Total Telcom (TTZ.V): cheap Canadian tech nanocap based on earnings, with intellectual property
Shares of Total Telcom Inc trade at the Venture Exchange in Canada, with ticker TTZ. At 0.085 CAD per share this nanocap has a market cap of about 1.7 million USD. Trading volume is very low but those who can buy it will own a very cheap stock based on various earnings metrics. The stock is cheap based on EV/EBIT, P/E, P/FCF and EV/Revenue, compared to other nanocaps and illiquid microcaps.
I think this is a kind of software company. The company mainly provides “remote asset monitoring and tracking products and services throughout North America”, through its wholly owned subsidiary ROM Communications Inc. Its current product (“Alarm Point”) is based on 3G cellular technology but that system is being phased out. To replace it the company developed satellite based “AlarmTraX”. Management expects “significant sales of AlarmTraX in fiscal 2022”. The company also provides race management services to the off road racing industry. Managements is trying to sell similar services to other industries.
Filings: here.
Interim financial statements: 31 March 2022, and management discussion.
Annual financial statements: year ending on 30 June 2021, and management discussion.
Circular for the annual general meeting on 30 June 2021: here.
Last financial year 71% of the revenue war was from the US. The rest was from Canada. 37% of the revenue was from “Race management services” and the rest was from “Hardware sales, development and installation” and from “Communications”. I think race management services were provided only in the US, not in Canada, in financial year 2020 and 2021. See also page 33 of the annual financial statements. These racing services are probably also remote tracking services, see also this press release from 2016.
Multi-year metrics for judging earnings quality and asset allocation are incomplete. It has been a good cash flow generator though, 8-year geometric return on assets is probably average, or even slightly better than average. The 8-year stability of gross margin is clearly better than average. So probably business quality is better than average.
This company spends much on research and development but for me it is difficult to see how much exactly, over the last 5 years. It has 1.1 million CAD of capitalized development costs, so about half of the market cap. My estimate of 5-year R&D expenses is 1.2 million CAD.
The balance sheet is very strong with hardly any leverage, lots of cash, and with few debts and lease liabilities. The debt originates from COVID support from the Canadian government.
At 31 March 2022 there were 25.99 million shares and 1.1 million employee options. Most options have an exercise price at 0.15 CAD and expire in the first half of 2026. Some options have 0.20 CAD as exercise price and expire on 30 April 2023.
As of 30 June 2022 there were no shareholders owning 10% or more. There are 3 insiders with substantial shareholdings: director and CEO Neil Magrath with 2.28 million shares and 550k options, director and CFO Scott Allen with 2.32 million shares and 375k options and director David H. Hammermeister with 2.30 million shares and 100k options.
Related party transactions: in financial year 2021 the total was 211k CAD, exclusively related to management compensation and director fees.
On 6 June 2022 the company announced it had changed auditors. No disagreements.
I have not found any dividend payment over the last 10 years. There were some small but still substantial dilutions but I do not think these dilutions were large enough to be worrisome.
My take: well managed and profitable nanocap providing remote tracking services. Good short-term earnings expectations. I have not found any governance issues. I like the dispersed shareholder structure. I think this is a good stock for a small position.
Disclosure: long Total Telcom.