintaining our 12-month price target of $2.20 and Buy rating and naming
Edgefront as a Top Pick. Echelon Wealth Partners estimates NAV/unit of $2.20 (calculated
using a 7.5% cap rate). Our target is ~11.0x our 2016E FFO of $0.20/unit (was $0.19/unit) and
10.0x our 2016E AFFO of $0.22/unit (was $0.21/unit). Our 2017E FFO is at $0.22/unit and our
2017E AFFO is at $0.25/unit.
Robert Sutherland, FRI(E) | 416.933.3353 | Rob.Sutherland@echelonpartners.com
Market Data
$71.7
40.3
26.7
9.0%
$81.0
Market Capitalization
Units S/O (M)
Float S/O (M)
Yield
Total Debt (M) (1)
50.3%
17,990
$1.4 - $1.9
Debt/GBV (1)
Average Volume (3mo)
52 Week Range ($)
Financial Metrics
FY-Dec 31
Quaterly FFO
2015
2016
2017
Annual
FFO
AFFO
Current Multiples
P/FFO
P/AFFO
Target Multiples
Target/FFO
Target/AFFO
Distribution
Q1
Q2
Q3
Q4
$0.04A $0.04A $0.05A
$0.05A $0.05E $0.05E
$0.05E $0.05E $0.05E
15A
16E
$0.18 $0.20
$0.21 $0.22
10.0x
8.6x
$0.05A
$0.05E
$0.05E
17E
$0.22
$0.25
8.9x
8.1x
8.1x
7.1x
12.4x 11.0x
10.7x 10.0x
$0.16A $0.16E
10.0x
8.8x
$0.16E
NAV Estimate
$2.20
Company Description
Edgefront REIT, the successor to Edgefront Realty Capital
Corp. is an owner and operator of commercial real estate
properties in Western Canada and Atlantic Canada with a
primary focus on Indurstrial properties. As of March 31tt
2016, Edgefront owned a 100%-occupied 19 property
portfolio covering 1.03M sq. ft. in rentable area.
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
Sep-15
Nov-15
Jan-16
Volume
Mar-16
May-16
$1.90
$1.80
$1.70
$1.60
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
Jul-16
Price
Source: Company Reports, S&P Capital IQ
(1) As of last reported quarter
Page 18 of 41
Edgefront REIT (ED.un-TSXV) | 19 July 2016
Edgefront Real Estate Investment Trust (TSXV:ED.un, $1.78) - Data Sheet
Geography
Portfolio Distribution by Area
5.9%
Yellowknife
Rycroft
Clairmont
Grand Prairie
Edmonton
Lloydminster
Kamloops
Calgary
Lethbridge
10.6%
Saskatchewan
British Columbia
15.7%
Saskatoon
Miramichi
Charlottetown
Moose Jaw
52.2%
Northwest
Territories
Prince Edward
Island
Ontario
15.2%
Lease Expiries by Year
10%
6%
26%
2018-2020
2024
2029
Q1 2016
Q4 2015
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
2025
Q1
$0.04A
$0.05A
$0.05E
Q2
$0.04A
$0.05E
$0.05E
15A
$0.18
$0.21
Q3
$0.05A
$0.05E
$0.05E
16E
$0.20
$0.22
10.0x
8.6x
8.9x
8.1x
12.4x
10.7x
$0.16
78%
11.0x
10.0x
$0.16
73%
$60.0
3.50%
3.00%
$40.0
Millions
Millions
$100
$50
2.50%
$30.0
2.00%
1.50%
$20.0
1.00%
$10.0
0.50%
$0.0
Cash and
Equivalents
Interest
Rate
0.00%
Comparables Price Performance
3 Month Price Performance
TSX:AAR.un
TSX:DIR.un
TSX:AAR.un
TSX:DIR.un
-2%
2%
4%
6%
8%
Comparables Financial Metric
0%
10%
Ticker
Pure Industrial Real Estate Trust
TSX:AAR.un
Dream Industrial Real Estate InvestmTSX:DIR.un
Summit Industrial Income REIT
TSX:SMU.un
WPT Industrial Real Estate Investme OTCPK:WPT
Edgefront Real Estate Investment Tr TSXV:ED.un
0.1
$1.40
0.1
$1.20
0.0
20%
Top Holders
TriWest Capital Partners
DCSR Investment Corp
Hanczyk, Kelly Clark
Manziaris, Theodore Peter
Forgione, Mario
TSXV:ED.un
$2.20
$1.78
$1.90
$1.40
$71.66
$2.20
-19.1%
50.3%
3.37%
$0.16
9.0%
Current
Buy
$2.18
$2.18
$2.20
$2.15
$2.13
$0.16
Return
3%
3%
5%
2%
2
0
0
Shares (000s)
10,957.37
1,000.00
711.79
547.50
408.36
% Held
27.2%
2.5%
1.8%
1.4%
1.0%
Company Description
OTCPK:WP
TI.F
TSXV:ED.un
TSXV:ED.un
0%
0.2
$1.60
TSX:SMU.un
OTCPK:WP
TI.F
TSXV:ED.un
0.2
$1.80
TSX:DIR.un
TSX:SMU.u
n
OTCPK:WPT
I.F
-4%
12 Month Price Performance
6 Month Price Performance
TSX:AAR.un
TSX:SMU.un
0.3
$2.00
Market Data As of 18/07/2016
TSX
Echelon Target Price
Closing Price Date 18/07/2016
52-Week High
52-Week Low
Market Cap ($M)
NAV
Current Price Premium/Discount to NAV
8.1x Debt/GBV
7.1x Mortgage Weighted Average Interest Rate
Current Distribution (p.a.)
10.0x Current Distribution Yield (p.a.)
8.8x
$0.16 Consensus
3 Mo. Ago
64% Rating:
Buy
Target:
$2.18
Median:
$2.18
High:
$2.20
Debt Low:
$2.15
Principal &
NAV/Share:
$2.18
Interest
AFFO/Share:
$0.16
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Weighted
Average
Sector UnderPerform/Sell
4.00%
$50.0
$150
Investment
Properties
0.3
$2.20
Q4
$0.05A
$0.05E
$0.05E
17E
$0.22
$0.25
Debt Chart
$200
Revolving
Credit
Facility
0.4
$2.40
57%
Key Financial Metrics (C$)
Quaterly FFO
2015
2016
2017
Annual
FFO
AFFO
Current Multiples
P/FFO
P/AFFO
Target Multiples
Target/FFO
Target/AFFO
Distribution
AFFO Payout
Capital Stack
Mortgages
Payable
$2.60
Volume (M Shares)
105.00%
100.00%
95.00%
90.00%
85.00%
80.00%
75.00%
70.00%
BUY
$2.20
$1.78
23.6%
9.0%
32.6%
Stock Price / Volume Chart
Stock Price ($)
Occupancy
$0
Recommendation
Rating:
Target:
Last Price:
Price Return:
Yield:
Total Return:
Alberta
0.4%
July 18, 2016
30%
40%
50%
-15%
-10%
-5%
0%
Unit
Market
Cap
Debt/GBV
Yield
$5.22
$9.01
$6.28
$10.91
$1.78
$1,130.3
$698.7
$218.1
$442.5
$71.7
43.7%
54.1%
55.9%
48.6%
50.3%
44.1%
7.8%
8.0%
6.4%
17.5%
5%
10%
15%
AFFO
Payout
Ratio
85%
87%
100%
86%
76%
Rob Sutherland, Analyst | 416.933.3353 | rob.sutherland@echelonpartners.com
Robert Sutherland, FRI(E) | 416.933.3353 | Rob.Sutherland@echelonpartners.com
Edgefront REIT, the successor to Edgefront Realty Capital Corp. is an owner
and operator of commercial real estate properties in Western Canada and
Atlantic Canada with a primary focus on Indurstrial properties. As of March
31st 2015, Edgefront owned a 100%-occupied 19 property portfolio covering
1.03M sq. ft. in rentable area.
Recent Financings
Jun-27-2014
Follow-on Offering
Jan-08-2014
Follow-on Offering
Apr-11-2013
Follow-on Offering
Size (Millions)
$178.27
$74.82
$184.10
Source: Echelon Wealth Partners Inc., Company Reports and Filings, Capital IQ
Note: All prices as of Market close 18/07/2016
Page 19 of 41
19 July 2016
Real Estate
Pure Industrial REIT
H216 Large Cap Top Pick – Conservative, Nimble, Growing
AAR.un-TSX: $5.22
Buy
C$5.50 Target ↑ (prev. $5.45)
Event: We are reiterating PIRET as our Large Cap Top Pick for the REIT sector.
Conservative Underpinnings: We continue to feel that the REITs with strong balance sheets;
strong tenant covenants; significant, long-term debt and leases; and US dollar exposure will
be the ones best able to weather our current market volatility.
PIRET, with its recent move to further cut its debt/GBV further de-risked its already sound
financial metrics and debt profile and perfectly fits our ideal of a conservative but nimble
REIT.
The REIT has a solid development pipeline which will create internal growth along with
substantial dry powder, the ability to sell non-managing interests in large subsections of its
portfolio and strong JV partners. These combine to allow for almost any level of growth
through external acquisition.
It has been our argument that PIRET is run more like a Pension Fund compared to many other
REITs. While short-term performance is important at the REIT, long-term value creation is
paramount, and it must be done in a conservative way to weather storms which invariably
brew over a long enough period. PIRET has been incredibly diligent, entering new markets
where spreads are better, building when it couldn’t or wouldn’t buy and doing both with
conservative leverage coupled to long-term leases with high quality covenants.
The fact that well over 20% of its NOI comes from US properties and 19.8% of its NOI comes
from the US portion of its FedEx (FDX-NY, NR) portfolio further strengthens this story against
the backdrop of Canada’s stumbling economy.
We feel that the REIT’s FedEx portfolio has not been adequately appreciated by the market
as a whole, undervaluing its FedEx covenant, its existing robust cash on cash returns and its
ability to unlock capital through a potential non-managing interest partial disposition.
We have previously discussed the REIT’s ability to, if it chooses, drastically increase AUM with
minimal or no cash outlays through dispositions of non-managing interests in portfolios. This
comes back to PIRET’s Pension Fund-esque management style. Pension Funds and other
large, adroit managers have used this technique to increase cash flow back to their coffers,
selling other investors on their superior ability to manage and execute on transactions. PIRET
has both shown an eagerness and an ability to manage for other parties in a JV and we
expect it to continue to do this in the future.
A sale of a 50% non-managing interest in PIRET’s US FedEx portfolio at a 6.3% cap rate and
accounting for the current mortgages on the properties could net the REIT ~C$80M.
Reinvesting that capital with a JV partner on a 50-50 basis at a 50% LTV could allow the REIT
to grow its AUM by ~C$320M.
Assuming a 2% asset management fee, the 50% sell down of the US FedEx portfolio would
see the REIT’s cash outlay in the portfolio drop to under ~C$26M while its total NOI and asset
Robert Sutherland, FRI(E) | 416.933.3353 | Rob.Sutherland@echelonpartners.com
Projected Return: 11.4%
Valuation: 13.8x TP/FFO (F2017)
Market Data
$1,146.4
219.6
215.5
6.0%
$852
43.7%
476,470
$4.1 - $5.27
Market Capitalization
Units S/O (M)
Float S/O (M)
Yield
Total Debt (M)
Debt/GBV
Average Volume (3mo)
52 Week Range ($)
Financial Metrics
FY-Dec 31
Quaterly FFO
2015
2016
2017
Annual
FFO
AFFO
Current Multiples
P/FFO
P/AFFO
Target Multiples
TP/FFO
TP/AFFO
Distribution
AFFO Payout Ratio
NAV Estimate
Q1
Q2
Q3
Q4
$0.10A $0.09A $0.10A
$0.10A $0.11E $0.10E
$0.10E $0.10E $0.10E
15A
16E
$0.39 $0.41
$0.35 $0.37
$0.10A
$0.10E
$0.10E
17E
$0.40
$0.37
13.4x
14.9x
12.7x
14.1x
13.1x
14.1x
14.1x
15.7x
$0.31
89%
13.4x
14.9x
$0.31
84%
13.8x
14.9x
$0.31
84%
$5.20
Company Description
Pure Industrial Real Estate Trust is Canada's largest internally
managed public REIT with its head quarters located in
Vancouver, BC. PIRET focuses exclusively on Industrial
properties with a portfolio spread across Canada and the US.
As of March 31st, 2016, the REIT owned 166 investment
properties spanning ~15.8M sq. ft. of GLA (effective) in
addition to 2 properties under development comprising of
482K sq. ft. and 26.4 acres of land held for development.
2.50
$5.40
$5.20
2.00
$5.00
$4.80
1.50
$4.60
1.00
$4.40
$4.20
0.50
0.00
Jul-15
$4.00
$3.80
Sep-15 Nov-15 Jan-16 Mar-16 May-16
Volume (M)
Price
Source: Company Reports, S&P Capital IQ, Echelon
Wealth Partners Inc.
Page 20 of 41
Pure Industrial REIT (AAR.un-TSX) | 19 July 2016
management revenue from the properties would only drop ~17% creating an ~70% annual cash on cash return on the
US FedEx portfolio going forward. This might be a conservative REIT but it has the ability to create anything but
conservative returns.
While our model assumptions and unit/NAV valuations do not take into account the potential of these prospective
disposition/acquisitions or transformational changes in perceived value of FedEx’s cash flow, we feel that the REIT has
the potential to fundamentally change its valuation through massive AUM expansion, significant asset management
fee onboarding, and the re-pricing of its substantial FedEx-sourced NOI.
VALUATION – Maintain Buy Rating and Increasing Target to $5.50
We are raising our 12-month price target to $5.50 (was $5.45) and reiterating our Top Pick/Buy recommendation. As
PIRET continues to grow and further consolidate its conservative underpinnings we feel that incremental multiple
expansion is warranted. Our 2016 and 2017 FFO numbers remain $0.41 and $0.40 (was $0.45), respectively, while our
2016 and 2017 AFFO numbers remain $0.37 and $0.37, respectively. Our NAV stays at $5.20. Our target equates to
13.75x our 2017E FFO and represents a 5.7% premium to our NAV indicating the value of the REIT’s platform and
management team.
Robert Sutherland, FRI(E) | 416.933.3353 | Rob.Sutherland@echelonpartners.com
Page 21 of 41
Pure Industrial REIT (AAR.un-TSX) | 19 July 2016
Pure Industrial Real Estate Trust (TSX:AAR.un, $5.22) - Data Sheet
Portfolio Distribution by Area
Geography
British Columbia
Quebec
British Columbia
14.43%
Illinois
Saskatchewan
Alberta
17.80%
New Jersey
18.10%
Ontario
North Carolina
California
USA
42.04%
Virginia
Portfolio Use
Occupancy
Light Manufacturing
51%
Logistics
27%
Flex
Key Financial Metrics (C$)
Quaterly FFO
2015
2016
2017
Annual
FFO
AFFO
Current Multiples
P/FFO
P/AFFO
Target Multiples
Target/FFO
Target/AFFO
Distribution
AFFO Payout
Capital Stack
Stock Price ($)
Warehouse/Distribution
18%
Q1
$0.10A
$0.10A
$0.10E
14A
$0.37
$0.32
Q2
$0.09A
$0.11E
$0.10E
15A
$0.39
$0.35
Q3
$0.10A
$0.10E
$0.10E
16E
$0.41
$0.37
Q4
$0.10A
$0.10E
$0.10E
17E
$0.40
$0.37
14.1x
16.3x
13.4x
14.9x
12.7x
14.1x
13.1x
14.1x
14.9x
17.2x
$0.31
97%
Debt Chart
14.1x
15.7x
$0.31
89%
13.4x
14.9x
$0.31
84%
$180
$2,500
6.00%
4.84%
4.84%
4.49%
5.00%
4.21%4.34%
3.96% 3.93%
3.67%
$120
4.00%
3.99%
$100
3.00%
$80
$160
$2,000
$140
$1,500
Millions
$1,000
$500
$60
2.00%
$40
1.00%
$20
$0
Mortgages Investment Cash held in
Payable and Properties
trust
Bank Loans
$0
Cash
0.00%
Weighted
Average
Effective Rate
TSX:GRT.un
TSX:GRT.un
TSX:DIR.un
TSX:DIR.un
TSX:SMU.un
OTCPK:WP
TI.F
OTCPK:WP
TI.F
OTCPK:WPT
I.F
0%
2%
4%
6%
TSX:AAR.un
TSX:AAR.un
TSX:AAR.un
-2%
TSX:DIR.un
TSX:SMU.u
n
TSX:SMU.un
-4%
12 Month Price Performance
6 Month Price Performance
TSX:GRT.un
8%
Comparables Financial Metric
0%
10%
Ticker
Granite Real Estate Investment TrustTSX:GRT.un
Dream Industrial Real Estate InvestmTSX:DIR.un
Summit Industrial Income REIT
TSX:SMU.un
WPT Industrial Real Estate Investme OTCPK:WPT
Pure Industrial Real Estate Trust
TSX:AAR.un
20%
30%
40%
50%
-15%
-10%
-5%
0%
Unit
Market
Cap
Debt/GBV
Yield
$38.97
$9.01
$6.28
$10.91
$5.22
$1,834.4
$698.7
$218.1
$442.5
$1,130.3
22.1%
54.1%
55.9%
48.6%
43.7%
5.9%
7.8%
8.0%
6.4%
6.0%
5%
10%
15%
AFFO
Payout
Ratio
N/A
87%
100%
86%
85%
Rob Sutherland, Analyst | 416.933.3353 | rob.sutherland@echelonpartners.com
Robert Sutherland, FRI(E) | 416.933.3353 | Rob.Sutherland@echelonpartners.com
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Market Data As of 18/07/2016
TSX
Echelon Target Price
Closing Price Date 18/07/2016
52-Week High
52-Week Low
Market Cap ($M)
NAV
Current Price Premium/Discount to NAV
Debt/GBV
Average Rate
Current Distribution (p.a.)
