A new weekly look at some small-cap stocks making news – or about to. Please let us know in the comments how you like this new feature and your suggestions on what you’d like to see in the future.
Canada’s S&P/TSX SmallCap Index was up 13 per cent over the past 12 months, as of midday Thursday. The Russell 2000 in the U.S. was up about 10 per cent over the same period. Both indexes fell midweek alongside the broader markets.
Small-cap spotlight
Here’s one small cap in Canada that investors may want to put on their radar screen.
Shares of Reitmans (Canada) Ltd. (RET-A-X, RET-X) could see some volatility on Friday after the Montreal-based retailer reported a drop in revenues and earnings for its third quarter ended Nov. 2, citing “unfavourably warm autumn weather” that delayed sales and a lower store count compared to the same period last year.
In its earnings report released after markets closed on Thursday, the retailer behind its namesake brand, Penningtons and RW&CO, also said its gross margin rate increased due to strong inventory control and fewer promotions.
Net revenues came in at $187.7-million down 2.9 per cent from $193.4-million in the third quarter last year that ended on Oct. 28. Comparable sales, including e-commerce revenues, decreased 1.9 per cent year over year, despite increased sales dollar per transaction, the company said.
Net earnings decreased to $2.1-million or 4 cents per share, down from net earnings of $5.3-million or 11 cents per share for the same quarter last year.
Reitmans said adjusted earnings before interest, taxes, depreciation and amortization fell 60 per cent to $3.8-million compared to $9.5-million last year, citing mainly higher occupancy costs and foreign exchange losses.
Gross margin increased 166 basis points to 57.3 per cent, while gross profit remained flat at $107.6-million. The company said it had 11 fewer stores in the quarter than a year ago.
“Our store count lowered in comparison to last year as we continue to optimize store locations to align with evolving customer needs,” chief executive officer Andrea Limbardi said in a release. “However, we opened three new stores in strategic markets during the quarter and are primed to further expand our footprint” and capitalize on customer loyalty.
Robert Tattersall, a long-time Reitmans shareholder and co-founder of the Saxon family of mutual funds, described the latest earnings as “disappointing” relative to the same quarter last year, which was also weak.
“This was not a tough benchmark to beat,” said Mr. Tattersall, who has owned the stock for more than a decade.
Mr. Tattersall continues to hold a small position in the stock because, at its current price of around $2.50, he says it trades at 40 per cent of its current book value of $6 per share and has a single-digit price-earnings ratio.
“Plus, cash per share is now more than the stock price,” said Mr. Tattersall, who’s also a former chief investment officer of Mackenzie Investments.
He’s encouraged by the “refreshed” management team at Reitmans – including the recent promotion of Caroline Goulian as chief financial officer – which together has more than three million in options outstanding with an exercise price close to the current price.
“I am hopeful that the strong cash position will motivate the board to return to the main TSX board from the TSX Venture listing and reinstate a dividend,” he says.
The stock was delisted from the Toronto Stock Exchange in July, 2020 and moved to the TSX Venture Exchange in September, 2020 as Reitmans sought protection under the Companies’ Creditors Arrangement Act. There was a financial restructuring that resulted in the closing of its Thyme Maternity and Addition Elle stores. The company exited creditor protection in early 2022 after about 20 months.
The company said it operates 390 stores today, including 223 Reitmans, 86 Penningtons and 81 RW&CO locations.
The REX-T shares were down nearly 9 per cent over the past year as of Thursday’s close. In the past 52 weeks, the stock has traded between a low of $2.46 in July and a high of $3.25 in February. The more active REX-A-T (Class A shares) were up about 3 per cent over the past year as of Thursday’s close and have traded between a range of $2.22 and $2.96 over the past 52 weeks.
Upcoming: Tilray Brands Inc. (TLRY-T) will release its second quarter results on Jan. 9. Corus Entertainment Inc. (CJR.B-T) is expected to release its first quarter results on Jan. 10.
Small-cap summary:
Other small caps making news this week:
OrganiGram Holdings Inc. (OGI-T, OGI-Q) reported fourth-quarter earnings that were better than expected this week. Its revenue came in at $44.7-million, up from $36.7-million in the year-ago quarter. Its net loss was $5.4-million or a penny per share, compared to a net loss of $26.6-million or 11 cents a year ago.
Analysts were expecting revenue to come in at $43-million and for the company to report a loss of 4 cents per share, according to according to Refinitiv Eikon data.
