Illumin: I like the Risk/Reward
I like the Risk/Reward
Disclaimer: I’m not an investment advisor. Nothing I have written in this article should be taken as investment advice. Everything I have written here could be inaccurate. Trust nothing you just read. I’m part of the Seeking Alpha Affiliate program which means I have a financial relationship with Seeking Alpha.
I added Illumin to my portfolio after the stock had been decimated. In my opinion too decimated and that is providing a really interesting risk/reward opportunity.
Illumin
Illumin is an adtech-company. They are a demand side-platform (DSP) which is software that helps advertisers advertise online.
They have this supposedly amazing new platform called Illumin. I say supposedly because I don’t really know whether it’s better than the competition. I don’t have the expertise to make those comparisons.
Even thou I have watched multiple YouTube videos and even talked about it with an adtech expert. But a lot of that went over my head because long complicated words make me sleepy. So my understanding was not supercalifragilisticexpialidocious.
The point is I have done some DD on the product, but it’s still hard to get a good view when you have never used a product like this yourself and compared it to the competitor products you have also used.
The reviews are good so it’s likely at least a solid product.
Source: g2.com
This product Illumin was launched at the end of 2020 and at the time this company was called Acuityads.
There was a lot of hype around the launch of Illumin at the time and the stock had a massive run.
Source: Google
This was the mega bullish time in the market for everything tech and innovation and Illumin took advantage of this hubris.
They were listed on the Nasdaq in mid-2021 and raised 50m USD at 10.15 USD per share.
Around this time insiders saw that the stock was getting quite expensive and sold their shares en masse to the excited retail investors.
Source: Barchart
Illumin was likely not going to live up to the expectations that were priced in at the time P/S was higher than 10 and even got up to 20.
But as we fast forward to the current day the situation is different.
Instead of issuing shares, the company is buying them back at a much cheaper price.
Source: Illumin q4 presentation
The company did a substantial issuer bid(SIB) last autumn in which they bought back 8,18% of the outstanding shares and that was only about 1/3 of what they were offering to purchase, but there were not enough sellers. Of course, after the offer closed there were suddenly sellers at lower prices and the stock has declined about 30% since then. How about another SIB Illumin? I hope they are working on that.
After that, they did announce a normal course issuer bid in which they could buy back 10% of the float.
Their share count is now below what it was before they raised money and they have most of the money raised during the mania still on their balance sheet.
Source: Seeking Alpha
And instead of unloading their shares insiders have been buying shares.
Source: Barcharts
The last time an insider sold stock was in 2021 at CAD 13.5857. And you can see the last purchase from the CEO recently which is important to note because he is in the process of stepping down.
“The Board of Directors has initiated an executive search for illumins’ next CEO. While there is no specific timeline for the search process, it is expected to be completed during 2024. Once a new CEO is in place, Mr. Hayek will assume his role as Non-Executive Vice Chairman.”
And regardless of that, he is betting on the company.
The company also voluntarily delisted from Nasdaq recently as they said they are not seeing any benefits from it at this time. They do not need to raise money. They were not getting much of a tech valuation in there. And they will save a couple of million a year from costs by delisting according to the CEO. They said they would be back on Nasdaq in the future.
I agree with this move. Even though it probably has contributed to some selling in recent times. Some people and institutions can’t or don’t want to hold a company trading only in Toronto and the OTC market. I like this type of selling because it’s not based on fundamentals. The stock just gets cheaper.
AD
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Valuation
Market cap 78.91m CAD
Debt 7.99m CAD
Cash 55.46m CAD
EV 31.44m CAD
So the business itself costs 31.44m. Here are the numbers for it in CAD.
adjusted EBITDA 2023 $1.3m 2022 $5.8m
Source: Yahoo Finance, I updated TTM numbers to include Q4
Is it worth 31.44m CAD? I don’t think so, but from the surface, you could make an argument it is based on TTM numbers. Revenue growth has been slow and operating costs have risen more than it. The cash drain is small when you exclude the cash spent on stock buybacks. Which we of course should.
But just getting back to 2021 profitability 11,7m net income and 18m FCF would be a bullish scenario at 31.44m EV for a tech company.
We have to look behind the numbers to see what is going on.
Illumin is ongoing 2 transitions…