Current Distribution Yield (p.a.)
13.8x
14.9x
$0.31 Consensus
84% Rating:
Target:
Median:
High:
Total
Mortgage
Low:
Repayments
NAV/Share:
AFFO/Share:
Overall
Consensus Distribution
Weighted
Sector Outperform/Buy
Average
Effective Rate Sector Perform/Hold
Sector UnderPerform/Sell
Comparables Price Performance
3 Month Price Performance
$5.50
$5.30
$5.10
$4.90
$4.70
$4.50
$4.30
$4.10
$3.90
$3.70
$3.50
Volume (M Shares)
101%
100%
99%
98%
97%
96%
95%
94%
93%
92%
91%
4%
BUY
$5.50
$5.22
5.4%
6.0%
11.3%
Stock Price / Volume Chart
Other
Florida
Millions
Recommendation
Rating:
Target:
Last Price:
Price Return:
Yield:
Total Return:
7.62%
Ontario
Alberta
July 18, 2016
TSX:AAR.un
$5.50
$5.22
$5.27
$4.10
$1,130.34
$5.20
0.4%
43.7%
4.12%
$0.31
6.0%
3 Mo. Ago
Current
Outperform Outperform
$5.24
$5.40
$5.25
$5.45
$5.50
$5.50
$5.00
$5.25
$5.10
$5.13
$0.32
$0.32
Top Inst. Ownership
Rbc Global Asset Management Inc.
Sentry Investments Corp.
Bmo Global Asset Management
Colonial First State Asset Management (Austra
Td Asset Management, Inc.
Mackenzie Financial Corporation
Stone Asset Management Limited
Ig Investment Management, Ltd.
1832 Asset Management L.P.
Company Description
Return
4%
5%
6%
1%
9
3
0
Shares
15.17
9.02
6.06
3.20
3.04
1.77
1.57
1.36
1.32
% Held
7.0%
4.2%
2.8%
1.5%
1.4%
0.8%
0.7%
0.6%
0.6%
Pure Industrial Real Estate Trust is Canada's largest internally managed
public REIT with its head quarters located in Vancouver, BC. PIRET focuses
exclusively on Industrial properties with a portfolio spread across Canada and
the US. As of March 31st, 2016, the REIT owned 166 investment properties
spanning ~15.8M sq. ft. of GLA (effective) in addition to 2 properties under
development comprising of 482K sq. ft. and 26.4 acres of land held for
development.
Recent Financings
Follow-on Offering
Jun-27-2014
Jan-08-2014
Follow-on Offering
Apr-11-2013
Follow-on Offering
Size (Millions)
$178.27
$74.82
$184.10
Source: Echelon Wealth Partners Inc., Company Reports and Filings, Capital IQ
Note: All prices as of Market close 18/07/2016
Page 22 of 41
12 July 2016
Telecom & New Media
DHX Media Ltd.
DHX.B-TSX: $7.23
Buy
Partnerships Reflect Platform Strength: Attractive Against Baseline
Forecasts leaving Significant Upside from Wildbrain, M&L.
$12.00 Target
We are pleased to confirm DHX Media as one of Echelon Wealth Partners’ research Top
Picks for H216 as part of our mid-year review.
Thesis: We are maintaining DHX Media as our Top Pick for 2016. While disappointed by the
9% YTD decline, we maintain our bullish outlook holding the view that the current valuation
significantly baseline forecasts while not reflecting the considerable option value where
properties such as Teletubbies but also other names such as Twirlywoos and In The Night
Garden realize on their potentially very significant merchandising and licensing (M&L)
potential. We look for Wildbrain and M&L to be a focus for C2017.
YTD Performance: We attribute the YTD declines to slowing digital revenue momentum and
investor disappointment that DHX has been quiet on the M&A front. We look for improved
momentum on digital where the Wildbrain revenues from YouTube have advanced 38% YTD
outpacing the overall distribution growth of 6% YTD where “traditional” SVOD business was
below expectations. While we similarly await M&A activity, we view the partnerships with
DreamWorks (DWA-Nasdaq, NR), Mattel (MAT-Nasdaq, NR) and Iconix (ICON-Nasdaq, NR) as
quasi M&A deals. Investors have expressed with the negative FCF from operating activities of
$28.8M for the YTD reflecting the $46.8M net change in investments in film and television
programs. We view the YTD 19% y/y growth in proprietary half-hours added to the library
and higher spending as a positive investment in IP/new productions that are at the core of
DHX’s value creation.
Catalysts: We look for positive y/y momentum in distribution revenues with FQ4 y/y growth
forecast at 14% to bring the full year revenues to $84.4M just below the midpoint of the full
year guidance range of $80-$90M. We note that reported FQ316 distribution revenues were
down 21% y/y although essentially flat y/y after adjusting for one-time gains in FQ315.
Preliminary guidance for F2017 to be released with mid/late September year-end results is
likely to encompass consensus estimates; however, we look for strength in distribution
revenue guidance to improve sentiment. M&L revenues guidance on owned properties in
F2017 is likely to carry a relatively wide range given the uncertainty of merchandising
revenues on Teletubbies in particular. We look for Teletubbies M&L revenues to exceed
minimums beginning in Jan/Feb 2017 or FQ317.
Q416 Forecasts, 2017 Forecasts: We forecast FQ416 revenue/EBITDA at $74.7/$29.9M
against the consensus at $75.7/$30.2M and FQ415 at $71.2/$22.8M. Our F2017
revenue/EBITDA estimates at $332.6/$124.6M are similarly in line with the consensus at
$331.0/$124.0M. We look for the mid-point of preliminary guidance to be released with
FQ416 results to surround our forecasts and consensus.
Valuation: DHX shares are currently valued at a 9.9x/8.7x C2016/17 EV/EBITDA with our
$12PT at 15.3x/13.7x/11.4x C2016/17/18 EV/EBITDA. Our PT reflects a 1.3%/5.8% FCF yield
against F2016/F2017 FCF of $0.10/$0.43 per share. Our PT finds primary support against our
five-year DCF forecasts where we have F2015-20 revenue/EBITDA CAGRs of 10.9%/24.1%. We
use a discount rate and terminal EV/EBITDA at 7.5%/9.5x to service our current/one year DCF
valuations of $12.40/$12.79 per share.
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
Sophia Ren | 416.842.1793 | sophia.ren@ echelonpartners.com
Projected Return: 66.9%
Valuation: 9.9x EV/F2016 EBITDA
Market Data
Market Capitalization
Net Debt
Enterprise Value
Basic Shares O/S
Fully Diluted Shares O/S
Avg. Daily Volume (M)
52 Week Range
Dividend Yield
966.9
276.0
1,242.9
133.7
126.2
0.43
$5.99 - $9.64
0.9%
Revisions
New
Old
304.2
108.8
$0.33
NC
NC
NC
2015A
264.0
90.2
$0.15
36.0
2.5x
4.0%
2016E
304.2
108.8
$0.33
12.9
2.1x
1.3%
2017E
332.6
124.6
$0.47
57.0
1.6x
5.8%
10.7x
14.8x
16.8x
30.0x
15.9x
49.8x
$12.77
9.9x
13.7x
15.3x
18.1x
27.9x
30.0x
$12.45
8.7x
6.2x
13.7x
13.9x
12.9x
23.0x
2016E Revenue
2016E Adj. EBITDA
2016E EPS
Financial Metrics
FYE - Jun 30
Revenue
Adj. EBITDA
EPS
FCF
Net Debt:EBITDA
FCF Yield
Valuation Data
DCF - Current/Target
Current
EV/EBITDA
Peers
Target
Current
P/E
Peers
Target
Quarterly Data
Revenue
EBITDA
EPS
Q1
Q2
Q3
Q4
64.3
85.6 71.2
2015 43.0
81.5
84.1 74.7
2016 63.9
23.9
29.8 22.8
2015 13.7
27.8
32.7 29.9
2016 18.4
2015 ($0.06) $0.04 $0.14 $0.03
2016 $0.06 $0.09 $0.08 $0.09
Company Description
DHX produces and distributes TV and interactive content for
domestic and international markets. The company focuses
on children's and family entertainment with a library of
9,000+ half-hours of production and 60+ titles including
Caillou, Yo Gabba Gabba!, and Johnny Test. DHX Media is
based in Halifax, Nova Scotia, Canada with facilities in
Halifax, Toronto, Vancouver and London.
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Volume (M)
Price
Page 23 of 41
DHX Media Ltd. (DHX.B) | July 12 2016
Catalysts
M&L: We continue to see significant option value in the M&L prospects from its owned properties where we have
F2016 revenues of $25.7M against $20.0M for F2015. We see building traction in F2017/18 where we have revenues
of $34.7/$41.6M. For perspective, Teletubbies at its peak would have generated the equivalent of ~$80M annually to
DHX in M&L. We refrain from making similarly aggressive forecasts; however, we believe that the upside option value
warrants fuller consideration. DHX noted that the first Teletubbies items hit the shelves in the UK mid-January.
Management highlighted the strong performance of Twirlywoos and In The Night Garden merchandising. The
consensus F2017 and F2018 revenue/EBITDA figures at $331.0M/$124.0M and $355.8M/$138.0M, respectively
would appear to understate prospective Teletubbies contributions in F2018. We look for positive revisions and
perhaps just as importantly greater confidence in the ramping revenues/contributions.
Not “acquisitions’ but Partnerships: We continue to believe that the FQ216 partnerships with Mattel, DreamWorks
and Iconix remain significantly discounted. DHX Media’ previously announced long term partnership with Mattel for
the development, production and distribution of new content for the Mattel properties Bob the Builder™, Fireman
Sam™, Little People® and Polly Pocket™ represents a significant boost to the company’s international profile. Under
the partnership, DHX Media will produce new content across all platforms for the four properties while DHX Media
will distribute both new and existing programming for the properties. Essentially, DHX Media is levering its strengths
in development, production and distribution while Mattel will continue to play to its strength in toy development and
merchandising. Production under the agreement will be consistent with existing margins while the distribution
revenues will bring significant revenues albeit with lower margins given an undisclosed revenue sharing agreement.
We note that Mattel originally acquired the four properties as part of its $680M acquisition of Hit Entertainment in
October, 2011. Two key properties identified with the transaction were Bob the Builder and Thomas the Tank Engine.
At the time, Thomas & Friends was put at ~80% of Hit’s profits.
Looking further back, we were modestly surprised at the AGM when the Mattel partnership was presented alongside
the pivotal Cookie Jar Acquisition (2012, Enterprise Value $111M) and Family Channel acquisitions ($170M,
announced Nov/13.). We believe the importance accorded the partnership reflects longer term potential working
with Mattel, Inc. and DHX Media’s strengthened position in structuring similar deals with other content owners such
as Marvel (MRVL-NasdaqGS). The partnership followed closely on the December 8th announcement that DHX Media
had signed a 5-year, strategic content pact with DreamWorks (See report). We felt that deal itself was clear evidence
of DHX’s strong position as a producer, broadcaster and distributor of youth programming. We don’t believe the
share performance following the announcement appropriately reflected the positive significance of the DWA
partnership for either its validation of DHX’s decision to move away from reselling Disney content or for its reflection
on DHX’s global profile.
The deal with Iconix with its Strawberry Shortcake gave further evidence to DHX’s profile as a global leader in both
production and distribution of children’s programming.
China: We believe DHX Media has a unique opportunity in China given its moves to work with local partnerships and
given the prevailing view and demand for its programming. Teletubbies has historically been exceptionally well
received in the Chinese market where we suspect it benefits from its British programming origins and perceived
positive/neutral cultural association. DHX has now licensed 5,000 half-hours into China where it continues to explore
new relationships and potential new business opportunities. While assigning specific revenue forecasts to the Asian
market is impossible, we could see the joint venture following a trajectory similar to YouTube (Private) where
annualized revenues approached a $9M run rate within its first three years. We believe the potential significance of
the transaction has been diluted by the inability to assign revenue targets. We see these deals as international
prototypes. We view the challenges faced by DisneyLife as more of an opportunity for DHX rather than a hurdle. The
multi-year licensing agreement with Disney and Alibaba Group saw the service shut “down for an upgrade” in a move
that has been associated with government intervention. Where the interventionist view holds merit, we could see a
motivation to support DHX Media’s partners in the country.
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
Page 24 of 41
DHX Media Ltd. (DHX.B) | July 12 2016
Guidance Details: A detailed comparison between DHX’s F2016 guidance and results are given below. In addition, we
compare our F2016 estimates with DHX’s F2016 guidance, always comparing with the mid-point of the ranges it
provides. The Company provided minor revisions with its FQ316 earnings release, to Share based compensation, and
Distribution gross margin.
Exhibit 1 – DHX 2016 Guidance versus EPC Estimates
Revenue
2015
Actual
2016E
2016E
F2016 Guidance (Q316)
Low
High
Mid
F2016 Guidance (4.26)
Low
High
Mid
EWP
EWP
Estimates Old Estimates
Proprietary Production
38.1
40.0
50.0
45.0
40.0
50.0
45.0
44.1
45.7
Producer & Service Fee
Combined Production
32.6
70.7
47.5
87.5
52.5
102.5
50.0
95.0
47.5
87.5
52.5
102.5
50.0
95.0
50.2
94.3
46.6
92.3
Distribution
M&L - Owned Brands
M&L - Represented
New Media
DHX TV
77.7
20.0
14.4
5.1
76.2
80.0
23.0
26.0
2.0
67.5
90.0
27.0
29.0
3.0
72.5
85.0
25.0
27.5
2.5
70.0
80.0
23.0
26.0
2.0
67.5
90.0
27.0
29.0
3.0
72.5
85.0
25.0
27.5
2.5
70.0
84.4
25.7
26.8
2.6
70.2
87.9
25.1
23.8
3.6
71.4
264.0
286.0
324.0
305.0
286.0
324.0
305.0
303.9
304.1
44.3%
32.9%
39.1%
64.9%
61.0%
90.4%
22.3%
31.0%
40.0%
37.0%
45.0%
34.0%
42.5%
31.0%
40.0%
37.0%
45.0%
34.0%
42.5%
34.2%
42.2%
36.9%
39.0%
55.0%
55.0%
95.0%
20.0%
70.0%
65.0%
100.0%
30.0%
62.5%
60.0%
97.5%
25.0%
60.0%
55.0%
95.0%
20.0%
70.0%
65.0%
100.0%
30.0%
65.0%
60.0%
97.5%
25.0%
60.6%
58.6%
96.7%
49.2%
64.9%
59.9%
97.5%
29.5%
55.0%
60.0%
65.0%
62.5%
60.0%
65.0%
62.5%
60.5%
58.5%
Total Gross Margin
Gross Profit
Proprietary Production
Producer & Service Fee
Combined Production
Distribution
M&L - Owned Brands
M&L - Represented
New Media
DHX TV
0.0%
53.7%
61.6%
57.9%
55.1%
61.6%
58.6%
56.6%
57.0%
16.9
10.7
27.6
50.4
12.2
13.0
1.1
41.9
12.4
19.0
31.4
44.0
12.7
24.7
0.4
40.5
18.5
23.6
42.1
63.0
17.6
29.0
0.9
47.1
15.5
21.3
36.8
53.5
15.1
26.9
0.7
43.8
12.4
19.0
31.4
48.0
12.7
24.7
0.4
40.5
18.5
23.6
42.1
63.0
17.6
29.0
0.9
47.1
15.5
21.3
36.8
55.5
15.1
26.9
0.7
43.8
15.1
21.2
36.2
51.1
15.1
25.9
1.3
42.5
16.9
18.2
35.0
57.1
15.0
23.2
1.1
41.8
Total Gross Profit*
146.3
153.7
199.7
176.7
157.7
199.7
178.7
172.1
173.2
SG&A
Share-based Compensation
Finance Expense
Amortization/Development Expense
Tangible Benefit Obligation Expense
Other
Total Opex
Pre-Tax Profit
EBITDA
59.1
4.3
22.5
10.4
66.0
5.0
16.0
24.0
2.0
1.5
112.5
41.2
65.2
70.0
6.0
18.0
29.0
4.0
2.5
125.5
74.2
103.2
68.0
5.5
17.0
26.5
3.0
2.0
119.0
57.7
84.2
66.0
4.0
16.0
24.0
2.0
2.0
112.0
45.7
69.7
70.0
5.0
18.0
29.0
4.0
3.0
125.0
74.7
103.7
68.0
4.5
17.0
26.5
3.0
2.5
118.5
60.2
86.7
73.0
5.9
16.8
25.1
3.0
2.0
122.8
49.2
67.1
4.5
16.9
27.8
3.0
2.5
118.8
54.4
82.1
Total Revenue
Gross Margin
Proprietary Production
Producer & Service Fee
Combined Production
Distribution
M&L - Owned Brands
M&L - Represented
New Media
DHX TV
4.6
100.9
45.4
55.8
74.3
Source: Capital IQ, Company Filings, Echelon Wealth Partners estimates.
