Acumen Capital picks its top 10 ‘Special Situations Ideas’ for 2022
On Monday, Acumen Capital published its Special Situations investment ideas for 2022, highlighting 10 top picks across multiple sectors.
In order to appear on this high conviction list, each security had to exhibit the following five key characteristics: 1) fair valuation relative to historical levels; 2) strong free cash flow generation; 3) growth potential (internal, or organic, as well as through acquisitions); 4) solid balance sheet; and 5) potential catalysts.
Here are Acumen Capital’s Top Special Situations Ideas for 2022, ranked by forecast returns in descending order:
RediShred Capital Corp. (KUT-X) with a target price of $1.50. According to Refinitiv data, the average target price is $1.54, implying a potential return of approximately 71 per cent.
Analyst Nick Corcoran: “The base business is expected to benefit from new bookings and an increasing number of nonessential clients returning to offices/facilities.”
In December, the company completed a $8.6-milllion bought deal financing, offering shares at 88 cents per share. Mr. Corcoran noted, “The financing provides dry powder for the acquisition of franchisees and independents. We estimate that the Company has $10-million of available capital to deploy over the next 12 months. The pipeline for acquisitions remains strong with both franchisees and independents.”
Hardwoods Distribution Inc. with a target price of $70. The average target price is $68.40, implying a potential return of roughly 60 per cent.
Analyst Nick Corcoran: “HDI was one of the strongest performers in our coverage universe in 2021 with a return of 76.9 per cent. Momentum is expected to continue into 2022 driven by product prices, robust demand from a strong US housing market, and the Novo acquisition.”
Cargojet Inc. with a target price of $300. The average target price is $249.42, implying a potential return of approximately 59 per cent.
Analyst Nick Corcoran: “CJT is well positioned with a dominant market position and aircraft deliveries through the end of 2024 expected to fuel both domestic and international growth.”
With respect to the company’s relationship with Amazon, he noted, “CJT entered a new agreement with Amazon that provides (1) block space on the domestic network, (2) charter flights on an ad hoc basis, (3) operating two aircraft on a CMI [crew, maintenance and insurance] basis (with potential for additional aircraft), and (4) potential for additional aircraft on an ACMI [aircraft, crew, maintenance and insurance] basis both domestically and internationally. The CMI and potential ACMI is additive to the previous agreement. Importantly, the new agreement solidified the relationship with Amazon and eliminated the risk of an outside party operating aircraft for Amazon within Canada for up to ten years (the agreement is an initial four-year term with three successive two-year renewal options).”
AutoCanada Inc. with a target price of $60. The average target price is $60.14, implying a potential return of roughly 50 per cent.
Analyst Trevor Reynolds: “ACQ was early to identify inventory issues and proactively positioned themselves ahead of competitors for new vehicles…Tight inventory levels have positively impacted margins…On the back of a material organic reduction in leverage over the past two years ACQ remains well positioned for additional M&A [mergers and acquisitions].”
Sylogist Ltd. with a target price of $18. The average target price is $17.31, implying a potential return of approximately 43 per cent.
Analyst Jim Byrne: “SYZ is poised to deliver organic growth in 2022 for the first time in several years driven by strategic investments in sales, marketing, and innovation. The company is positioned to reach high single-digit organic growth later this year while maintaining its industry leading profitability. The company’s M&A pipeline remains strong and is well positioned with significant available credit to pursue opportunities. Investors have shied away from SYZ in the past couple of years given low growth and minimal shareholder engagement. Mr. Wood has reinvigorated the company, its staff, and the focus for growth has never been stronger at SYZ. We believe solid execution of the strategy in 2022 could see a significant re-rating of the company’s valuation higher.”
Pollard Banknote Ltd. with a target price of $58. The average target price is $51, implying a potential return of approximately 39 per cent.
Analyst Jim Byrne: “The shares have underperformed following peaking at all-time highs of $67. We believe the shares are attractively valued at current levels given the company’s long-term, stable track record of delivering growth.”
Information Services Corp. with a target price of $36. The average target price is $33.20, implying a potential price return of approximately 29 per cent, not including the 3.6 per cent yield.
Analyst Trevor Reynolds: “ISV generated record results in 2021 driven by a strong Saskatchewan housing market and growth in Services. After trading up to an all-time high in 2021 the stock has retreated to a compelling level in our view. While organic growth is expected to moderate in 2022, ISV produces a roughly 12 per cent FCF [free cash flow] yield and have reduced net debt by roughly $40-million over the past year leaving them well positioned for M&A or further dividend increases.”
Alaris Equity Partners Income Trust with a target price of $24.25. The average target price is $23.75, implying a potential price return of approximately 27 per cent, not including the attractive 7 per cent yield.
Analyst Trevor Reynolds: “Portfolio strength is arguably at an all-time high with the average ECR [earnings coverage ratio] at near record levels, reduced partner concentration risk, and enhanced diversification…Current deployable capital decreased to approximately $66.5-million following the recent follow-on transactions, however, management still expects a redemption by Kimco near term with guided to proceeds of roughly US $60-million to US $70-million … Dividend yield of approximately 7.0 per cent with a sustainable payout ratio of sub-70 per cent.”
Vecima Networks Inc. with a target price of $21, implying a potential return of approximately 26 per cent. According to Refinitiv, Acumen is the only firm covering this company.
Analyst Jim Byrne: “VCM has positioned itself for revenue growth and margin expansion over the coming years. The company recently announced it expects the Q2/F22 [second quarter of fiscal 2022] results to show the highest quarterly revenue in its history, which is a trend we expect to continue going forward.” He noted that, “Customers [are] adopting VCM’s products as they strive to meet ever-expanding customer demand for high-speed broadband access.”
Park Lawn Corp. with a target price of $46. According to Refinitiv, the average target price is $46.47, implying a potential return of approximately 18 per cent.
Analyst Jim Byrne: “Acquisition strategy continues to deliver. The company’s pipeline and appetite for deals remains as strong as ever as PLC becomes a buyer of choice in the industry given its strong leadership. Organic growth and expansion opportunities play a bigger role in 2022 with several key projects coming online this year.”