“[Fourth quarter] results came in sequentially higher on the back of the company’s continued focus on growing its share in the domestic recreational market and various international medical markets while operational improvements led to margin expansion,” Canaccord Genuity analysts Yewon Kang and Matt Bottomley said in a note. They kept their “speculative buy” recommendation on the stock and $3.15 target price.
Haywood Securities analyst Neil Gilmer also kept his “buy” and “very high” risk rating and $3 target price, writing in a note that the company has “further solidified its balance sheet at a notable premium to market and better positions it to execute on its growth strategy.”
He added: “In an industry with limited access to capital, we view an increased investment from a strategic partner positively, ahead of new product launches that should drive market share and revenue growth next year, while also insulating it from the challenging market with a strong cash position.”
The average target price for the stock is $3.28, according to Refinitiv Eikon data.
Organigram shares rose by as much as 7 per cent on Wednesday before falling along a broader market sell-off. The stock is up 4 per cent over the past month and has risen 24 per cent over the past year.
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Clothing retailer Groupe Dynamite Inc. (GRGD-T), the Montreal company behind women’s fashion retailers Dynamite and Garage, reported third-quarter earnings of $40.4-million or 38 cents per share, up from $34.9-million or 32 cents per share in the same quarter last year.
Revenue for the quarter ended Nov. 2 totalled $258.8-million, which was in line with analysts’ expectations and up from $220.1-million in the year-ago quarter. Comparable store sales growth for the quarter amounted to 10.1 per cent. Adjusted earnings came in at 41 cents per share, up from 33 cents a year earlier.
The company’s stock is up about 5 per cent since it started trading on the Toronto Stock Exchange on Nov. 21.
Canaccord Genuity analyst Luke Hannan has a “buy” recommendation on the stock and a $32 price target. In a Dec. 17 note, he said the company is comfortable navigating through potential tariffs, having dealt with them in the past during President-elect Donald Trump’s first presidency. “Management noted during that period it was able to pass through all tariffs along to the customer, increased initial markups (IMUs), and ultimately kept merchandise margins healthy, a strategy it intends to deploy this time around as well,” he wrote.
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WildBrain Ltd. (WILD-T) shares are trading near their 52-week high this week after the kids and family entertainment company announced on Dec. 18 that it plans to sell two-thirds of its television broadcast business, including Family Channel, Family Jr., WildBrainTV and Télémagino, to Halifax-based IoM Media Ventures Inc., an independent children’s studio in Halifax run by a former CEO of WildBrain.
The company expects to receive more than $40-million over the next four years through an upfront payment, deferred purchase consideration, minority distributions, content licensing and other fees. The deal requires CRTC approval. The company said the sale proceeds would be used to reduce its debt.
“By reducing its TV stake to a third, WILD will no longer be subject to any restrictions applicable to the Broadcasting Act as it relates to non-Canadian ownership and this will permit it to remove, in due course, its variable voting share structure currently applicable to non-Canadian shareholders,” National Bank analyst Adam Shine said in a note. He has a “sector perform” (similar to hold) on the stock and a $1.25 price target.
Over the past year, Wildbrain stock has traded between a low of 77 cents in June and a high of $1.54 in August.
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Healwell AI Inc. (AIDX-T), a health care artificial intelligence company focused on preventative care, announced on Dec. 16 that it planned to buy Auckland, New Zealand-based Orion Health Holdings Ltd for $165-million.
Orion is a subscription license and services revenue business serving the public sector. It has more 70 global customers in 11 countries. Healwell said the deal would give it a “significant muti-jurisdictional platform” to deliver AI-driven services.
The company said the deal includes $144-million upfront, including a minimum of $86-million in cash and the rest in Healwell stock. The company said the cash part of the deal would be partially funded by a bought deal private placement of convertible debentures and subscription receipts co-led by Eight Capital and Scotiabank for gross proceeds of $50-million. It said the balance is expected to be covered with debt provided by a Schedule 1 bank.
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Canada Nickel Co. Inc. (CNC-X) is raising $20-million from an Ontario First Nation, the largest funding of its kind in the Canadian critical minerals industry and one that could be a model for other small mining companies. The deal was announced Monday and first reported by The Globe and Mail last Friday. The Globe’s Niall McGee reports here
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A 10-month battle over the future of Dye & Durham Ltd. (DND-T) ended anticlimactically on Tuesday, as a slate of dissident directors ascended to the board in an uncontested election. The Globe’s Sean Silcoff reports here.