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
Page 25 of 41
DHX Media Ltd. (DHX.B) | July 12 2016
F2016+ Forecasts
Following FQ316 results and management’s guidance for F2016, we maintained our F2016 revenues/adj. EBITDA at
$304.20M/$108.8M. Our forecasts are largely in line with consensus estimates. We view our longer term forecasts as
a baseline scenario offering considerable upside from M&L revenues beyond our forecasts. For more, please see
Exhibits 2 and 3.
Exhibit 2 – DHX Consolidated Quarterly Trends and Forecasts
All units in '000 CAD, unless otherwise indicated
Financial Summary
Revenue
Growth y/y
2015
Q116
Q216
Q316
84,095
2.3%
Q416E
264,039
131.1%
63,910
43.9%
81,480
26.7%
74,711
0.3%
Consensus
257,774
58,089
73,667
82,608
75,709
EBITDA
Adj. EBITDA (DHX Definition)
Flow-through
Growth y/y
Margin
Consensus
Capex
Intensity
Consensus
EPS - Diluted
Growth y/y
Consensus
CFPS
Growth y/y
Consensus
FCF
FCFPS
54,812
14,044
27,759
90,211
18,372
27,759
36.0%
22.2%
22.6%
143.6%
33.8%
16.3%
34.2%
28.7%
34.1%
89,390
17,766
24,861
-4,789
-478
-880
-1.8%
-0.7%
-1.1%
-5,648
-675
-779
$0.15
$0.06
$0.09
86.0% -194.1% 103.4%
$0.33
$0.04
$0.07
$0.34
-$0.18
$0.05
225.0% -3650.7% -262.8%
$0.30
$0.04
$0.05
36,013 -22,877
5,821
$0.30
-$0.18
$0.05
26,713
32,740
NM
9.9%
38.9%
31,859
-122
-0.1%
-1,386
$0.08
-44.2%
$0.11
$0.11
-57.6%
$0.17
13,555
$0.11
25,912
29,912
200.5%
31.1%
40.0%
30,189
-1,494
-2.0%
-1,498
$0.09
212.7%
$0.08
$0.13
76.1%
$0.14
16,411
$0.12
Quarterly Comment
Our Q416 revenues are $1M below consensus.
Our FQ416 EBITDA is within $200K of the
consensus.
Capex remains a releatively modest amount.
We are essentially in line with consensus.
FCF depressed given production ramp.
Proprietary Production half-hours increased 5%
for FQ316 and 19% YTD given strong demand.
2016E
2017E
304,196
14.9%
332,566
7.8%
2018E
354,198
6.5%
2019E
400,835
13.2%
2020E
442,299
10.3%
20221E
485,140
9.7%
305,359
330,984
355,800
400,800
442,300
485,140
94,428
108,783
46.3%
20.6%
35.8%
109,160
-2,974
-1.0%
-2,818
$0.33
109.1%
$0.34
$0.12
-64.6%
$0.13
12,910
$0.10
111,233
124,585
55.7%
14.5%
37.5%
124,031
-5,654
-1.7%
-6,551
$0.47
43.3%
$0.40
$0.47
294.4%
$0.35
56,994
$0.43
121,200
135,403
50.0%
8.7%
38.2%
137,991
-4,144
-1.2%
-3,881
$0.57
21.4%
$0.51
$0.63
34.6%
$0.55
80,157
$0.60
145,554
160,680
54.2%
18.7%
40.1%
160,700
-4,690
-1.2%
-4,345
$0.77
34.0%
NA
$0.89
41.9%
$0.89
114,974
$0.86
161,531
177,658
40.9%
10.6%
40.2%
177,700
-5,175
-1.2%
-4,588
$0.91
18.8%
NA
$1.10
22.8%
$1.10
144,884
$1.06
186,208
203,421
60.1%
14.5%
41.9%
203,421
-5,676
-1.2%
-4,838
$1.06
16.4%
NA
$1.31
19.5%
$1.31
178,937
$1.27
Source: Capital IQ, Company Filings, Echelon Wealth Partners estimates.
Exhibit 3 – DHX Consolidated Quarterly Trends and Forecasts
Operating/Segmented Summary
Production Revenue
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
Output (Half Hours)
Revenue/Half Hour
Gross Profit/Half Hour
Distribution Revenue
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
Producer and Service Fee Revenue
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
M&L-owned Revenue
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
M&L-represented Revenue (CPLG)
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
New Media Revenue
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
DHX TV
Growth y/y
% of total
Gross Margin ($)
Gross Margin (%)
2015
Q116
Q216
Q316
Q416E
20,712
12,106
7,150
4,102
38,080
62%
-26%
68%
-20%
40%
14%
6%
25%
14%
10%
16,884
1,540
6,830
3,470
3,218
44%
38%
33%
29%
45%
224
39
76
63
50
170
105
273
192
143
75
39
90
55
64
77,670
14,034
18,577
23,933
27,823
90%
40%
45%
-21%
14%
29%
21%
23%
28%
37%
50,424
8,200
8,780
13,690
20,450
65%
58%
47%
57%
74%
32,610
14,030
11,487
14,048
10,622
77.5% 102.2%
73.4%
71.2%
-2.0%
12.2%
20.6%
14.1%
16.7%
14.2%
10,742
5,060
5,730
8,030
2,337
32.9%
36.1%
49.9%
57.2%
22.0%
20,030
4,710
4,342
10,438
6,192
16%
72%
-34%
63%
45%
7%
7%
5%
12%
8%
12,217
2,600
2,830
6,340
3,281
61.0%
14,350
17.9%
5.3%
12,973
90.4%
5,110
30%
2%
1,140
22%
76,180
-13.3%
28.4%
41,899
55.0%
55.2%
6,707
125.1%
9.8%
6,710
100.0%
1,230
46%
2%
406
33%
18,820
5.0%
27.6%
6,218
33.0%
65.2%
7,120
130.4%
8.7%
7,120
100.0%
460
-48%
1%
420
91%
18,780
-14.3%
23.0%
12,570
66.9%
60.7%
7,423
112.1%
8.8%
7,420
100.0%
440
-23%
1%
400
91%
15,718
-12.8%
18.7%
11,160
71.0%
53.0%
5,593
17.0%
7.5%
4,698
84.0%
422
-85%
1%
30
7%
16,910
-24.0%
22.6%
12,513
74.0%
Quarter Comment
Q316 declined 20% due early deliveries in Q216
where y/y revs gained 68%. Guidance
Unchanged - we have positive momentum in
Q416.
Guidance unchanged although Q215 margin
midpoint moved from 70% to 67.5%. Dist. revs
on quarter flat adj. for Q315 catch up.Q4
forecasts ahead 14% y/y +ve momentum.
Guidance midpoint for revenues at $50M and
margins unchanged - we are in line.
We are in line with guidance midpoint of
revenues at $25.0M while margins were
maintained at 60%
Guidance for revenues at $27.5 up from
beginning of year at $18M and Q216 guidance
at rom $18M to $24.5M with margins
maintained at 97.5%.
Revenue guidance midpoint lowered from
$4.0M to $2.5M with last UMIGO delivery.
Revenue guidance midpoint maintained at
$71.5M with margin midpoint maintained at
60%. We could be conservative.
2016E
2017E
2018E
2019E
2020E
20221E
44,070
47,150
44,298
50,176
48,832
49,704
16%
7%
-6%
13%
-3%
2%
14%
14%
13%
13%
11%
10%
15,058
17,446
15,504
17,060
14,650
14,911
34%
37%
35%
34%
30%
30%
228
230
214
224
218
218
193
205
207
224
224
228
66
76
72
76
67
68
84,367
97,022 109,150 125,522 144,350 166,003
9%
15%
13%
15%
15%
15%
27%
29%
31%
31%
33%
34%
51,120
59,668
67,127
77,196
86,610 102,922
61%
62%
62%
62%
60%
62%
50,187
55,708
59,607
64,376
68,239
72,333
53.9%
11.0%
7.0%
8.0%
6.0%
6.0%
16.3%
16.8%
16.8%
16.1%
15.4%
14.9%
21,157
24,567
26,287
28,969
27,295
27,486
42.2%
44.1%
44.1%
45.0%
40.0%
38.0%
25,682
34,670
41,604
51,173
60,384
66,422
28%
35%
20%
23%
18%
10%
8%
10%
12%
13%
14%
14%
15,051
24,269
29,123
35,821
42,269
46,496
58.6%
26,843
87.1%
8.7%
25,948
96.7%
2,552
-50%
1%
1,255
49%
70,228
-7.8%
22.8%
42,461
60.5%
70.0%
29,258
9.0%
8.8%
28,283
96.7%
2,041
-20%
1%
714
35%
66,717
-5.0%
20.1%
42,365
63.5%
70.0%
34,525
18.0%
9.7%
33,374
96.7%
1,633
-20%
0%
572
35%
63,381
-5.0%
17.9%
40,247
63.5%
70.0%
42,120
22.0%
10.5%
40,716
96.7%
1,551
-5%
0%
543
35%
65,916
4.0%
16.4%
41,527
63.0%
70.0%
50,545
20.0%
11.4%
48,860
96.7%
1,396
-10%
0%
321
23%
68,553
4.0%
15.5%
43,360
63.3%
70.0%
58,126
15.0%
12.0%
56,189
96.7%
1,257
-10%
0%
289
23%
71,295
4.0%
14.7%
45,629
64.0%
Source: Capital IQ, Company Filings, Echelon Wealth Partners estimates.
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
Page 26 of 41
DHX Media Ltd. (DHX.B) | July 12 2016
DHX Media Ltd. (DHX.B-T, $7.23) - Data Sheet
$12.00
Last Sale Price
50-Day MA
6
Volume (M Shares)
$10.00
5
$8.00
4
$6.00
3
$4.00
2
DHX produces and distributes TV and interactive content for
domestic and international markets. The company focuses on
children's and family entertainment with a library of 9000+
half-hours of production and 60+ titles including Caillou, Yo
Gabba Gabba!, and Johnny Test. DHX Media is based in
Halifax, Nova Scotia, Canada with facilities in Halifax,
Toronto, Vancouver and London.
Consensus
3 Mths Ago
Current
Return
Rating:
Target:
Median:
High:
Low:
Outperform Outperform
$10.64
$10.36
$10.25
$10.00
$15.75
$14.00
$8.10
$8.00
44.2%
39.2%
94.5%
11.5%
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Sector Underperform/Sell
# Est
Jul-16
May-…
Jun-16
Apr-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
May-…
Jun-15
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
0
Oct-14
$0.00
Nov-14
1
Sep-14
$2.00
Aug-14
Stock Price ($)
Company Description
7
200-Day MA
BUY | PT: $12.00
9
2
0
11
Historical Valuations
CAPITAL IQ - CONSENSUS BASED NTM EV/EBITDA
TSX:DHX.B
17.0x
CAPITAL IQ - CONSENSUS BASED NTM EV/SALES
TSX:CJR.B
6.0x
LSE:ETO
15.0x
5.0x
13.0x
4.0x
11.0x
3.0x
9.0x
DHX Media Ltd.
Corus Entertainment Inc.
Entertainment One Ltd.
Jul-16
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Aug-14
Jul-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
0.0x
Sep-14
1.0x
3.0x
Aug-14
5.0x
Sep-14
2.0x
7.0x
Key Financial Metrics
Financial Summary/Key Metrics
Consolidated
Revenue
Growth y/y
Cons.
Cons. 3 Mts. Ago
Pro Forma Revenue
Adj. EBITDA
Growth y/y
Margin
Flow-Through
Cons.
Cons. 3 Mts. Ago
Pro Forma Adj. EBITDA
EPS
Growth y/y
Cons.
Cons. 3 Mts. Ago
Cash
Net Debt
Operating/Segmented Summary
Production Revenue
Growth y/y
Gross Margin
Disitribution Revenue
Growth y/y
Gross Margin
Prod. & Service Fee Revenue
Growth y/y
Gross Margin
M&L-owned Revenue
Growth y/y
Gross Margin
M&L-represented Revenue
Growth y/y
Gross Margin
New Media Revenue
Growth y/y
Gross Margin
Family Channel Revenue
Growth y/y
Gross Margin
2015
Q116
Q216
Q316
Q416E
2016E
2017E
2018E
2019E
2020E
Key Statistics
264.0
127.4%
118.1
118.1
264.0
90.2
143.6%
34.2%
36.0%
36.7
36.7
97.7
$0.15
83.5%
NA
NA
42.9
239.9
63.9
48.5%
49.0
49.0
63.9
18.4
33.8%
28.7%
22.2%
15.6
15.6
22.9
$0.06
(192.4%)
$0.05
$0.05
25.5
262.3
81.5
26.8%
65.0
65.0
81.5
27.8
16.3%
34.1%
22.6%
22.4
22.4
30.8
$0.09
105.9%
$0.08
$0.08
60.6
262.0
84.1
(1.7%)
68.8
68.8
84.1
32.7
9.9%
38.9%
(197.5%)
23.7
23.7
32.7
$0.08
(43.4%)
$0.08
$0.08
48.7
276.0
74.7
5.0%
65.7
65.7
74.7
29.9
31.1%
40.0%
200.5%
22.1
22.1
29.9
$0.09
218.1%
$0.06
$0.06
17.3
240.0
304.2
15.2%
257.8
257.8
304.2
108.8
20.6%
35.8%
46.3%
89.4
89.4
116.3
$0.33
113.9%
$0.33
$0.33
17.3
240.0
332.6
9.3%
305.4
306.6
332.6
124.6
14.5%
37.5%
55.7%
109.2
109.4
124.6
$0.47
43.8%
$0.34
$0.40
49.2
203.1
354.2
6.5%
331.0
337.8
354.2
135.4
8.7%
38.2%
50.0%
124.0
127.7
135.4
$0.57
21.4%
$0.40
$0.48
123.4
123.9
400.8
13.2%
355.8
351.0
400.8
160.7
18.7%
40.1%
54.2%
138.0
138.8
160.7
$0.77
34.0%
$0.51
$0.58
222.1
20.3
442.3
10.3%
400.8
404.7
442.3
177.7
10.6%
40.2%
40.9%
160.7
163.5
177.7
$0.91
18.8%
NA
NA
355.0
(117.6)
38.1
62.2%
16.9
77.7
89.9%
50.4
32.6
77.5%
10.7
20.0
15.8%
12.2
14.4
17.9%
13.0
5.1
30.0%
1.1
4.1
-26.2%
1.5
14.0
40.5%
8.2
14.0
102.2%
5.1
4.7
71.9%
2.6
6.7
125.1%
6.7
1.2
46.4%
0.4
18.8
5.0%
6.2
20.7
67.6%
6.8
18.6
45.2%
8.8
11.5
73.4%
5.7
4.3
(34.4%)
2.8
7.1
130.4%
7.1
0.5
(48.3%)
0.4
18.8
(14.3%)
12.6
12.1
-19.5%
3.5
23.9
(21.5%)
13.7
14.0
71.2%
8.0
10.4
63.1%
6.3
7.4
112.1%
7.4
0.4
(22.8%)
0.4
15.7
(12.8%)
11.2
7.2
39.8%
3.2
27.8
14.0%
20.4
10.6
(2.0%)
2.3
6.2
45.0%
3.3
5.6
17.0%
4.7
0.4
(85.0%)
0.0
16.9
(24.0%)
12.5
44.1
15.7%
15.1
84.4
8.6%
51.1
50.2
53.9%
21.2
25.7
28.2%
15.1
26.8
87.1%
25.9
2.6
(50.1%)
1.3
70.2
(7.8%)
42.5
47.2
7.0%
17.4
97.0
15.0%
59.7
55.7
11.0%
24.6
34.7
35.0%
24.3
29.3
9.0%
28.3
2.0
(20.0%)
0.7
66.7
(5.0%)
42.4
44.3
-6.0%
15.5
109.1
12.5%
67.1
59.6
7.0%
26.3
41.6
20.0%
29.1
34.5
18.0%
33.4
1.6
(20.0%)
0.6
63.4
(5.0%)
40.2
50.2
13.3%
17.1
125.5
15.0%
77.2
64.4
8.0%
29.0
51.2
23.0%
35.8
42.1
22.0%
40.7
1.6
(5.0%)
0.5
65.9
4.0%
41.5
0.0
0.0%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0%
0.0
0.0
0.0
0.0
0.0
Price
Target
Div Yield
Return
$7.23
$13.92
$4.08
$19.42
£2.57
$40.97
$12.00
$12.70
$5.28
$27.23
£2.81
$39.78
0.9%
8.1%
1.9%
0.6%
2.1%
66.9%
(0.6%)
29.3%
42.1%
10.0%
(2.9%)
15.6%
1 Week
1 Month
3 Month
YTD
1 Year
F2016E
F2017E
F2017E
C2015
C2017E
C2016E
C2016E
C2017E
Value
52-Week High
52-Week Low
Avg Vol (3-Mo)
Shares Outstanding
Market Cap
Net Debt
Enterprise Value
Div Yield
FYE
Employees
$9.64
$5.99
429
134
967
276
1,243
0.9%
Jun 30
365
Top Inst. Ownership
Luxor Capital
Fiera Capital
Fine Capital Partners
Pembroke Management
Tybourne Capital Mgmt.
