Total Telcom full year financials were released in late October of 2020, so with that in mind, it’s probably a good time for a quick recap. For readers that are interested in the prior analysis of TTZ, that post can be found here. For those folks in the “speed reading” category, suffice to say that Total, via its wholly owned subsidiary (ROM Communications), is a developer of remote asset monitoring and tracking services throughout North America. Specifically, they specialize in low cost (but high tech) mobile monitoring solutions in extreme conditions. Their involvement in the “Best in the Desert” racing circuit is one of the examples of where Total has created a “tracking solution” for a specific niche of users, who rely on it not only for race tracking, but also for safety. If it ever becomes necessary to find a crashed or stalled vehicle, accuracy is paramount – nobody wants to wait around in the 120 degree desert heat.

Like most companies, Total has taken a “COVID” hit, as businesses in every segment were impacted by either full shutdowns, or at the very least, a slow down in business. So while the year hasn’t been a total write off for Total, suffice to say that hopefully, 2021 will be better. Consistent with prior posts, the usual green, amber and red format is used to indicate areas which are thought to be bullish, neutral, or bearish.

The chart is still flat. The Total chart has been skipping along a bottom for some time. At the current price ($0.11), we view this as an attractive entry point to accumulate shares cheaply. The money will likely be “dead money” for some time, but the chart suggests that unless there is some extreme event that is yet to happen, the current price is probably suggestive of a technical bottom. It is worth noting that while Total did experience a “COVID dip”, it was not as extreme as those of many other companies. As one can see from the chart, there is a lot more potential towards the upside (~ $0.40) versus the downside (~ $0.07). With that thought in mind, that brings us to the financials, which further validate this idea.

Still cash rich, still debt free. Overall cash is essentially unchanged, at $0.057/share, whereas overall assets have increased by approximately $600,000, some of which is due to the change in accounting for leases (IFRS 16) and capitalized Product Development costs. There is a small amount of longer term liabilities now on the balance sheet, but part of this is due to the IFRS 16 change, and a smaller component is a “Canada Emergency Business Account (CEBA) loan”, which bears no interest, and if repaid by December 31 2022, 25% of the face value will be forgiven. Given the non-interest bearing status, the forgiveness clause, and the amount of cash on hand, we have not classified this as “real” long term debt.

In any case, the balance sheet is solid, and depending on how much of a “value investing” purist one is , the book value of Total falls somewhere between $0.07/share (if capitalized Product Development is excluded) and $0.11/share (if it is included). Regardless, the balance sheet confirms that a worst case scenario price is probably in the $0.07 range, barring any unforeseen catastrophes.

In the year of COVID, Revenues and gross margins are up. Given that this occurred in one of the worst years on record (on many counts), this is no small feat. While the increase in revenues (+4.7%) and gross margins (+6.0%) aren’t world beating, they are significant given the backdrop of COVID. In addition to this, it would appear that Total also managed to significantly decrease G&A costs, which is a bit of an illusion. As per the MD&A, this drop in expenses is also the result of the change in accounting for leases, so now costs that were once classified as rent expense are captured in Amortization of right of use asset and Interest on lease liability. In any case, considering the overall business atmosphere during 2020, the income statement outperformed expectations.

Total posted it’s 2nd best year in a decade for cash flow. Regardless of how one defines cash flow, Total did well both before working capital changes ($550,000, or $0.022/share) and after working capital changes ($460,000, or $0.018/share). This is impressive given that this is the 2nd best year for cash flow in over 10 years, and it was achieved while a pandemic was ongoing. At the current price, this suggests that Total is trading around 5x to 6x cash flow, in a year that likely saw compression of overall sales. Like the income statement, the cash flow statement doesn’t raise any red flags.

Insider ownership remains steady. No surprises here. Insider ownership has remained static, with three insiders owning almost 30%.

  • Neil Magrath, CEO: 3.0 MM shares, or 12% of total shares outstanding
  • Scott Allen, CFO: 1.99 MM shares, or 7.9% of total shares outstanding
  • David Hammermeister, Director: 2.46 MM shares, or 9.8% of total shares outstanding

The public relations story remains quiet. Many would argue that this is a bit of a mixed bag, as lack of promotion also means less price movement, which is exactly what we see in the chart. If a potential investor is looking for something that will “take off tomorrow”, then Total is not the place to be – perhaps something like BRTL or PYR offer more “press release” sizzle. Total has traditionally shunned extraneous press, preferring to focus on operations. So, for an investor who is long (such as myself), then one might make the case that lack of promotion has kept the price depressed. On the other hand, if an investor is looking to acquire shares at a reasonable price (also like myself), then this lack of PR is, as Martha Stewart might say, a “good thing”. In the event that sales increase, or an unforeseen catalyst arrives, the current lack of attention will shift quickly, which means that net buying activity would move the shares north – quickly.

The opportunity summarized. Like many of my holdings, Total will require patience, as I tend to favor stories “before they happen” rather than “when they are happening“. If an investor has a longer time horizon, then the opportunity could be summed as follows:

  • The valuation is cheap on many levels. With the exception of tangible book value ($0.07/share), the valuation is still very reasonable. At the current price, Total is trading at 8.5x earnings, 5x – 6x operating cash flow, and currently at an EV/EBITDA ratio of less than 3x. All of these ratios say “inexpensive”.
  • The company has managed to increase sales in a very challenging year. The fact that Total increased revenues and gross margins in 2020 suggests that the full year could have been much better. While there may still be a hangover from 2020, there is also the possibility that 2021 will see pent up demand for products that were not purchased in 2020.
  • There is no insolvency or financing risk. The company is debt free, and has no need for dilute by raising capital, so someone who goes long today isn’t at risk of insolvency or dilution.
  • Significant insider ownership means costs should stay tight. There is little risk that “runaway” costs will eat up cash. Given the significant insider holdings, there is clear alignment between management and shareholders.
  • Double digit revenue growth since 2015. The company has experienced significant revenue growth while maintaining strong gross margins. While they did pull back in 2019, they resumed growth in 2020. If they can continue even modest revenue growth, the market will eventually notice.

I am long on Total (TTZ), and continue to purchase at opportunistic prices. For those that have questions or comments, I can be reached at mark@grey-swan.com.

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