James Hodgins is Chief Investment Officer at Curvature Hedge Strategies. His focus is market-neutral investing (small and mid-cap stocks).
GuestLogix (GXI-TSX) - Held by fund.
GuestLogix is a platform built for air travel purchases where company has 80 per cent+ market share in North America. Huge contract momentum is now levering that platform into a higher margin on expected airport and train business. We expect revenue and profits to ramp up in next 2 quarters following those contracts. One-year target is $2.00 but much higher longer-term targets are driven by international growth.
Merus Labs International (MSL-TSX) - Held by fund.
Recent capital raise will enable an acquisition that drives growth and diversifies the company's revenues. This should result in a rerating of the shares more in line with its competition. At only 5x EV/EBITDA, the company trades at half the multiple of closest comparable company Concordia Health. One-year target is $2.50 but longer-term targets are closer to $5 if the company executes on building its drug portfolio.
Bellatrix Exploration (BXE-TSX) - Owned by fund
Best-funded intermediate production growth story with 22k boe/d to 43k boe/d with further growth fully-funded by JV partners. The growth takes the valuation from 6x EV/DACF to 4x. As the extra production comes on, we expect the stock to match the growth. Unlike many peers, they don't need a lot of luck with the drill bit as much of this growth is already behind pipe and will be unlocked by simple infrastructure additions. One-year target is $15. We could see up to $18 on a takeover.
Past Picks: May 27, 2013
Aastra Technologies Ltd. (AAH-TSX) Acquired by Mitel Feb 4, 2014
Special dividend paid out: August 16, 2013
(Curvature holds no Mitel shares)
Then: $19.35; At acquisition: $41.94 +116.74%; Total return: +156.02%
VersaPay Corp. (VPY-TSX-V)
Then: $1.45; Now: $1.25 -13.79%; Total return: -13.79%
*Short* Equitable Group (EQB-TSX)
Then: $36.21; Now: $59.56 -64.49%; Total return: -66.77%
Total return average: +25.12%
We remain cautious on the broader market as, despite recent dovish statements, the U.S. Fed is committed to winding down its quantitative easing (QE) by the fall. The market will likely peak in advance of this as it did in 2011 prior to the end of QE 2. Our long positions are high growth companies that don't depend as much on the market continuing to climb as the individual company execution.
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