1832 AM
Pleasant Lake
Davidson K. Capital
CI Investments
BMO Investments
33%
(17%)
M Shares
∆ 6 Mnths
F2015
F2016E
F2017E
Current
1-Yr TGT
32.53
16.87
15.46
8.74
7.88
2.56
1.84
1.71
1.62
1.50
Valuation
Revenue
EBITDA
Depreciation
Capex
Discretionary CF
Discount Rate
Terminal EBITDA Multiple
264.0
54.8
(10.4)
(4.8)
22.8
Terminal Value PV
Equity Value
DCF Value
(2.64)
0.00
0.00
1.68
0.00
0.00
0.00
0.15
(1.71)
0.00
304.2
94.4
(18.5)
(3.0)
71.9
7.50%
9.55x
1,334.3
1,612.0
$12.77
% Held
24.3%
12.6%
11.6%
6.5%
5.9%
1.9%
1.4%
1.3%
1.2%
1.1%
332.6
111.2
(20.5)
(5.7)
72.8
1,434.4
1,648.2
$12.45
Comparables
Comparables
and Peer Analysis
DHX Media
Corus
TVA
Lion's Gate
Entertainment One
Dreamworks Animation
Peer Average
Comparables
Multiples Analysis
DHX Media
Corus
TVA
Lion's Gate
Entertainment One
Dreamworks Animation
Peer Average
Enterprise
Value
1,243
3,286
252
4,448
1,171
3,908
FCF Yield
F2016E
1.3%
9.2%
10.1%
2.4%
2.9%
(0.9%)
4.7%
Return
7.3%
3.1%
1.7%
16.7%
(0.0%)
4.3%
17.8%
4.6%
0.2%
(8.8%)
3.5%
2.0%
0.3%
EV/EBITDA
5.8%
11.6%
15.5%
4.2%
1.4%
1.8%
6.9%
10.7x
7.5x
5.7x
49.9x
12.2x
34.0x
21.9x
C2016E
9.9x
9.8x
4.7x
20.8x
8.7x
31.5x
15.1x
(0.8%)
16.3%
1.5%
(4.3%)
14.0%
57.3%
16.9%
Revenue
(14.6%)
28.9%
2.0%
(40.0%)
4.4%
59.0%
10.8%
(25.5%)
(16.2%)
(19.7%)
(47.8%)
(54.2%)
60.9%
(15.4%)
304
1,201
604
2,347
1,042
937
EV/EBITDA - Target
8.7x
7.5x
NA
13.3x
7.7x
22.5x
12.7x
15.3x
8.7x
6.4x
32.1x
9.4x
27.0x
16.7x
C2017E
13.7x
7.2x
NA
21.4x
8.7x
22.9x
15.1x
EBITDA
333
1,754
610
2,550
1,247
1,067
EPS
F2016E
F2017E
C2018E
C2016E
116
435
56
33
131
123
125
611
62
259
199
169
P/E
C2018E
11.4x
NA
NA
15.2x
7.1x
NA
11.2x
18.1x
10.8x
11.7x
32.1x
12.0x
77.1x
28.7x A
13.9x
9.6x
NA
19.3x
9.3x
46.8x
21.3x A
F2016E
$0.33
$1.21
$0.35
$0.10
£0.11
$0.53
F2017E
$0.47
$1.42
$0.50
$0.77
£0.25
$0.88
P/CFPS
10.8x
NA
NA
13.6x
7.8x
NA
10.7x
24.7x
6.9x
NA
28.8x
17.5x
30.1x
20.8x
C2017E
13.3x
7.5x
NA
16.6x
NA
19.3x
14.5x
C2018E
9.5x
NA
NA
10.8x
NA
NA
10.8x
*Non-coverage names reflect consensus, 2014 numbers for DHX are based on actual results
Source: Echelon Wealth Partners, Company Reports and Filings, Capital IQ
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
$0.00
Page 27 of 41
DHX Media Ltd. (DHX.B) | July 12 2016
DHX Media Ltd. - Valuation Analysis
Rob Goff, CFA | 416.933.3351 | rob.goff@echelonpartners.com
Terminal
EBITDA
Multiple
8.00%
$13.34
$12.78
$12.22
$11.66
$11.10
8.50%
$13.15
$12.59
$12.04
$11.49
$10.94
Consensus Indexed EV/EBITDA
DHX
Corus
Dreamworks
25.0x
15.0x
5.0x
Jan-16
Mar-16
May-16
Jul-16
Jan-16
Mar-16
May-16
Jul-16
Sep-15
Nov-15
Jul-15
Mar-15
May-15
Jan-15
Sep-14
Nov-14
Jul-14
May-14
(5.0x)
Consensus Indexed P/E
DHX
Corus
Dreamworks
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
35.0x
15.0x
(5.0x)
(25.0x)
Mar-14
Current
Target
C2014 C2015E C2016E C2015E C2016E
EV/EBITDA - DHX
12.6x
10.7x
9.9x
16.8x
15.3x
Corus
7.2x
7.5x
9.8x
8.1x
8.7x
Dreamworks
129.8x
34.0x
31.5x
33.0x
27.0x
Entertainment One
11.3x
12.2x
8.7x
11.8x
9.4x
P/E - DHX
61.0x
30.0x
18.1x
49.8x
30.0x
Corus
9.5x
10.7x
10.8x
9.8x
9.9x
Dreamworks
23.3x
496.5x
77.1x
482.1x
74.9x
Entertainment One
26.1x
23.9x
12.0x
26.2x
13.2x
P/CFPS - DHX
33.7x
32.6x
24.7x
54.2x
41.0x
FCF Yield - DHX
2.6%
2.6%
3.6%
1.6%
2.2%
Corus
15.2%
13.8%
10.0%
15.1%
11.0%
Dreamworks
-5.7%
0.8%
-0.9%
0.9%
-1.0%
Entertainment One
-3.6%
1.2%
1.8%
1.1%
1.6%
*Non-coverage names reflect consensus
Source: Echelon Wealth Partners, Company Reports and Filings, Capital IQ
DCF Sensitivity
Discount Rate
6.50%
7.00%
7.50%
$13.93
$13.73
$13.53
$13.35
$13.16
$12.97
$12.77
$12.58
$12.40
$12.18
$12.00
$11.83
$11.60
$11.43
$11.26
0
10.50x
10.00x
9.50x
9.00x
8.50x
Jan-14
1 Year
(8.7%)
(32.8%)
5.7%
(43.1%)
(21.3%)
(4.8%)
21.9%
● For perspective, a 1% change in the discount rate adds
$0.37/share, or 3.0%, to our valuation while a 0.5x
increase in the terminal multiple adds $0.57/share, or
4.7%, to the valuation
Mar-14
YTD
(10.6%)
9.1%
5.6%
10.4%
0.0%
(1.2%)
29.8%
● The DCF produces a current/target valuation of
$12.77/$12.45, from which we derive our $12.00 target
Jan-14
3 Mths
(7.2%)
13.1%
2.7%
16.8%
(3.6%)
7.1%
19.9%
● Our DCF valuation is driven by an 7.5% discount rate and
9.55x terminal EBITDA multiple
Nov-13
1 Mth
1.2%
2.2%
8.1%
19.7%
0.3%
7.2%
12.0%
● We prefer DCF valuations for our new media space over
relative valuations, which leave investors exposed to group
revaluations
$0.37
3.0%
$0.57
4.7%
Sep-13
1Wk
4.4%
(0.4%)
1.6%
2.7%
(3.4%)
5.3%
6.1%
$∆ from 1% ∆ in Disc Rate
7.5%
9.55x
$∆ from 0.5x ∆ in Term Mult
11.10x
67.9%
-1.4%
Current 1-Yr TGT 2-Yr TGT
1,852
1,888
1,929
(240)
(240)
(203)
1,612
1,648
1,726
126
126
126
$12.77
$12.45
$12.79
$6.69
$12.00
$13.00
47.6%
3.6%
-1.6%
2020E 15-20 CAGR
442
10.9%
162
24.1%
11.0%
-18
-5
Avg.
1.2%
1.3%
-19
139
Nov-13
Recent Performance
DHX
Corus
Dreamworks
Entertainment One
TVA
Disney
Hasbro
Multiples
2019E
401
146
20.1%
-19
-5
1.2%
-22
115
Sep-13
Enterprise Value
Net Debt
Total Equity Value
Shares Outstanding
DCF Value per Share ($)
Current, Target Share Price ($)
Discount % to DCF Value
2018E
354
121
9.0%
-20
-4
1.2%
-20
104
Jul-13
Discount Rate %
Terminal EBITDA Multiple
Terminal FCF Multiple
Terminal Value as % of Equity Value
Implied Perpetual Growth Rate of FCF
2017E
333
111
17.8%
-21
-6
1.7%
-20
73
Jul-13
All figures in $M CAD, unless otherwise indicated
DCF
2014
2015
2016E
Revenue
116
264
304
Adj. EBITDA
32
55
94
Growth %
135.5%
71.2%
72.3%
D&A
-17
-10
-18
Capex
-2
-5
-3
Intensity %
2.1%
1.8%
1.0%
Cash Taxes
-4
-14
-16
Unlevered FCF
20
23
72
Page 28 of 41
12 July 2016
Technology
TECSYS Inc.
TCS-TSX: $9.50
Buy
Top Pick Mid-year Update: Set for Further Upside
Event Summary: As a growth-outperformer with an increasingly defensive profile TECSYS is a
rare-find in our sector. Recent results (July 6) deepened our conviction in the investment
thesis: margin expansion-driven earnings growth is set to outperform that at its closest
peers. Structural market drivers in the US healthcare supply chain remain unscathed. Further,
the launch of pharma SCM software in late C2016e speaks of new sources of revenue in
FH217e. With Healthcare overtaking Complex Distribution (CD) in the sales mix (F2017e:
50%+), lower exposure to cyclical markets looks attractive amid renewed macro malaise.
Should macro co-operate, an on-going recovery in CD adds to the list of revenue catalysts in
CH216e. We are confirming TCS as our top pick for 2016e despite a market-beating 29%
YTD performance.
 CH116 tale of the tape (+29% YTD): TCS had a slow start to 2016e. First, macro jitters in
early 2016e led CD customers to delay orders. The largely industrial base feared a cyclical
macro downturn. Elsewhere, non-cyclical Healthcare revenues fell short of expectations in
FQ316 (January 2016 end). Clients delayed orders to March-April in anticipation of a new
PoU product cycle. As the next-gen PoU launched revenues caught up to prior
expectations, rising 35% q/q in FQ416. With structural end market adoption in the US
healthcare space intact, a sustained earnings growth potential at TCS stands confirmed.
 Growth drivers in CH216e: We see a set of converging catalysts in CH216e: (i) new PoU
product cycle, recovery at CD, and new sources of revenue from pharma supply chain
(SC). PoU’s revenue contribution of c. $2.5M in FQ416 established the base for F2017e.
Also, Pharma SC software is set to launch in late C2016e with a meaningful sales
contribution in FH217e (early C2017e). Early customer deployments in CH216e and
growing pipeline (6-7 IDNs) are expected to drive a positive sentiment in the latter half
of this calendar year. Healthcare’s growing dominance of the sales mix reduces TCS’s
exposure to cyclical end markets (CD). Thus, the earnings growth outperformer (vs.
peers) gains a more defensive profile. Should the macro remain stable, management
expects a recovery at CD with $7-8M contracts booked in F2017e (vs. $4.5M in F2016e).
 Puts and takes: The backlog of $44.6M points to a Professional Services revenue base of
$6.5M in FQ117e (9 months in the backlog). Contracts of $25M imply $4M in recurring
Services quarterly run-rate and $2.0-2.5M of Product maintenance. We see $16.9M
(+13% y/y) in a seasonally slow FQ117 with a typical bookings upside in mid-F2017e.
Our F2017e top line of c. $72M (7% y/y) is based on c. $51M booked in the year. With
the opex-freeze confirmed, we see EBITDA% expansion of 200bps+ to 12.8% in F2017e.
Valuation: Our current estimates point to EBITDA growth of c. 30% CAGR (F2015-2018e). In
turn, TCS’ performance is set to outstrip those at SCM peers (high-teens at Descartes
Systems [DSG, NR] and Kinaxis [KSX, NR]). In F2018e, we see TCS reaching a stable mid-teen
EBITDA%. We used our new EBITDA forecasts (ex. capitalization) in that year and industrylike 14x EV/EBITDA to derive a new PT of $11. With 16% upside (ex. dividends) our Buy
rating remains intact. Risks include protracted sales cycles and macro pressures.
Andrej Krneta, B. Eng, MBA | 416.687.6656 | Andrej.Krneta@echelonpartners.com
$11.00 Target
Projected Return: 17%
Valuation: 14x EV/EBITDA F2018e
Market Data
Market Capitalization
Net Debt
Enterprise Value
Basic Shares O/S
Fully Diluted Shares O/S
Avg. Daily Volume (M)
52 Week Range
Dividend Yield
117.0
-5.1
111.9
12.3
12.3
0.01
$10.11 - $6.35
1.3%
Revisions
New
Old
72.1
9.2
$0.44
NC
NC
NC
F2015
57.3
4.4
$0.13
-1.0
-1.3x
F2016
67.5
7.2
$0.39
1.7
-3.9x
F2017E
72.1
9.2
$0.44
7.3
-6.4x
-0.9%
1.5%
6.3%
2017E Revenue
2017E EBITDA
2017E EPS
Financial Metrics
FYE - Apr 15
Revenue
EBITDA
EPS
FCF
Net Debt:EBITDA
FCF Yield
Valuation Data
C2015
DCF - Current/Target
EV/EBITDA Current
Peers
Target
P/E
Current
Peers
Target
66.0x
33.5x
77.2x
95.5x
57.3x
NA
C2016E C2017E
$11.00 $12.20
12.6x
12.6x
21.9x
18.0x
14.7x
14.7x
14.8x
11.3x
52.2x
39.3x
17.1x
13.1x
Quarterly Data
EBITDA
EPS
2015
2016
2015
2016
Company Description
Q1
Q2
Q3
Q4
1.0
1.2
1.3
1.0
0.8
1.2
1.3
3.8
$0.03 $0.04 $0.04 $0.02
$0.01 $0.03 $0.04 $0.31
TECSYS is a provider of Supply Chain Management
(SCM) software. Through its Supply Chain Platform,
TECSYS helps corporates manage warehouse
facilities, distribution networks and logistics. The key
focus is the healthcare vertical where TCS ships into
integrated delivery networks (IDNs) and third-party
logistics providers. TECSYS is headquartered in
Montreal, Quebec.
