CSM_Q4 Key Takeaways - Very surprised to see the company is falling to 393M annual revenue, despite the two acquisitions in 2019, which supposed to add 150M+ in revenue. They are down by 72M from 2019?
- In 2019 they stated "2019 was a defining year for ClearStream with a significant step change in our overall size and growth trajectory" So why we did not see that in 2020? Again I wouldn't blame Covide-19 as this company is a tier 3 or 4 so there should be very small impact up to 25% impact due to covide-19 or Oil prices, etc........ also some of their rivals such as Bird Construction just announced CAD500M new backlog, many others are doing very well!
- Backlog: same topic every year, there is something does not add up with the amount of backlog, as example "In the fourth quarter of 2019, ClearStream announced contract renewals and project awards representing over $250 million of new backlog." then the announced last week "..........Then in Q1'2021 they announced "New project awards and contract renewals were $46 million for the three months ended December 31, 2020. So far so good, we support such great achievements!
But if you do quick calculation:
- 2019 Acquisitions supposed to add 150M+/Annual revenue
- 2019 Annual revenue before acquisition is 380M
- Declared new backlog of 250M in Q4-2019
- Declared burned new backlog of 46M in Q4-2020
Honestly I am so confused!, based on the above, this company should be in 600M+ mark in terms of revenue, that means we are missing 200M+ in revenue in 2020. They must provide more transparency to the readers of the financial statements, split between new actual backlog vs. renewals? In fact this will improve their creditability in the market as MGM team.
- Wear Technology, very disappointed / surprised to see such down-turn of their largest free cash flow & EBITDA division in less than one year, EBITDA is down by 70% comparing to 2019?? I am not sure what happened here, but this shows this company is not on the right direction, this division was the backbone for this company over the last 5-10 years in terms of FCF and EBITDA. Again don't blame Covide-19 and Oil prices, they might have impact up to 25% but not 70%!!!, MGM needs to fix this one. FIX it!
- Cash Position, overall there is good improvement, this is due to collections of AR (CWC), not due to positive FCF from operation. But don't understand why 19M in interest, why the still carry 40M as liability in credit facility? Need a plan here?
- SG&A of 24M+ - with falling to 300M mark in terms of annual revenue, there is a need for a complete and significant restructure at all levels, if they want to continue being competitive in the market, spending 24M in SG&A too much for such size of company. Having a full C-suite, VPs, directors,........ Similar companies with same size being managed by 2 at the top, rest are General managers, Managers, CSM needs to come-up with a plan to show very lean structure at the top and next 2-3 layers, if they want to survive in the next 2-5 years.
- External Auditors – the detailed audit opinion is good and shows EY started to act as real auditors and be more responsible, they need to lean more to shareholder’s side and less to BODs and MGM to gain more creditability. Only finance people will understand between the lines of EY audit opinion, so good job EY!, this is good news to shareholders!
- The 2 fatalities, very sad that CSM had two fatalities in 2020, we pray to their families, it is good to see that MGM addressed / mentioned on first page of MD&A to support their families. But MGM missed to discuss what is the plan to avoid something like that in the future, saying “ClearStream’s strong HSE Management System and leadership’s commitment to the safety of our people is more than ever our most important core value” is NOT a plan, this statement shows someone doesn’t want to take responsibilities and be accountable.If you think you have “strong HSE Management System” then we shouldn’t talk about two fatalities today!!!!, sorry to say that but this is NOT a leadership behavior! there must be shortfall ‘s’ in the system which resulted in 2 fatalities, these 2 fatalities did not happen in Mexico!
It was better to address new HSE measures in the highlight section and not mentioning “Establishment of new team for digitalization” or simplify corporate legal structure, both should be part of your day-to-day job not extraordinary highlights, also “Establishment” is not achievement or final results to highlight, it like someone says that he established a team to get to Mars, when you get to Mars then this is the “Achievement” or Highlight.
My overall takeaway, this company might have potential to be sold @ good market value, only if they get lean at the top MGM layers, decrease SG&A by 10M or more, sustain 450-500M revenue with 25M adjusted EBITDA, flip this NOT smart credit facility with FCF leakage asap, then I would say traders with long-term position will see share value appreciation, also I am not worried too much about CANSO outstanding debt, as Canso got used to lose money or they don’t care too much, MGM is smarter here!
The above analysis reflects my opinion, they meant more for long-term position traders!