Kontrol Technologies Corp N.KNR

The Good, the Bad and the Ugly

[BCdude]

Well, it's fair to say that wasn't the news release we'd been expecting or hoping for. While it leaves plenty of questions unanswered, I do appreciate Paul's attempt to provide guidance for 2021. It must be difficult to do that with so many moving parts, and that is likely why he's been putting off making any kinds of predictions up until now.

My estimate for gross profit per unit is around $6,000, so that would imply he has line of sight on around 1,500 to 2,000 biocloud units for fiscal 2021. Far less than the 20,000/month capacity, so it does beg the question: why so much capacity?

I suspect it's one of two explanations:

1) There are some large orders that can't be announced yet, but are possible at some point once a corporate or government budget is allocated for this purpose. Perhaps Paul had expected a spend decision earlier, but it keeps getting pushed back.

2) Kontrol has grossly misjudged inquiries/interest with follow through in sales. Not atypical for new products, especially factoring in high cost of biocloud, other products that are far cheaper (though not as effective), and the work being put in to fine-tune biocloud. Like our friend Arbourmark, I expect there are many businesses/governments that are sitting on the sidelines until the kinks with biocloud are worked out, until they have more information about a broad range of tech solutions, and more insight into which of those solutions might be necessary once we see how effective vaccines are at reducing serious illness and death.

My guess is that number two is more likely, but perhaps a large order is imminent.

THE UGLY

The mismatch between 20k capacity and sales continues to be the biggest head scratcher, and I would have appreciated Paul commenting on this a little more specifically. Basically, he could say something like "We've built this capacity based on interest received, but at the moment it's unclear how much of it will be necessary." Sure, this is still not very clear, but at least we get inside his head to understand why certain decisions were made.

THE BAD

Ultimately KNR will be valued on the future cash flows of biocloud, and we are no closer to knowing what those might be. I've been in this investment game long enough to know that anything can happen, and until proven otherwise I'm personally no longer willing to assume that biocloud is going to become as ubiquitous as a carbon monoxide detector. For one, carbon monoxide detectors are far cheaper than bioclouds.

Which brings me to attempt a valuation based on what we know. A reasonable buy-in for me would be at 1.5x to 2x revenue at this point. Which implies a $50-70 million market cap. If we factor in 43 million shares fully diluted, that puts a FMV of $1.20 to $1.60 per share right now.

I can already hear the wails of protest. This is my own approach, and you can feel free to assign whatever multiple you feel is appropriate. However, one should consider this: a number of ESG businesses (such as HEO) are trading in that 1.5 to 2x revenue multiple range.

I sold about two-thirds of my KNR this morning and would start nibbling again if it hits $1.50 per share, which I believe as quite possible in the coming weeks.

THE GOOD

The good news for those who are committed to KNR long term (which I am, too, but with a smaller position) is that covid is particularly bad when circulating in enclosed spaces. Biocloud seems to be a key part of detecting covid in said spaces before it reaches infectuous levels. For that reason alone, and the fact KNR is the first to market, suggests there SHOULD be demand for bioclouds around the world, especially if they can engineer cost reductions.

It's possible biocloud may simply need exposure, and a few publicized cases where it worked as advertised, allowing a business to detect it before it became a problem.

Which is why I continue to hold one-third of my position.

GLTA, including our friends at Kontrol.

[pointer]

This post has been removed in accordance with Community Policy

[yearninyank]

um.... "As a new investor I was stupid"   and "'I've been in this investment game long enough to know" and 2/3rds or 35%... which..? Your posts have just become dubious.

[yearninyank]

sorry... I may have confused the dude with the man... but, um, the similarities are striking