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
0.12
0.10
0.08
0.06
0.04
0.02
0.00
Page 29 of 41
TECSYS Inc. (TCS-TSX) | July 12 2016
BUY | PT: CAD $11.00
TECSYS Inc. (TCS-T, CAD $9.50) - Data Sheet
$12.00
50-Day MA
Last Sale Price
200-Day MA
May-…
Consensus
TECSYS Inc. provides supply chain management (SCM)
systems that helps corporates manage warehouse facilities,
distribution networks, and logistics. The Company offers its
solutions to the healthcare, high-volume distribution, and
third-party logistics (3PL) industries. TECSYS is
headquartered in Montreal, QC.
Jun-16
Apr-16
Mar-16
Jan-16
Feb-16
Oct-15
Dec-15
Nov-15
Sep-15
Jul-15
Aug-15
May-…
Jun-15
Apr-15
Mar-15
Oct-14
Jan-15
0
Feb-15
$0.00
Dec-14
0.05
Nov-14
0.1
$2.00
Sep-14
0.15
$4.00
Jul-14
$6.00
Aug-14
0.2
Jun-14
$8.00
Volume (M Shares)
0.25
$10.00
Stock Price ($)
Company Description
0.3
3 Mths Ago
Current
Return
Buy
$10.70
$11.00
$12.00
$9.50
Buy
$11.00
$11.00
$13.50
$9.50
17%
17%
43%
1%
Rating:
Target:
Median:
High:
Low:
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Sector Underperform/Sell
# Est
5
0
0
5
Historical Valuations
CAPITAL IQ - CONSENSUS BASED NTM EV/EBITDA
CAPITAL IQ - CONSENSUS BASED NTM EV/SALES
Manhattan
Inc.
The Descartes
Systems
Inc Systems Group
TecsysInc
Inc.
Manhattan
Associates,
Inc.
The Group
Descartes
Tecsys
Inc. Associates,
10.0x
The Descartes
Systems
Group IncSystems Group
Manhattan
Inc.
Tecsys
Tecsys
Inc. Associates,
Manhattan
Associates,
Inc.
The Descartes
IncInc.
33.0x
28.0x
8.0x
23.0x
6.0x
18.0x
4.0x
13.0x
2.0x
8.0x
May-16
Apr-16
Jun-16
Jun-16
Oct-15
Jan-16
Feb-16
Dec-15
Mar-16
Feb-16
Apr-16
Jun-15
Oct-15
Nov-15
Aug-15
Dec-15
Jul-15
Feb-15
Aug-15
Apr-15
Sep-15
Apr-15
Oct-14
May-15
Dec-14
Jun-15
Jan-15
Jun-14
Feb-15
Aug-14
Mar-15
Oct-14
Feb-14
Nov-14
Apr-14
Dec-14
Dec-13
Sep-14
Aug-13
Jun-14
May-16
Apr-16
Jun-16
Jun-16
Feb-16
Apr-16
Oct-15
Jan-16
Feb-16
Dec-15
Mar-16
Nov-15
Aug-15
Dec-15
Jun-15
Oct-15
Aug-15
Apr-15
Sep-15
Jul-15
Feb-15
Apr-15
Oct-14
May-15
Dec-14
Jun-15
Jan-15
Jun-14
Feb-15
Aug-14
Mar-15
Oct-14
Feb-14
Nov-14
Apr-14
Dec-14
Dec-13
Sep-14
Jul-14
Oct-13
Aug-14
Aug-13
Jun-14
Jul-14
Oct-13
Aug-14
0.0x
3.0x
Key Financial Metrics
Financial Summary/Key Metrics
Consolidated ($M)
2014
2015
Q116
Q216
Q316
Q416
2016
2017E
Net Sales
Growth y/y
Cons.
Cons. 3 Mts. Ago
46.6
6.4%
46.2
46.2
57.3
23.0%
56.3
56.3
14.9
14.7%
15.3
15.3
15.8
16.3%
15.6
15.6
15.6
4.5%
16.6
16.6
21.1
34.1%
20.3
16.8
67.5
17.8%
66.6
63.1
72.1
6.9%
71.4
69.2
EBITDA
Margin
Cons.
Cons. 3 Mts. Ago
4.1
9%
4.1
4.1
4.4
8%
4.9
4.9
0.8
6%
0.8
0.8
1.2
7%
1.3
1.3
1.3
9%
1.5
1.5
3.8
18%
3.0
1.5
7.2
11%
6.2
4.8
9.2
13%
8.3
7.6
EPS
Cons.
Cons. 3 Mts. Ago
$0.16
$0.16
$0.16
$0.13
$0.18
$0.18
$0.01
$0.03
$0.03
$0.03
$0.06
$0.06
$0.04
$0.07
$0.07
$0.31
$0.14
$0.06
$0.39
$0.24
$0.14
$0.44
$0.44
$0.36
8.8
(6.3)
10.8
(6.0)
11.9
(7.5)
9.1
(5.0)
8.8
(5.1)
9.7
(6.4)
9.7
(6.4)
15.6
(12.3)
5.3
(1.0)
1.5
(1.8)
0.4
1.6
1.6
7.3
Total Products Revenue
% of total
14.9
32%
21.1
37%
4.2
28%
5.1
32%
4.7
30%
9.0
43%
23.0
34%
25.1
35%
Software Products
% of total
8.1
17%
12.5
22%
2.1
14%
3.0
19%
2.5
16%
5.9
28%
13.6
20%
14.7
20%
Third-party Hardware & Software
% of total
6.8
15%
8.6
15%
2.1
14%
2.1
13%
2.2
14%
3.1
15%
9.4
14%
10.3
14%
30.2
65%
34.3
60%
10.3
69%
10.2
65%
10.5
67%
11.5
54%
42.5
63%
44.7
62%
Cash
Net Debt
FCF
Operating/Segmented Summary ($M)
Services Revenue
% of total
Reimbursable Expenses
% of total
1.5
3%
1.8
3%
0.4
3%
0.5
3%
Price
Target
Div Yield
Return
$9.50
$7.88
$42.37
$66.46
$17.66
$60.10
$24.48
$51.53
$11.00
$9.50
$49.43
$72.75
$17.75
$69.33
$22.56
$40.78
1.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
17%
21%
17%
9%
1%
15%
-8%
-21%
4.8%
F2016E
C2015
0.4
3%
0.6
3%
1.9
3%
1 Week
1 Month
3 Month
C2017E
C2015
Key Statistics
Value
52-Week High
52-Week Low
Avg Vol (3-Mo)
Shares Outstanding
Market Cap
Net Debt
Enterprise Value
Div Yield
FYE
Employees
$10.11
$6.35
0.01
12.32
117.0
-5.1
111.9
1%
Apr/15
346
Top Inst. Ownership
Fiera Capital
Edgepoint
Mackenzie
Penderfund Capital Mgmt
Pembroke Management
Front Street
Ldic Inc.
Counsel Portfolio
AGF Management
Timelo Investment Mgmt
Valuation
EBITDA
Net Change in WC
Capex
FCFF
M Shares
∆ 6 Mnths
F2016E
F2017E
1.46
0.62
0.24
0.22
0.21
0.05
0.01
0.01
0.00
NA
7.2
(3.2)
(1.1)
2.1
WACC
Term. Growth Rate
9.2
0.7
(1.6)
7.0
% Held
11.9%
5.0%
2.0%
1.8%
1.7%
0.4%
0.1%
0.1%
0.0%
NA
F2018E
10.7
(1.1)
(1.8)
6.1
10.9%
2.0%
Current
Terminal Value PV
Equity Value
DCF Value
2.4
3%
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
NA
6%
(33%)
58.4
135.5
$11.00
1-Yr TGT
150.3
$12.20
Comparables
Comparables
and Peer Analysis
TECSYS Inc.
Amber Road, Inc. ($US)
Fleetmatics Group PLC ($US)
Manhattan Associates, Inc. ($US)
SciQuest, Inc. ($US)
SPS Commerce, Inc. ($US)
The Descartes Systems Group Inc
Kinaxis Inc.
Peer Average
Comparables
Multiples Analysis
TECSYS Inc.
Amber Road, Inc. ($US)
Fleetmatics Group PLC ($US)
Manhattan Associates, Inc. ($US)
SciQuest, Inc. ($US)
SPS Commerce, Inc. ($US)
The Descartes Systems Group Inc
Kinaxis Inc.
Peer Average
Enterprise
Value
112
213
1,527
4,533
386
917
1,735
1,175
FCF Yield
F2015
-0.9%
-7.2%
2.5%
2.6%
2.0%
0.6%
2.2%
2.8%
0.8%
Return
2.2%
2.2%
(2.2%)
3.6%
(0.8%)
(0.9%)
(0.7%)
0.2%
-4.0%
19.4%
(5.7%)
(2.4%)
(0.1%)
5.5%
(8.0%)
1.7%
1.5%
EV/Sales
1.5%
-0.9%
3.9%
2.9%
2.5%
1.2%
2.7%
1.8%
2.0%
1.8x
3.3x
6.3x
9.0x
3.3x
7.2x
7.7x
11.4x
6.9x
C2016E
1.5x
3.2x
5.1x
8.0x
3.2x
5.8x
9.7x
12.0x
6.7x
31.9%
52.1%
12.4%
18.8%
23.6%
40.2%
0.2%
13.9%
23.0%
Revenue
YTD
28.9%
54.8%
(16.6%)
0.4%
36.2%
(14.4%)
(12.1%)
9.8%
8.3%
1 Year
F2016E
C2017E
C2015
5.6%
20.5%
(4.0%)
11.5%
29.3%
(11.7%)
21.2%
87.0%
22.0%
67.5
83.0
405.8
676.8
118.9
229.6
204.6
134.3
Sales Growth (%)
1.5x
2.9x
4.3x
7.2x
3.1x
4.8x
6.4x
7.2x
5.1x
15%
4%
23%
13%
3%
24%
-21%
-6%
6%
C2016E
21%
10%
21%
11%
4%
22%
52%
68%
27%
EBITDA
F2017E
72.1
NA
463.0
738.9
NA
NA
226.2
159.1
F2017E
C2017E
C2015
7.2
-2.3
140.2
235.7
26.9
34.8
69.3
37.5
EV/EBITDA
0%
13%
18%
10%
8%
19%
11%
21%
14%
66.0x
NA
21.5x
26.2x
41.7x
55.3x
21.8x
31.3x
33.0x
C2016E
12.6x
NA
12.7x
21.0x
14.6x
35.1x
18.9x
26.5x
21.5x
EPS
F2016E
9.2
NA
166.7
NA
NA
NA
79.4
47.1
F2016E
$0.39
-$0.56
$1.76
$1.76
$0.34
$0.94
$0.70
$0.81
F2017E
$0.44
-$0.42
$2.12
$1.97
$0.39
$1.23
$0.79
$0.98
EBITDA Margin (%)
12.6x
NA
10.4x
18.8x
12.5x
26.4x
16.5x
21.2x
17.6x
3%
-34%
24%
30%
8%
10%
45%
38%
17%
C2016E
12%
-8%
34%
34%
21%
14%
34%
27%
22%
C2017E
12%
-3%
35%
35%
23%
15%
35%
28%
24%
*All financial values in CAD unless otherwise noted
Source: Echelon Wealth Partners, Company Reports and Filings, Capital IQ, Bloomberg
Andrej Krneta, B. Eng, MBA | 416.687.6656 | Andrej.Krneta@echelonpartners.com
Page 30 of 41
TECSYS Inc. (TCS-TSX) | July 12 2016
Exhibit 1 – TECSYS Income Statement (all figures in $CAD 000s except EPS)
Income Statement
Q216
Q316
Q416e
2016e
Q117e
Q217e
Q317e
Q417e
2017e
2018e
($CAD K)
Apr-15
Jul-15 Oct-15
Jan-16
Apr-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Apr-17
Apr-18
Products
as % of total sales
21,101
37%
4,212
28%
5,092
32%
4,707
30%
9,033
43%
23,044
34%
5,816
34%
5,448
31%
6,085
33%
5,913
31%
23,262
32%
24,892
33%
Services
as % of total sales
34,347
60%
10,316 10,172
69%
65%
10,502
67%
11,489
54%
42,479
63%
10,511
62%
11,420
65%
11,794
64%
12,786
66%
46,512
64%
48,810
64%
498
3%
420
3%
622
3%
1,943
3%
600
4%
620
4%
550
3%
600
3%
2,370
3%
2,500
3%
14,931 15,762
Reimbursable Expenses
as % of total sales
Total Revenues
2015
1,836
3%
403
3%
15,629
21,144
67,466
16,927
17,488
18,429
19,299
72,144
76,202
yoy growth
23%
15%
16%
4%
34%
18%
13%
11%
18%
-9%
7%
6%
Cost of sales
29,711
7,511
7,972
7,710
9,448
32,641
8,253
8,407
9,009
9,118
34,786
36,357
Gross Profit
Gross margin (%)
27,573
48%
7,420
50%
7,790
49%
7,919
51%
11,696
55%
34,825
52%
8,674
51%
9,081
52%
9,421
51%
10,181
53%
37,357
52%
39,845
52%
Sales & Marketing
as % of total sales
12,727
22%
3,592
24%
3,503
22%
3,601
23%
4,256
20%
14,952
22%
3,620
21%
3,710
21%
3,800
21%
3,670
19%
14,800
21%
15,060
20%
General & Administrative
as % of total sales
5,899
10%
1,369
9%
1,391
9%
1,387
9%
1,839
9%
5,986
9%
1,480
9%
1,520
9%
1,560
8%
1,520
8%
6,080
8%
6,540
9%
Research & Development
as % of total sales
7,000
12%
2,252
15%
2,395
15%
2,327
15%
2,364
11%
9,338
14%
2,448
14%
2,472
14%
2,472
13%
2,496
13%
9,888
14%
9,984
13%
EBITDA
EBITDA margin (%)
4,401
8%
831
6%
1,153
7%
1,343
9%
3,840
18%
7,167
11%
1,815
11%
2,033
12%
2,223
12%
3,143
16%
9,214
13%
10,727
14%
EBITDA (ex. capitalization)
EBITDA margin (%)
1,559
3%
95
1%
516
3%
843
5%
3,408
16%
4,862
7%
1,278
8%
1,516
9%
1,725
9%
2,645
14%
7,164
10%
9,327
12%
Depreciation & Amortization
2,468
642
668
674
706
2,690
695
660
640
655
2,650
2,491
EBIT
EBIT margin (%)
1,947
3%
207
1%
501
3%
604
4%
3,237
15%
4,549
7%
1,126
7%
1,379
8%
1,589
9%
2,495
13%
6,589
9%
8,261
11%
Net Finance & Other
57,284
Q116
119
40
32
-49
123
146
35
37
39
39
150
150
1,828
167
469
653
3,114
4,403
1,091
1,342
1,550
2,456
6,439
8,111
Tax (credit)/charge
Effective Tax Rate
313
17%
98
59%
102
22%
110
17%
-711
-23%
-401
-9%
164
15%
201
15%
232
15%
368
15%
966
15%
1622
20%
Net Profit
Profit margin (%)
Basic Shares (M)
Diluted Shares (M)
1,515
3%
12
12
69
0%
12
12
367
2%
12
12
543
3%
12
12
3,825
18%
12
12
4,804
7%
12
12
927
5%
12
12
1,141
7%
12
12
1,317
7%
12
12
2,088
11%
12
12
5,473
8%
12
12
6,489
9%
12
12
0.13
0.13
0.01
0.01
0.03
0.03
0.04
0.04
0.31
0.31
0.39
0.39
0.08
0.08
0.09
0.09
0.11
0.11
0.17
0.17
0.44
0.44
0.53
0.53
Profit before tax
Basic EPS ($)
Diluted EPS ($)
Source: Echelon Wealth Partners Inc., Company Reports and Filings
Page 31 of 41
12 July 2016
Special Situations
Pure Technologies Ltd.
PUR-TSX: $5.95
Buy
Introducing Pure as Top Pick for H216
$7.25 Target
We are pleased to introduce Pure Technologies (“PUR”, “Pure”, or “the Company”) as one
of Echelon Wealth Partners’ research top picks for H216.
Investment Thesis: As we expanded in our initiation note (initiating note - April 12, 2016), we
see the recent share price weakness (down 31% from its March 2015 high) as an opportunity
to consolidate a position in a dominant player supported by industry tailwinds.
We attribute the underperformance to lacklustre results through 2015 marked by various
concerns, namely the postponement of several anticipated large projects, combined with a
temporary slowdown in the recently acquired Wachs Water Services (“WWS” or “Wachs”)
core business, resulting in revenue that was below expectations with consequent margin
compression; we view these as short-term and non-recurring issues that have no bearing on
our long-term bullish thesis.
