Salona Global Medical Device Corp.

January 1, 2021 – CA: SGMD – $0.163 CAD (fka Brattle Street Investment Corp.)

Link to previous research here.

I kept checking under SEDAR to see if Santa left a gift. Surprise! He did.

The net-net formerly known as Brattle has… changed its name, its business model, completed an acquisition and a rollback (7.37 for 10), and completed their concurrent financing. Once the company re-lists its stock (maybe January), the Salona snowball will start to roll.

This healthcare roll-up has a long hill to roll-down. There are lots of small and profitable medical device companies that Salona could acquire. Company insiders have done a fairly successful (depends who you ask) roll-up before.

Valuation and Price

There are now 33,813,308 shares outstanding on a non-diluted basis and they raised $5,550,258 in their concurrent financing. That’s $0.164 cash per share. Management (current and acquired) participated in the latest financing. The CEO of the acquired company (South Dakota Partners) is also being paid in SGMD stock, not cash. Seems like management has big incentives to make a big snowball.

Using excerpts from their Sept 17, 2020 presser, we can do some hazy valuation work. Note their Sept 17, 2020 cash raise was advertised as $8.5mm, so we’ll adjust a few things by the $3.0mm difference (they “only” raised $5.55mm) below.

From Sept 17, 2020 presser. Acquired Company highlights, before costs and financing.
From Sept 17, 2020 presser. Acquired Company highlights, before costs and financing.

If I read that right, the company Brattle acquired has grown revenues at 150% (since 2016) to $15.9mm in 2019. Profitably? Maybe…

Further, Net Assets are now roughly $30mm ($25mm + $5.5mm financing) and Cash is $24.5mm ($19mm + $5.5mm financing).

They’ve also identified a few profitable acquisition targets.

Not bad.

The stock will likely get re-rated to an EPS multiple (which I think, but I’ll have to check, is what insiders Mr. Dalsin and Greene have communicated before). In the meantime, they currently have $0.71 cash per share on a non-diluted basis… it will be interesting to see where SGMD trades when the halt is lifted.

Let’s hang our valuation hat on 2019 revenue of $15.9mm, or $0.47 revenue per share. I’ll be buying around $0.50 and below (if my math is right).

Margin of Saftey

Mr. Dalsin and Greene own about 30% of the company and millions of stock options, management participated in the latest financing, and their first acquisition target CEO took SGMD shares instead of cash. Good signals and good incentives.

I think we may see selling pressure upon re-listing. It was a former net-net that’s now a healthcare roll-up story. Value guys and gals will probably sell because they got their net-net puff, while growth investors will start to buy… eventually.

The story (and promote) will take some time to be spread. It’s still early days. Mr. Dalsin and Greene have cranked a stock before. It seems likely they will succeed again.

Et cetera

How are roll-ups typically valued?

I’m going to study Patient Home Monitoring and Viemed. Two companies that Mr. Dalsin and Greene were involved in before. It will help place their new roll-up in context.

I own shares of SGMD (I couldn’t sell even if I tried!).


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