McCoy Global ($MCB.TO) FINS Review from the Archives
3.5 / 5 stars *Originally posted April 23, 2024
After an encouraging 3.5 stars for their Q1 eleven months ago, I have not had a chance to get back to this one until now. Stock is up 25% since that review but considerably down from their peak of $2.46/share back in early February. Share price gapped up on these latest earnings and swiftly retreated again. Let's see if we can find any clues as to why that is.
Balance Sheet:
Strong current ratio of 2.9 that consists of $15.7M in cash, $10.4M in receivables and inventory valued at $30.6M against $20.5M in liabilities due over the course of the next twelve months. MCB is now debt free after paying off their remaining $4.5M during the year. The inventory making up more than half of their current assets is notable and I'm guessing the 40% increase to last year is going to impact their OCF in the next section. A/R aging looks ok with no significant provisions for write-offs. Some slippage in the current ratio from my last review with less efficiency in inventory turnover, but the elimination of debt offsets that in my view. Overall, strong start.
Cash Flow:
$6.7M of operational cash flow generated during 2023, 134% better than 2022. They utilized $4.5M adding equipment assets, completely paid off their $4.5M of debt, bought back $2.6M worth of stock and paid out $555k in dividends. Overall, their cash did deplete by 27% during their fiscal year, but it was great utilization of their strong cash position, which is still very good. The only minor concern here so far is the significant increase in inventory which had a $9M adjustment to their OCF. But overall we are looking very good so far.
Share Capital:
Tidy float of just less than 27M shares outstanding, DOWN from 28.4M a year ago
Purchased 1.74M shares under their NCIB
1.4M options outstanding about 1M of which are ITM
826k DSU's, DPSU;s and RSU's
About 50% owned between insiders, funds and tutes with the remainder in retail.
One of their largest shareholders, Cannell Capital has sold approx 1.2M shares between Oct -
March
Doubled their quarterly dividend in March, taking their yield to over 4%
Income Statement:
Revenues were up by 33% during the year to $69.7M, up from $52.4M. A very nice increase in gross profit of 280 basis points from 30% to 32.8% which drove 45% more gross profit dollars on 33% more business. Total expenses were a different story however which grew by 97% which negatively impacted their bottom line, as earnings before income taxes slid by 9%, down to $7.1M from $7.9M. Add in $1.4M of increased taxes and their net earnings get even worse on a year over year comparison, decreasing by 25.5% to $6.5M. Now, we may finally be seeing the rationale for the share price erosion of 23% from it's high. But is it warranted?
Overall:
A year ago, the company had a one time gain of $4.1M on an asset disposal and as previously mentioned had a $1.4M additional tax bill. The company didn't get any traction on their controllable expenses though. The combination of G&A, product development and marketing costs rose by the same rate of sales.
If you remove that one time gain, then their net earnings is up by 39% over last year, even with the additional tax burden. If you look at their last eight quarters their most recent is by far the smallest revenue increase quarter over quarter at just shy of 8%, so perhaps investors are concerned about growth slowing, but I'm not sure they got enough credit for the previous seven. The company has also provided some caution on their first couple of quarters expecting their back half to be better and overall having a successful 2024. In terms of valuation, McCoy continues to be disrespected in my opinion with their EV/EBITDA, P/E, and P/S ratios on the low side. I don't have a position here yet, but that might not be the case for long.
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Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.