We urge investors to shrug off the short-term disappointments in favour of the long-term
business fundamentals. Given the lumpy nature of the business quarter to quarter, we take a
longer-term view when evaluating the merits of an investment in Pure. Namely, in our Target
Scenario we see revenue CAGR of 21.4% through 2018 together with considerable operating
leverage, driving an impressive 38.8% EBITDA CAGR during the same period. We believe that
the Company has a dominant position in a high barrier to entry business, helping sustain its
revenue growth and margin profile going forward.
Catalysts and Drivers: We believe share performance will be driven by the Company’s
quarterly execution in light of last year’s missteps. Specifically, we look for:
 Strong organic growth performance, specifically in Q316 and Q416: We look for 20%+
organic growth rates in the latter quarters of the year (5% ahead of Street estimates)
confirming continued traction at PureHM and a turnaround of WWS performance. Q116
sales at PureHM were $4.7M, up from $1.4M last year driven by increased work in the US
and increased product acceptance for both the Spectrum XLI and SmartBall technologies
for the oil and gas sector. Wachs’ performance seems to have stabilized in Q116 with
revenues coming in at $4.2M ($4.3M in Q415), which should come as a relief to investors.
We now look for Wachs to contribute to growth.
 Considerable margin expansion from current levels: Given the high fixed structure, the
second half of the year seasonality imbedded in the business, and good cost control, we
see considerable operating leverage going forward. Namely, our Adjusted EBITDA margin
expands from 4.4% in Q116 to 21.4% in Q416. We believe delivery of such results will go a
long way in restoring the Company’s premium valuation.
Valuation: Pure trades at 11x 2017 EBITDA. Our $7.25 PT implies a 2017 EBITDA multiple of
13x, below the Company’s historical forward multiple of 14x. Given the significant operating
leverage and the long-term secular growth trends Pure is exposed to, we opt for a DCF
analysis with an 11% discount rate and a 4% GRIP (implied exit multiple of 7.5x) to derive our
valuation. Our bullish thesis is supported by robust downside protection (-27%) relative to
attractive upside potential (24% for our target case and 57% for our upside case).
Amr Ezzat | 514.905.7944 | Amr.Ezzat@echelonpartners.com
Projected Total Return: 23.9%
Valuation: DCF (11.0% discount,
4.0% GRIP)
Market Data
Market Capitalization
Net Cash
Enterprise Value
Basic Shares S/O
Fully Diluted Shares S/O
Avg. Daily Volume (K)
52 Week Range
Dividend Yield
321.1
9.8
311.3
53.7
53.9
44.8
$3.80 - $7.39
2.0%
Revisions
Current
2016E Revenue
2016E ADJ. EBITDA
2016E ADJ. FD EPS
Financial Metrics
FYE Dec 31
Revenue
Old
131.3
22.2
$0.13
NA
NA
NA
2015A
104.4
2016E
131.3
2017E
156.5
2018E
186.6
34.2%
19.2%
Growth y/y
25.7%
19.2%
13.3
22.2
28.3
35.5
Margin
12.7%
16.9%
18.1%
19.0%
ADJ. EPS FD
-0.03
0.13
NA
NA
ADJ. EBITDA
Growth y/y
0.25
0.36
94.5%
45.0%
2016E
2.4x
14.0x
46.6x
2017E
2.0x
11.0x
23.9x
2018E
1.7x
8.8x
16.5x
Q2
29.4
31.0
4.6
5.3
0.01
0.02
Q3
29.6
36.6
3.9
7.6
0.01
0.07
Q4
30.8
38.6
6.9
8.3
0.02
0.08
Valuation Data
FYE Dec 31
EV/Sales
EV/ADJ. EBITDA
P/E
2015A
3.0x
23.4x
NA
Quarterly Data
Q1
14.7
25.1
-2.1
1.1
-0.07
-0.03
Rev. '15
Rev. '16
EBITDA '15
EBITDA '16
FD EPS '15
FD EPS '16
Company Description
Pure Technologies Ltd. is engaged in development and
application of technologies for inspection, monitoring
and managing physical infrastructure, including water
and hydrocarbon pipelines, buildings and bridges. The
Company's main business streams include sale of
monitoring systems; technical services utilizing pipe line
inspection , leak detection and condition assessment
technologies, and specialized engineering services. The
Company is based in Calgary, AB.
$8.00
$7.00
Volume (mm)
1.40
Price
1.20
$6.00
1.00
$5.00
0.80
$4.00
0.60
$3.00
0.40
$2.00
0.20
$1.00
$0.00
Jul-15
0.00
Oct-15
Jan-16
Apr-16
Page 32 of 41
Pure Technologies Ltd. (PUR-TSX) | July 12 2016
Exhibit 1 – DCF Analysis and Sensitivity Analysis
Source: Echelon Wealth Partners Inc.
Amr Ezzat | 514.905.7944 | Amr.Ezzat@echelonpartners.com
Page 33 of 41
Pure Technologies Ltd. (PUR-TSX) | July 12 2016
BUY | PT: $7.25
Pure Technologies Ltd. (PUR-T, $5.95) - Data Sheet
$10.00
50-Day MA
Last Sale Price
200-Day MA
$9.00
Stock Price ($)
Company Description
1.20
Pure Technologies Ltd. is engaged in development and
application of technologies for inspection, monitoring and
managing physical infrastructure, including water and
hydrocarbon pipelines, buildings and bridges. The
Company's main business streams include sale of
monitoring systems; technical services utilizing pipe line
inspection , leak detection and condition assessment
technologies, and specialized engineering services. The
Company is based in Calgary, AB.
$7.00
1.00
$6.00
0.80
$5.00
$4.00
0.60
$3.00
0.40
$2.00
Volume (M Shares)
$8.00
1.40
0.20
$1.00
0.00
$0.00
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Consensus
3 Mths Ago
Current
Return
Buy
$7.38
$7.38
$8.00
$7.00
Buy
$7.35
$7.50
$7.50
$7.00
26%
28%
28%
20%
Rating:
Target:
Median:
High:
Low:
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Sector Underperform/Sell
# Estimates
5
0
0
5
Historical Valuation
NTM EV/EBITDA
NTM P/E
120.0x
20.0x
100.0x
80.0x
15.0x
60.0x
40.0x
10.0x
Jul-16
May-…
2015A
Q116A
Q216E
Q316E
Q416E
2016E
2017E
2018E
Segmented Sales
2015A
Q116A
Q216E
Q316E
Q416E
2016E
2017E
2018E
1 Week
1 Month
3 Month
YTD
1 Year
(2.0%)
5.9%
4.6%
(2.7%)
1.8%
3.1%
5.2%
3.8%
0.9%
(2.4%)
3.5%
4.9%
1.4%
2.5%
6.4%
4.9%
2.2%
1.6%
(9.0%)
(1.4%)
6.0%
4.1%
(0.9%)
5.3%
(0.2%)
2.9%
(4.2%)
1.4%
17.6%
20.5%
13.8%
9.2%
9.4%
3.9%
12.3%
21.6%
9.3%
1.7%
15.7%
(1.1%)
1.4%
1.6%
38.0%
25.8%
28.6%
15.3%
10.0%
10.6%
22.7%
37.6%
20.6%
6.2%
27.4%
5.6%
(4.3%)
5.9%
62.4%
(2.5%)
32.6%
35.2%
(6.1%)
9.8%
21.2%
34.1%
36.5%
(29.8%)
16.9%
13.8%
(18.7%)
(2.4%)
6.7x
2.4x
2.5x
9.7x
1.6x
3.5x
1.6x
2.0x
1.0x
2.8x
2.9x
0.7x
1.5x
2.1x
6.4x
2.4x
2.4x
9.4x
1.8x
3.3x
1.7x
1.9x
1.0x
3.0x
2.7x
0.7x
1.5x
2.1x
14.0x
13.6x
14.9x
18.9x
9.9x
13.9x
17.0x
12.1x
13.7x
18.2x
16.2x
7.9x
17.6x
16.9x
13.1x
12.6x
13.5x
16.3x
11.1x
13.4x
11.2x
10.7x
9.8x
18.7x
16.0x
7.0x
12.3x
14.1x
31.3x
NM
24.5x
29.9x
21.8x
22.8x
NM
31.6x
130.4x
NM
35.9x
NM
84.7x
60.3x
28.9x
14.5x
21.9x
26.1x
17.8x
22.1x
21.9x
22.4x
20.3x
46.2x
30.3x
14.7x
27.0x
28.7x
47.8%
17.7%
16.3%
55.6%
16.2%
25.3%
9.7%
16.5%
7.4%
17.4%
17.6%
9.0%
8.7%
13.2%
6.4%
3.3%
2.6%
2.6%
-10.9%
4.8%
-3.6%
1.2%
2.3%
29.4%
9.9%
-3.5%
-11.2%
3.2%
1.8%
2.1%
1.3%
2.1%
1.7%
1.6%
1.2%
1.0%
2.9%
1.1%
1.6%
1.3%
9.5%
(1.8%)
16.5%
11.9%
16.1%
19.4%
(13.7%)
17.3%
2.3%
3.7%
13.1%
(2.2%)
3.3%
3.5%
(3.1%)
2.4%
30.5%
27.4%
(13.1%)
2.7x
2.4x
22.7x
13.2x
NM
40.1x
11.9%
21.7%
2.0%
(0.2%)
104.4
34.2%
109.9
109.9
13.3
12.7%
12.3
12.3
-0.03
NA
0.05
0.05
25.1
71.3%
20.8
20.8
1.1
4.4%
0.3
0.3
-0.03
NA
-0.04
-0.04
31.0
5.3%
30.3
34.9
5.3
17.0%
4.6
6.7
0.02
30%
0.02
0.04
36.6
23.8%
35.0
35.0
7.6
20.7%
7.8
7.4
0.07
342%
0.07
0.06
38.6
25.4%
36.6
36.3
8.3
21.4%
8.2
8.0
0.08
300%
0.07
0.07
131.3
25.7%
127.1
125.9
22.2
16.9%
21.9
22.0
0.13
NA
0.12
0.14
156.5
19.2%
147.6
146.9
28.3
18.1%
28.3
28.3
0.25
94%
0.24
0.23
186.6
19.2%
177.2
177.4
35.5
19.0%
35.5
34.7
0.36
45%
NA
0.34
52-Week High
52-Week Low
Avg Vol (3-Mo)
Shares Outstanding (FD)
Market Cap
Net Debt (Net Cash)
Enterprise Value
Div Yield
FYE
Employees
Top Ownership
Equipment sales
Growth y/y
% Total Sales
Inspection and consulting services
Growth y/y
% Total Sales
Monitoring, licensing and technica
Growth y/y
% Total Sales
Total Sales
Growth y/y
% Total Sales
7.7
-56%
7%
87.3
68%
84%
9.4
11%
9%
104.4
34%
100%
0.4
-81%
2%
21.8
101%
87%
2.9
79%
12%
25.1
71%
100%
0.6
-80%
2%
27.2
17%
88%
3.1
5%
10%
31.0
5%
100%
1.4
5%
4%
32.0
25%
87%
3.2
22%
9%
36.6
24%
100%
1.1
5%
3%
34.5
25%
89%
3.1
40%
8%
38.6
25%
100%
Return
Water Technology Comps
American Water Works Company, I
Pentair plc
Xylem Inc.
Aqua America Inc.
Flowserve Corp.
IDEX Corporation
Watts Water Technologies, Inc.
Mueller Water Products, Inc.
Itron, Inc.
Hyflux Ltd
Badger Meter Inc.
Aegion Corporation
Lindsay Corporation
Median
Pure Technologies (Street)
3.5
-54%
3%
115.5
32%
88%
12.3
31%
9%
131.3
26%
100%
3.8
8%
2%
138.6
20%
89%
14.1
15%
9%
156.5
19%
100%
EV / Sales
LTM
Pictet Asset Management Limited
1832 Asset Management L.P.
Gilder Gagnon Howe & Co. Llc
Cibc Asset Management Inc.
Pembroke Management Ltd.
Calvert Investment Management, Inc.
Telemark Asset Management, Llc
Kleinwort Benson Investors Dublin Ltd.
4.1
8%
2%
166.3
20%
89%
16.3
15%
9%
186.6
19%
100%
EV / EBITDA
NTM
LTM
Value
Jun-16
Apr-16
Mar-16
Jan-16
Financial Summary
Revenue
Growth y/y
Cons.
Cons. 3 Mts. Ago
Adjusted EBITDA
Margin
Cons.
Cons. 3 Mts. Ago
Diluted Adj. EPS
Growth y/y
Cons.
Cons. 3 Mts. Ago
Key Statistics
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
May-…
Jun-15
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Aug-14
Jul-16
May-…
0.0x
Jun-16
Apr-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
May-…
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Aug-14
Key Financial Metrics
Jun-15
20.0x
5.0x
NTM
P/ E
LTM
$7.39
$3.80
45k
54
$319.47
-10
$309.71
2.0%
Dec 31
~500
M Shares
2.40
1.39
1.24
1.10
1.03
0.93
0.90
0.83
LTM EBITDA Rev. Growth
NTM
Margin
2016E
∆ 6 Mnths
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
24%
(36%)
% Held
4.5%
2.6%
2.3%
2.0%
1.9%
1.7%
1.7%
1.5%
Dividend
LTM
Yield
ROE
Source: Echelon Wealth Partners, Company Reports and Filings, Capital IQ
Amr Ezzat | 514.905.7944 | Amr.Ezzat@echelonpartners.com
Page 34 of 41
12 July 2016
Special Situations
exactEarth Ltd.
XCT-TSX: $1.30
Speculative Buy
Industry Leader in a Growing Market with a Favourable
Risk/Return Trade-off
Company Thesis: exactEarth Ltd. (“XCT” or “the Company”) is the undisputed industry leader
for satellite-based AIS detection with a leadership position supported by its proprietary
technology for high quality detection of AIS transmissions from space. Our thesis is based on
the Company’s ability to acquire market share in the largely underserviced maritime
information and AIS markets. Specifically, the Company’s technological advantage rests with its
ability to offer a high quality, low cost alternative for vessel detection in high density areas and
its unique technology for detecting small vessels such as those used by fishing fleets. A
transformational deal with Harris Corporation (HRS-US, NR) (“Harris Agreement”) will allow
exactEarth to attain real-time continuous global coverage through access to the Iridium (IRDMNYSE, NR) NEXT constellation and provide a significant competitive advantage versus peers and
new entrants. The Company’s competitive advantage, market opportunities, and near-term
catalysts support our view that the current share price represents an exceptional entry point
with limited downside risk and strong upside potential. We note that XCT shares have 91
cents of cash and only 39 cents of enterprise value for a business that we expect will generate
88 cents of sales per share.
Rough Start in FH116: XCT became a public company last February as result of an acquisition
and spinout transaction when its parent company COM DEV got acquired by Honeywell (HONNYSE, NR). FH116 was a challenging half for the Company even after winning a bid from the
Government of Canada (“GoC”) that surprisingly required a small percentage of XCT’s S-AIS
capabilities. The contract represented a $6.6M drop in projected annual revenues. In our
opinion, the ensuing 50% decrease in the share price is overdone and does not reflect the
value of XCT’s technology and the continued traction of its products and services.
Forward Catalysts: We are bullish on the market opportunities to implement S-AIS for
maritime situational awareness and in applications ranging from maritime security to
combating Illegal Unreported and Unregulated Fishing (IUUF) activity. Catalysts for the stock in
the near term include the roll-out of data analytics tools for the SaaS platform in FH216 and
booking revenues from these tools by F2017; expanding into the Chinese market with the EV
Image exclusivity distribution agreement that should begin contributing to the top line in a
meaningful manner in F2017; the launch of the first patch of Iridium NEXT satellites with four
XCT S-AIS payloads, increasing XCT’s space assets from 9 to 13, ahead of attaining real-time AIS
detection capability by the middle of 2017 after a few more launches; and signing the first
customer for small vessel detection by late F2017 to address the IUUF activity.
Valuation: Our one-year target price of $2.00 is based on a five-year DCF with an 18%
discount rate and 4.0x terminal EV to EBITDA multiple. Our projections assume 30% organic
growth in Subscription Service revenues excluding the impact from the GoC contract, and it
also excludes growth opportunities from China and IUUF. We do not account for nonsubscription based sales.
Recommendation: We have XCT as our Top Pick for 2016 with a Speculative BUY rating and
$2.00 target price. At the current share price we see an attractive risk/reward trade-off for
this technology leader that is well positioned in a growing industry. We anticipate these
catalysts to take place as F2017 rolls in and shifts investor perspective of XCT.
