Cematrix is looking good from here, this portfolio manager says

If you’re searching for a smart investment to catch the growing infrastructure wave, concrete company Cematrix (Cematrix Stock Quote, Charts, News, Analysts, Financials TSXV:CVX) might be worth a look. So says Bruce Campbell of StoneCastle Investment who thinks the stock might have hit bottom and could be ready to rise.

Small cap stocks have mostly taken it on the chin over the past half-year and that includes Cematrix, which got as high as $0.85 in late January before taking a plunge. CVX hit sub-$0.40 territory in August but has since climbed a bit out of that hole.

Where Cematrix heads next will depend a lot on whether the macroeconomic picture clears up, according to Campbell.

“It’s one that we don’t own, but we certainly watch it,” Campbell said, speaking on BNN Bloomberg on Thursday. “We’ve been a little bit surprised that it hasn’t got a little bit more traction than it has given the build out in North America from a housing perspective and from a construction perspective.”

“What we really need to see is that infrastructure bill kick into place [in the US] and then see that funding and those projects start to flow through. We think at that point in time, Cematrix will really start to move,” he said.

Calgary-headquartered Cematrix makes cellular concrete, an air-injected material that is said to be cheaper, more lightweight and offer better thermal protection than other concretes while also using less material to do the same job, thereby earning it some green construction cred.

Cematrix has seen its business grow this past year as it wins more contracts. Last December, the company announced a record US$23.5 million tunnel-building contract in the US, while more recently it announced the re-signing of a lucrative supply agreement with Lafarge Canada.

At the same time, 2020 was a tough haul in the construction business with COVID-related project delays across the board, and the impacts were felt in Cematrix’s financials which have been lumpy of late. The company saw revenue drop for the fourth quarter 2020, for example, to $4.4 million compared to $5.3 million a year earlier, while the first quarter 2021 was a year-over-year improvement at $4.5 million compared to $3.9 million a year earlier. Q2 2021 was also down at a topline of $4.0 million compared to $7.4 million a year earlier. Adjusted EBITDA for the Q2 was a loss of $0.9 million compared to positive $0.7 million for the Q2 2020. (All figures in Canadian dollars except where noted otherwise.)

“Even though the second quarter and year to date sales and margins were lower than the previous year, most of the reduction in sales was mainly due to the timing of projects,” said Cematrix President and CEO Jeff Kendrick in the company’s second quarter 2021 press release, delivered on August 11.

Kendrick said the second half of 2021 should be better, as a number of large US projects will be completed over H2 2021 while some Canadian projects have been rescheduled for the second half as well.

“Furthermore, we continue to pursue organic growth opportunities throughout North America, and we are moving forward with regional expansion plans, in an effort to accelerate our strategic plan,” Kendrick said.

Cematrix finished the second quarter with $21.3 million in cash and a better balance sheet after converting US$2.5 million related to the earlier acquisition of MixOnSite USA.

Campbell said investors may have to wait a bit for CVX to move, but the technicals and fundamentals both look positive for Cematrix.

“They’re cashed up and they’ve been working with some interesting deals. They found a large partner in Lafarge, and everything seems to be in place. I’s just a function of being patient while all these pieces fall into place,” Campbell said.

“They fall into that category where they’d definitely be a small cap, and if you go look at their stock price it peaked out right along with everything else in that mid-February timeframe and it’s been sliding ever since,” he said. 

“[But] the stock price from a technical perspective looks to be bottoming here. And so, with it bottoming, with positive fundamentals and with the fact that we’re starting to see the money flow of funds back into the small caps, this could be one that has a nice move going forward,” Campbell said.

Earlier this year, Cematrix closed on a public offering of about 35.4 million units for gross proceeds of about $23 million. The company said the funds would go towards future acquisitions, equipment and personnel and general working capital.

The last acquisition of note for CVX was the 2019 buy of Pacific International Grout, adding the supplier of tunnel grout to the company’s offerings. 

“The acquisition of PIGCO solidifies Cematrix as a leading supplier of cellular concrete in North America, in addition to now being a leading supplier of tunnel grout in the same territory, which is PIGCO’s key market expertise,” said Kenrick in a September 9, 2019 press release. “CEMATRIX and PIGCO also have technologies that can benefit the other, which will also make CEMATRIX, PIGCO and last year’s acquisition, MixOnSite USA, Inc., stronger in their respective markets.”