Fadi Benjamin, CFA, P.Eng. | 416.842.1791 | fadi.benjamin@echelonpartners.com
$2.00 Target
Projected Return: 53.8%
Discount Rate: 18.0%
Terminal Year: 4.0x EV/EBITDA
Market Data
Market Capitalization
Net Debt
Enterprise Value
Basic Shares O/S
Fully Dil. Shares O/S
Avg. Daily Volume (M)
52 Week Range
Dividend Yield
Financial Metrics
FYE - Oct 31
Revenue
Adj. EBITDA
EPS
FCF
Net Debt:EBITDA
FCF Yield
28.1
-19.6
8.5
21.6
21.6
0.07
$1.22 - $4.00
0.0%
2015A
26.6
9.2
($0.09)
(6.5)
-2.1x
(23.2%)
2016E
18.9
0.6
($1.53)
(11.1)
-34.7x
(39.6%)
2017E
18.8
0.1
($0.22)
(1.7)
-131.5x
(5.9%)
DCF - Current/Target
Current
EV/
Peers
Adj.EBITDA
Target
Current
EV/
Peers
Revenues
Target
$2.35
0.9x
18.4x
2.6x
0.3x
3.6x
0.9x
$2.84
15.0x
18.7x
41.7x
0.4x
3.1x
1.2x
$3.16
56.7x
13.1x
158.1x
0.5x
3.1x
1.3x
Revenues
2016
Q1
6.4
Q2
5.2
Q3
3.2
Q4
4.1
Adj.EBITDA
2017
2016
2017
5.0
1.5
0.2
4.3
(0.2)
(0.1)
4.2
(0.5)
(0.2)
5.3
(0.2)
0.3
Valuation Data
Quarterly Data
Company Description
exactEarth Ltd. is a leading provider of global maritime
vessel data for ship tracking and maritime situational
awareness by detecting AIS transmissions from Space
via a satellite base maritime surveillance method
(Satellite-AIS) across all regions of the world's ocean
and unrestricted by terrestrial limitations. The
Company's supply chain include owned and operated
LEO satellite constellation, receiving ground stations,
data processing and distribution centers, and patented
decoding algorithms. The Company was established in
2009 and is headquartered in Cambridge Ontario.
2.0
$4.0
1.5
$3.0
1.0
$2.0
0.5
$1.0
0.0
Feb-16 Mar-16
Apr-16 May-16
Volume (M)
Jun-16
$0.0
Price
Source: FactSet
Page 35 of 41
exactEarth Ltd. (XCT-TSX) | 12 July 2016
exactEarth Ltd. (XCT-TSX, $1.30) - Data Sheet
50-Day MA
Last Sale Price
1.6
200-Day MA
Jul-16
Jun-16
Jun-16
Jun-16
May-…
Jun-16
May-…
May-…
May-…
May-…
Apr-16
0
Apr-16
$0.00
Apr-16
0.2
Apr-16
0.4
$0.50
Mar-16
0.6
$1.00
Mar-16
0.8
$1.50
Mar-16
$2.00
Feb-16
1
Mar-16
1.2
$2.50
Feb-16
$3.00
Feb-16
1.4
Feb-16
$3.50
Volume (M Shares)
Stock Price ($)
$4.00
Spec BUY | PT: $2.00
Company Description
Consensus
exactEarth Ltd. is a leading provider of global maritime
vessel data for ship tracking and maritime situational
awareness by detecting AIS transmissions from Space via a
satellite base maritime surveillance method (Satellite-AIS)
across all regions of the world's ocean and unrestricted by
terrestrial limitations. The Company's supply chain include
owned and operated LEO satellite constellation, receiving
ground stations, data processing and distribution centers,
and patented decoding algorithms. The Company was
established in 2009 and is headquartered in Cambridge
Ontario.
Rating:
Target:
Median:
High:
Low:
3 Mths Ago
Current
Return
Buy
$4.75
$5.00
$5.00
$4.25
Hold
$1.60
$1.50
$2.00
$1.40
23%
15%
54%
8%
Consensus Distribution
Sector Outperform/Buy
Sector Perform/Hold
Sector Underperform/Sell
# Est
1
3
0
4
Historical Valuations
FactSet - CONSENSUS BASED NTM EV/EBITDA
ORBCOMM Inc.
exactEarth Ltd.
19.5x
FactSet - CONSENSUS BASED NTM EV/Sales
30.0x
Numerex Corp. Class A
ORBCOMM Inc.
Numerex Corp. Class A
exactEarth Ltd.
25.0x
20.0x
14.5x
15.0x
10.0x
9.5x
5.0x
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Aug-14
Sep-14
0.0x
Jun-16
Apr-16
May-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
4.5x
Key Financial Metrics
Financial Summary/Key Metrics
Segments
Subscription Services
Growth y/y
Data Products
Growth y/y
Other Products & Services
Growth y/y
Consolidated
Revenues
Growth y/y
Consensus
Cons. 3 Mts. Ago
Adjusted EBITDA
Growth y/y
Margin
Consensus
Cons. 3 Mts. Ago
EPS
Growth y/y
Consensus
Cons. 3 Mts. Ago
FCF
Growth y/y
D&A
Capex
Cash
Net Debt
2015
Q116
Q216
Q316E
Q416E
2016E
2017E
2018E
2019E
2020E
20.6
62.6%
3.9
162.8%
2.1
24.4%
5.4
6.5%
0.3
424.1%
0.7
127.5%
4.1
6.5%
1.0
424.1%
0.2
127.5%
3.2
6.5%
0.0
424.1%
0.0
127.5%
4.1
6.5%
0.0
424.1%
0.0
127.5%
16.8
(18.6%)
1.3
(67.8%)
0.9
(56.6%)
18.8
12.0%
0.0
(100.0%)
0.0
(100.0%)
24.4
30.0%
0.0
NA
0.0
NA
31.7
30.0%
0.0
NA
0.0
NA
41.3
30.0%
0.0
NA
0.0
NA
26.6
68.0%
26.6
26.6
9.2
407.8%
34.6%
9.0
9.0
($0.09)
(71.5%)
($0.09)
($0.09)
(6.5)
314.3%
5.5
(14.2)
2.4
44.5
6.4
17.8%
6.4
6.1
1.5
68.1%
22.8%
1.5
0.6
($0.09)
4.9%
($0.08)
($0.04)
(2.2)
(56.1%)
1.4
(3.3)
1.7
49.1
5.2
(12.1%)
5.2
6.0
(0.2)
NA
(3.9%)
(0.2)
0.4
($1.39)
1712.8%
($1.39)
($0.05)
0.4
(84.7%)
1.4
(1.8)
21.6
(19.6)
3.2
(58.4%)
3.8
6.1
(0.5)
NA
(16.2%)
(0.8)
0.6
($0.06)
NA
($0.10)
($0.04)
(7.8)
73.3%
0.7
(1.5)
13.6
(11.8)
4.1
(45.2%)
4.0
6.6
(0.2)
NA
(3.9%)
(0.7)
1.0
($0.04)
NA
($0.09)
($0.03)
(1.5)
NA
0.7
(1.5)
11.9
(10.2)
18.9
(28.8%)
19.3
25.2
0.6
(93.9%)
3.0%
(0.2)
3.5
($1.53)
1516.0%
($1.74)
($0.18)
(11.1)
70.2%
4.2
(8.1)
11.9
(10.2)
18.8
(0.8%)
19.4
32.3
0.1
(73.6%)
0.8%
(0.2)
6.6
($0.22)
(85.7%)
($0.26)
($0.00)
(1.7)
(85.0%)
4.8
(2.0)
9.5
(8.3)
24.4
30.0%
22.9
40.8
3.6
NM
14.7%
2.4
10.9
($0.09)
(59.7%)
($0.15)
$0.19
2.5
NA
5.5
(2.0)
11.4
(10.8)
31.7
30.0%
31.7
4.7
30.6%
14.8%
4.7
($0.04)
(54.8%)
($0.04)
$0.00
3.2
27.9%
5.6
(2.0)
14.2
(14.0)
41.3
30.0%
41.3
6.1
30.5%
14.8%
6.1
$0.02
NA
$0.02
$0.00
4.8
49.4%
5.5
(2.0)
18.9
(18.9)
Key Statistics
Value
52-Week High
52-Week Low
Avg Vol (3-Mo)(000)
Shares Outstanding
Market Cap
Net Debt
Enterprise Value
Div Yield
FYE
$4.00
$1.22
67.1
22
28.1
-19.6
8.5
0.0%
Oct 31
Top Inst. Ownership
Hisdesat Servicios Estrategic
Management
Valuation
Comparables
exactEarth Ltd.
ORBCOMM Inc.
DigitalGlobe, Inc.
UrtheCast Corp.
Kinaxis, Inc.
FleetMatics Group Ltd.
Descartes Systems Group Inc.
Numerex Corp. Class A
I.D. Systems, Inc.
Peer Average
Comparables
Multiples Analysis
exactEarth Ltd.
ORBCOMM Inc.
DigitalGlobe, Inc.
UrtheCast Corp.
Kinaxis, Inc.
FleetMatics Group Ltd.
Descartes Systems Group Inc.
Numerex Corp. Class A
I.D. Systems, Inc.
Peer Average
Price
Target
Div Yield
Return
$1.30
$9.94
$21.90
$0.95
$51.57
$43.28
$24.61
$7.46
$4.91
$2.00
$11.56
$25.00
$4.06
$53.13
$49.43
$29.01
$7.88
$7.25
-
53.8%
16.3%
14.2%
327.4%
3.0%
14.2%
17.9%
5.6%
47.8%
55.6%
2017
2015
Enterprise
Value
8.5
832.6
2,458.8
101.7
1,187.5
1,555.4
1,821.2
149.1
58.6
FCF Yield
2016
8.5%
2.8%
4.1%
4.0%
4.8%
Return
1 Week
(3.7%)
3.9%
10.7%
2.2%
3.8%
10.0%
1.2%
4.8%
3.3%
4.0%
1 Month
3 Month
2017E
2015
(13.3%)
6.3%
4.5%
(15.9%)
0.4%
1.0%
(8.8%)
0.8%
(1.7%)
(3.0%)
(53.1%)
(3.6%)
29.1%
(19.5%)
18.3%
9.7%
(3.1%)
18.6%
5.5%
0.2%
EV/EBITDA
4.9%
3.2%
4.8%
4.7%
4.4%
0.9x
19.7x
6.9x
-7.9x
28.5x
16.2x
21.6x
16.0x
-7.5x
10.5x
2016E
15.0x
16.6x
7.1x
38.5x
30.3x
13.5x
20.3x
34.6x
46.0x
24.6x
Revenue
YTD
37.3%
39.8%
(37.1%)
9.9%
(14.8%)
(11.6%)
16.2%
6.6%
5.8%
2016E
2017E
2017E
2015
2016E
18.9
199.3
687.7
77.4
144.5
343.4
265.5
71.8
45.8
EV/Sales
56.7x
14.0x
6.6x
4.2x
24.3x
11.1x
17.7x
13.3x
10.0x
17.5x
0.3x
4.7x
3.5x
2.5x
9.4x
5.5x
7.1x
1.7x
1.4x
4.0x
2016E
0.4x
4.2x
3.6x
1.3x
8.2x
4.5x
6.9x
2.1x
1.3x
3.6x
2015
18.8
224.1
721.2
117.3
175.0
405.8
293.6
78.2
54.5
NM
NM
84.2x
NM
55.4x
27.4x
22.2x
NM
NM
47.3x
NM
NM
89.9x
NM
49.2x
24.7x
54.9x
NM
41.7x
52.1x
% Held
26.9%
0.5%
2016E
18.9
0.6
4.2
(8.1)
(11.1)
18.00%
4.00x
2017E
Current
1-Yr TGT
% Total
2016E
2017E
2016E
2017E
2015
(1.6)
32.7
50.7
$2.35
12.5
38.6
61.3
$2.84
0.6
50.2
347.6
2.6
39.1
115.1
89.8
4.3
1.3
18.8
0.1
4.8
(2.0)
(1.7)
20.4%
62.9%
100.0%
EPS
0.1
59.7
373.3
24.0
48.9
140.2
102.9
11.2
5.9
P/E
0.5x
3.7x
3.4x
0.9x
6.8x
3.8x
6.2x
1.9x
1.1x
3.1x
3.00
0.00
EBITDA
1 Year
50.4%
(19.0%)
(76.4%)
92.5%
(7.0%)
21.2%
(12.2%)
(15.1%)
4.3%
∆ 6 Mnths
5.82
0.10
26.6
9.2
5.5
(14.2)
(6.5)
Revenue
Adj. EBITDA
Depreciation
Capex
Unlevered FCF
Discount Rate
Terminal EBITDA Multiple
PV FCF
PV of Terminal Value
Equity Value
DCF Value
Comparables
and Peer Analysis
M Shares
208%
(6%)
($1.53)
($0.11)
$0.24
($0.19)
$1.05
$1.75
$0.45
($0.17)
$0.12
2017E
($0.22)
($0.02)
($0.17)
($0.08)
$1.28
$2.12
$0.56
$0.14
$0.44
P/CFPS
NM
NM
NM
NM
40.3x
20.4x
44.0x
54.3x
11.2x
34.0x
NM
19.6x
NM
NM
24.7x
18.7x
24.3x
NM
NM
21.8x
2016E
NM
14.3x
NM
NM
35.0x
15.6x
22.7x
NM
NM
21.9x
2017E
NM
10.8x
NM
NM
29.5x
13.5x
19.7x
NM
NM
18.4x
* exactEarth is based on Echelon Wealth Partners Inc. forecasts, all other comparables are based on FactSet consensus estimates
Source: Echelon Wealth Partners Inc., Company Reports and Filings, FactSet
Fadi Benjamin, CFA, P.Eng. | 416.842.1791 | fadi.benjamin@echelonpartners.com
Page 36 of 41
exactEarth Ltd. (XCT-TSX) | 12 July 2016
DISCOUNTED CASH FLOW VALUATION
Fiscal Year Ending October 31
All Amounts in thousands of Canadian Dollars
Revenues
EBITDA
EBIT
( - ) Cash Taxes Paid
EBIAT
( + ) Depreciation and Amortization
( + ) Share-based Compensation
( - ) Capital Expenditures
( - ) Increase in Non-cash Working Capital
Unlevered Free Cash Flow
2015A
$26,600
5,609
571
571
5,476
(14,195)
1,059
($6,529)
PV of UFCF
Cumulative PV UFCF
VALUATION ASSUMPTIONS
Discount Rate
Exit Year EV/EBITDA
Terminal Enterprise Value
Implied Prepetuaty Growth Rate
Implied Terminal FCF Multiple
Implied FCF Yield
2017E
2018E
2019E
$18,929
(28,073)
(31,455)
(31,455)
4,198
164
(8,108)
(4,282)
($11,112)
$18,777
149
(4,612)
(4,612)
4,762
(2,000)
183
($1,667)
$24,410
3,587
(1,881)
(1,881)
5,468
(2,000)
913
$2,500
$31,733
4,685
(908)
(908)
5,593
(2,000)
511
$3,196
(11,438)
(11,438)
(1,454)
(12,893)
1,848
(11,045)
2,002
(9,042)
2020E
$41,254
6,113
589
589
5,524
(2,000)
662
$4,775
2,535
(6,507)
2021E
$53,630
18,695
12,907
12,907
5,788
CAGR %
2016 - 2021
43.5%
NA
(5,666)
(2,102)
$10,927
4,917
(1,591)
18%
4.0x
74,781
3.0%
6.8x
14.6%
EBITDA Multiple Valuation
Total PV of UFCF
Exit Year EBITDA
Terminal Value
PV of Terminal Value
Enterprise Value
( - ) Debt
( - ) Preferred Securities
( - ) Non-Controlling Interest
( + ) Cash
( + ) Market Value of Equity Investments
Equity Value
Fully Diluted Shares Outstanding Basic
DCF Value/ Share
Target Share Price
Discount to DCF Value
Terminal EV/EBITDA
Multiple
2016E
$2.84
5.5x
5.0x
4.5x
4.0x
3.5x
3.0x
2.5x
16.5%
$3.66
$3.42
$3.19
$2.95
$2.72
$2.48
$2.25
Current
(1,591)
18,695
74,781
32,688
31,097
(1,955)
21,581
50,723
21,606
$2.35
$1.30
44.6%
1-Yr Target
12,478
18,695
74,781
38,571
51,050
(1,675)
11,899
61,274
21,606
$2.84
$2.00
29.5%
17.0%
$3.61
$3.37
$3.14
$2.91
$2.68
$2.45
$2.22
17.5%
$3.55
$3.33
$3.10
$2.87
$2.65
$2.42
$2.19
2-Yr Target
14,451
18,695
74,781
45,514
59,965
(1,125)
9,469
68,309
21,606
$3.16
$3.00
5.1%
Discount Rate
18.0%
$3.51
$3.28
$3.06
$2.84
$2.61
$2.39
$2.17
18.5%
$3.46
$3.24
$3.02
$2.80
$2.58
$2.36
$2.14
19.0%
$3.41
$3.19
$2.98
$2.76
$2.55
$2.33
$2.12
19.5%
$3.36
$3.15
$2.94
$2.73
$2.51
$2.30
$2.09
Source: Echelon Wealth Partners Inc.
Fadi Benjamin, CFA, P.Eng. | 416.842.1791 | fadi.benjamin@echelonpartners.com
Page 37 of 41
exactEarth Ltd. (XCT-TSX) | 12 July 2016
SUMMARY INCOME STATEMENTS
Fiscal Year Ending October 31
Thousands of Canadian Dollars, except per share data
2015A
Oct 31
1Q16A
Jan 31
2Q16E
Apr 30
3Q16E
Jul 31
4Q16E
Oct 31
2016E
Oct 31
1Q17E
Jan 31
2Q17E
Apr 30
3Q17E
Jul 31
4Q17E
Oct 31
2017E
Oct 31
1Q18E
Jan 31
2Q18E
Apr 30
3Q18E
Jul 31
4Q18E
Oct 31
2018E
Oct 31
2019E
Oct 31
2020E
Oct 31
2021E
Oct 31
Subscription Services
Revenues
Growth y/y
Cost of revenue
Gross Margin
Gross Margin %
Operating Expenses
Research and development
Selling, general and administrative
Product development
Depreciation and amortization
Earnings from Operations
Foreign exchange loss
Other expense (income)
Interest expense
Income Tax expense
Net Income (Loss)
20,592
26,600
68.0%
10,114
16,486
62%
5,382
6,380
17.8%
2,628
3,752
59%
4,052
5,222
(12.1%)
2,554
2,668
51%
3,241
3,241
(58.4%)
1,458
1,782
55%
4,087
4,087
(45.2%)
1,839
2,248
55%
16,761
18,929
(28.8%)
8,479
10,450
55%
4,981
4,981
(21.9%)
2,242
2,740
55%
4,270
4,270
(18.2%)
1,922
2,349
55%
4,213
4,213
30.0%
1,896
2,317
55%
5,313
5,313
30.0%
2,391
2,922
55%
18,777
18,777
(0.8%)
8,450
10,327
55%
6,476
6,476
30.0%
3,238
3,238
50%
5,551
5,551
30.0%
2,776
2,776
50%
5,477
5,477
30.0%
2,738
2,738
50%
6,907
6,907
30.0%
3,453
3,453
50%
24,410
24,410
30.0%
12,205
12,205
50%
31,733
31,733
30.0%
15,867
15,867
50%
41,254
41,254
30.0%
20,627
20,627
50%
53,630
53,630
30.0%
21,452
32,178
60%
62
8,953
1,424
5,476
571
410
28
1,188
(1,055)
10
1,941
453
1,377
(29)
678
294
(1,001)
18
2,133
449
1,435
(1,367)
57
28,067
21
(29,512)
19
1,900
389
686
(1,211)
12
(1,223)
19
1,900
490
700
(862)
18
(879)
66
7,874
1,781
4,198
(3,468)
735
28,067
345
(32,615)
19
1,900
598
928
(705)
16
(721)
19
1,950
512
1,069
(1,202)
14
(1,216)
19
2,000
506
1,385
(1,592)
12
(1,604)
19
2,000
638
1,380
(1,114)
10
(1,123)
75
7,850
2,253
4,762
(4,612)
52
(4,664)
19
1,295
971
1,374
(422)
5
(427)
19
1,110
833
1,369
(555)
1
(556)
19
1,095
821
1,364
(562)
(3)
(559)
19
1,381
1,036
1,360
(342)
(6)
(336)
75
4,882
3,662
5,468
(1,881)
(3)
(1,878)
75
6,347
4,760
5,593
(908)
(58)
(849)
75
8,251
6,188
5,524
589
(118)
187
520
75
9,385
4,022
5,788
12,907
(173)
3,466
9,614
EPS - Basic
EPS - Diluted
($0.09)
($0.09)
($0.09)
($0.09)
($1.39)
($1.39)
($0.06)
($0.06)
($0.04)
($0.04)
($1.53)
($1.53)
($0.03)
($0.03)
($0.06)
($0.06)
($0.08)
($0.08)
($0.05)
($0.05)
($0.22)
($0.22)
($0.02)
($0.02)
($0.03)
($0.03)
($0.03)
($0.03)
($0.02)
($0.02)
($0.09)
($0.09)
($0.04)
($0.04)
$0.02
$0.02
$0.45
$0.45
Adjusted EBITDA
Adjusted EBITDA Margin %
Free Cash Flow
Adjusted FCF Margin %
9,197
34.6%
(6,529)
(24.5%)
1,456
22.8%
(2,209)
(34.6%)
(204)
(3.9%)
415
7.9%
(525)
(16.2%)
(7,782)
(240.2%)
(161)
(3.9%)
(1,536)
(37.6%)
565
3.0%
(11,112)
(58.7%)
223
4.5%
(143)
(2.9%)
(133)
(3.1%)
(717)
(16.8%)
(207)
(4.9%)
(737)
(17.5%)
266
5.0%
(70)
(1.3%)
149
0.8%
(1,667)
(8.9%)
953
14.7%
1,259
19.4%
814
14.7%
132
2.4%
803
14.7%
238
4.3%
1,017
14.7%
870
12.6%
3,587
14.7%
2,500
10.2%
4,685
14.8%
3,196
10.1%
6,113
14.8%
4,775
11.6%
18,695
34.9%
10,927
20.4%
Growth Rates
Adj_EBITA Growth Rate
EPS Growth Rate
FCF Growth Rate
407.8%
(71.5%)
314.3%
68.1%
4.9%
(56.1%)
NA
1712.8%
(84.7%)
NA
NA
73.3%
NA
NA
NA
(93.9%)
1516.0%
70.2%
(84.7%)
(62.3%)
(93.5%)
(35.0%)
(95.9%)
NA
(60.5%)
31.2%
(90.5%)
NA
27.8%
(95.4%)
(73.6%)
(85.7%)
(85.0%)
326.8%
(40.8%)
NA
NA
(54.3%)
NA
NA
(65.2%)
NA
282.7%
(70.1%)
NA
NM
(59.7%)
NA
30.6%
(54.8%)
27.9%
30.5%
NA
49.4%
205.8%
1749.3%
128.8%
2019E
Oct 31
2020E
Oct 31
2021E
Oct 31
Source: Company reports, Echelon Wealth Partners Inc.
SUMMARY BALANCE SHEETS
Fiscal Year Ending October 31
Thousands of Canadian Dollars, except per share data
2015A
Oct 31
1Q16A
Jan 31
2Q16E
Apr 30
3Q16E
Jul 31
4Q16E
Oct 31
2016E
Oct 31
1Q17E
Jan 31
2Q17E
Apr 30
3Q17E
Jul 31
4Q17E
Oct 31
2017E
Oct 31
1Q18E
Jan 31
2Q18E
Apr 30
3Q18E
Jul 31
4Q18E
Oct 31
2018E
Oct 31
Cash and Equivalents
Trade Account Recievables
Unbilled Revenues
Other Current Assets
Total Current Assets
Property Plant and Equipment
Intangible Assets
Total Assets
2,365
3,865
1,954
676
8,860
48,538
24,646
82,044
1,676
4,581
1,590
949
8,796
48,484
26,622
83,902
21,581
1,207
796
823
24,407
30,271
17,518
72,196
13,621
2,113
902
700
17,337
31,415
17,189
65,940
11,899
2,665
1,138
700
16,402
32,544
16,860
65,805
11,899
2,665
1,138
700
16,402
32,544
16,860
65,805
11,568
3,249
1,383
700
16,900
32,445
16,530
65,875
10,661
2,879
1,226
700
15,466
32,205
16,201
63,872
9,732
2,747
1,170
700
14,350
31,970
15,551
61,871
9,469
3,465
1,475
700
15,110
31,741
14,900
61,751
9,469
3,465
1,475
700
15,110
31,741
14,900
61,751
10,537
4,223
1,798
700
17,259
31,517
14,250
63,026
10,498
3,742
1,594
700
16,534
31,298
13,600
61,432
10,633
3,572
1,521
700
16,425
31,084
12,949
60,459
11,400
4,504
1,918
700
18,523
30,875
12,299
61,697
11,400
4,504
1,918
700
18,523
30,875
12,299
61,697
14,200
5,856
2,494
700
23,249
30,084
9,497
62,830
18,919
7,612
3,251
700
30,482
29,362
6,695
66,539
30,019
9,896
4,214
700
44,829
28,702
7,232
80,764
Accounts Payable
Deferred Revenue
Other Current Liabilities
Total Current Liabilities
Government Loan
Deferred Tax Liability
Other Non-current Liabilities
Total Liabilities
10,966
1,037
656
12,659
1,436
44,883
58,978
9,672
1,305
49,404
60,381
1,342
102
61,825
7,281
1,084
747
9,112
1,244
396
10,752
2,853
645
618
4,116
1,223
380
5,719
3,598
813
561
4,972
1,149
342
6,464
3,598
813
561
4,972
1,149
342
6,464
4,386
988
503
5,877
1,074
303
7,254
3,886
876
444
5,206
997
263
6,466
3,709
836
384
4,929
919
222
6,070
4,678
1,054
322
6,054
839
181
7,074
4,678
1,054
322
6,054
839
181
7,074
6,335
1,285
260
7,879
757
139
8,775
5,614
1,138
205
6,957
674
105
7,737
5,358
1,086
184
6,628
589
105
7,323
6,757
1,370
162
8,289
503
105
8,897
6,757
1,370
162
8,289
503
105
8,897
8,784
1,781
71
10,636
139
105
10,880
11,419
2,322
36
13,776
187
105
14,069
11,875
3,010
36
14,921
3,654
105
18,680
Total Shareholder Equity
Total Liabililites and Shareholder Equity
23,066
82,044
22,077
83,902
61,444
72,196
60,221
65,940
59,342
65,805
59,342
65,805
58,621
65,875
57,405
63,872
55,801
61,871
54,678
61,751
54,678
61,751
54,250
63,026
53,694
61,432
53,136
60,459
52,799
61,697
52,799
61,697
51,950
62,830
52,470
66,539
62,083
80,764
Net Debt
44,528
49,070
(19,626)
(11,816)
(10,224)
(10,224)
(10,026)
(9,256)
(8,466)
(8,344)
(8,344)
(9,556)
(9,654)
(9,895)
(10,771)
(10,771)
(14,026)
(18,919)
(30,019)
2Q16E
Apr 30
3Q16E
Jul 31
4Q16E
Oct 31
2016E
Oct 31
1Q17E
Jan 31
4Q18E
Oct 31
2018E
Oct 31
2019E
Oct 31
2020E
Oct 31
2021E
Oct 31
Source: Company reports, Echelon Wealth Partners Inc.
SUMMARY CASH FLOW STATEMENTS
Fiscal Year Ending October 31
Thousands of Canadian Dollars, except per share data
Net Income
Depreciation & Amortization
Other non-cash items
Changes in non-cash working capital accounts
Cash Flows from Operating Activities
2015A
Oct 31
1Q16A
Jan 31
(1,055)
5,476
387
1,059
5,867
(1,001)
1,377
280
(1,036)
(380)
Cash Flows from Investing Activities
(14,195)
Cash Flows from Financing Activities
8,188
Net Change in Cash
(140)
(29,512)
1,435
27,302
2,385
1,610
(1,223)
686
45
(5,757)
(6,249)
(879)
700
42
126
(12)
(3,307)
(1,801)
(1,500)
(1,500)
2,877
20,288
(211)
(211)
20,097
(7,960)
(1,722)
9,605
(810)
2Q17E
Apr 30
3Q17E
Jul 31
4Q17E
Oct 31
2017E
Oct 31
1Q18E
Jan 31
2Q18E
Apr 30
3Q18E
Jul 31
(32,615)
4,198
27,668
(4,282)
(5,031)
(721)
928
38
134
379
(1,216)
1,069
35
(84)
(196)
(1,604)
1,385
31
(30)
(218)
(1,123)
1,380
28
164
448
(4,664)
4,762
132
183
413
(427)
1,374
24
807
1,778
(556)
1,369
20
(182)
652
(559)
1,364
17
(65)
758
(336)
1,360
15
353
1,391
(1,878)
5,468
76
913
4,579
(849)
5,593
37
511
5,292
520
5,524
192
662
6,898
9,614
5,788
3,466
(2,102)
16,766
(8,108)
(500)
(500)
(500)
(500)
(2,000)
(500)
(500)
(500)
(500)
(2,000)
(2,000)
(2,000)
(5,666)
22,744
(211)
(211)
(211)
(211)
(842)
(211)
(191)
(123)
(123)
(647)
(492)
(179)
(331)
(907)
(929)
(263)
(2,429)
(39)
135
768
1,068
1,931
2,800
4,719
11,100
Source: Company reports, Echelon Wealth Partners Inc.
Fadi Benjamin, CFA, P.Eng. | 416.842.1791 | fadi.benjamin@echelonpartners.com
Page 38 of 41
2016 Mid-year Top Picks Review
H216 Top Picks | July 21, 2016
ECHELON WEALTH PARTNERS INC. DISCLOSURES
ANALYST CERTIFICATION(S)
I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
Is this an issuer related or industry related publication?
I, Andrej Krneta, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
3) Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer?
I, Ryan Walker, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
5) During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or
as a syndicate member, participated in a public offering, or private placement of securities of this issuer?
I, Doug Loe, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
7) The analyst had an on-site visit with the Issuer within the last 12 months.
I, Rob Sutherland, hereby certify that the views expressed in this report accurately reflect my personal views about
the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
10) Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report?
I, Amr Ezzat, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
Company Name
Ticker
Victoria Gold Corp.
TSXV:VIT
7
TSO3 Inc.
TSX:TOS
1
Cipher Pharmaceuticals Inc.
TSX:CPH
Edgefront Real Estate Investment Trust
TSXV:ED.un
Pure Industrial Real Estate Trust
TSX:AAR.un
5,6,7
DHX Media Ltd.
TSX:DHX.B
6,7
Tecsys Inc.
TSX:TCS
Pure Technologies Ltd.
TSX:PUR
7
exactEarth Ltd.
TSX:XCT
7
I, Fadi Benjamin, hereby certify that the views expressed in this report accurately reflect my personal views about the
subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly,
compensation in exchange for expressing the specific recommendations or views in this report.
http://research.echelonpartners.com/research/disclosures.php
INDUSTRY
1) Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject
issuer? If Yes: a) Is it a long or short position? Long b) What type of security is it? Stock
2) Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer?
4) Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc.
beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes
more than 1% of the presently issued and outstanding shares of the issuer?
6) During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment
banking or related services to this Issuer?
8) Has the Analyst been compensated for travel expenses incurred as a result of an on- site visit with the Issuer within
the last 12 months?
9) Has the Analyst received any compensation from the subject company in the past 12 months?
Disclosures
Contact Information
Rob Goff, CFA
Telecom & Media Analyst
416-933-3351
rob.goff@echelonpartners.com
Douglas W. Loe, PhD
Healthcare & Biotech Analyst
416-775-1004
Doug.Loe@echelonpartners.com
Rob Sutherland
Real Estate Analyst
416-933-3353
rob.sutherland@echelonpartners.com
Richard Ouellette
VP, Institutional Sales & Trading
514-905-7928
richard.ouellette@echelonpartners.com
Lui Barbati
VP, Institutional Sales & Trading
416-933-3301
lui.barbati@echelonpartners.com
Jonathan Thompson
MD, Institutional Equity Trader
416-649-4273 x300
jonathan.thompson@echelonpartners.com
Russell Minor
VP, Institutional Sales
416-933-3357
russell.minor@echelonpartners.com
Ryan walker
Mining Analyst
416-479-8997
ryan.walker@echelonpartners.com
Andrej Krneta
Technology Analyst
416-687-6656
andrej.krneta@echelonpartners.com
Amr Ezzat
Special Situation Analyst
514-905-7944
amr.ezzat@echelonpartners.com
Fadi Benjamin
Special Situation Analyst
416.842.1791
fadi.benjamin@echelonpartners.com
Pierre-Yves Terrisse
VP, Institutional Sales & Trading
514-905-7927
py.terrisse@echelonpartners.com
Bob Magtanong
VP, Institutional Equity Trader
416-687-6798
bob.magtanong@echelonpartners.com
Christine Young
VP, Institutional Sales
416-479-8690
christine.young@echelonpartners.com
2016 Mid-year Top Picks Review
H216 Top Picks | July 21, 2016
2016 Mid-year Top Picks Review
H216 Top Picks | July 21, 2016