As someone without a finance background I appreciate your posts being consistently written with a level of lead in and/or explanation that allows me to understand even the most complex terms and topics you discuss.
Regarding Zedcor would you ever consider an increase in property crime or building construction investment a useful indicator?
Thank you for the comment Chris, I definitely agree there are tailwinds in the security sector right now. Anecdotally, it feels like crime is on the rise.
And construction should also pick up once interest rates are low enough, especially in residential.
Interesting thesis. I will look at the valuation numbers. If your assumptions are reasonable (and they look like they’re) there’s a long runway ahead.
Penetration to the US was a challenge and the agreement with HD was their way in. They are quite heavily dependent and their customer base is too concentrated, hopefully there’s a plan to address this risk
Thank you Leroy. I just want to clarify one thing: their customer base isn’t as concentrated now that the pipeline has wound down. From their 2023 annual report: “The Company generates approximately 40% of its revenue from its top three customers (twelve months ended December 31, 2022 - 72% from largest customers). Only one customer accounts for more than 10% of revenue.”
These numbers are also for the full year. So if the largest customer is the pipeline operator, which didn’t significantly wind down until the end of the year, the 40% number is skewed higher. Customers two and three are both less than 10%.
Thanks for that clarification. There’s progress in the right direction but still quite concentrated imo. Any of the top 3 customers pulling out for any reason (not that there’s any likelihood of this happening) has a material impact on their valuation and business.
I think we saw in 2023 what happened when their biggest customer (72% of revenue!) ended their project — they mostly maintained revenue QoQ since they were able to upgrade and relocate those towers.
So I agree that losing a big customer is not great and they didn’t show much revenue growth (as a result of the upgrade and relocation time), but not really a material impact on their business as (1) there is excess demand right now and (2) the initial tower capex is not lost, just relocated.
If customer concentration does continue to decline, losing a customer should have even less of an effect.
So long as they have demand > than the number of towers they can put in the field (and there is a big question of how long it will last) customer concentration risk shouldn’t be as bad as it is for some other companies.
As someone without a finance background I appreciate your posts being consistently written with a level of lead in and/or explanation that allows me to understand even the most complex terms and topics you discuss.
Regarding Zedcor would you ever consider an increase in property crime or building construction investment a useful indicator?
Thank you for the comment Chris, I definitely agree there are tailwinds in the security sector right now. Anecdotally, it feels like crime is on the rise.
And construction should also pick up once interest rates are low enough, especially in residential.
Interesting thesis. I will look at the valuation numbers. If your assumptions are reasonable (and they look like they’re) there’s a long runway ahead.
Penetration to the US was a challenge and the agreement with HD was their way in. They are quite heavily dependent and their customer base is too concentrated, hopefully there’s a plan to address this risk
Thank you Leroy. I just want to clarify one thing: their customer base isn’t as concentrated now that the pipeline has wound down. From their 2023 annual report: “The Company generates approximately 40% of its revenue from its top three customers (twelve months ended December 31, 2022 - 72% from largest customers). Only one customer accounts for more than 10% of revenue.”
These numbers are also for the full year. So if the largest customer is the pipeline operator, which didn’t significantly wind down until the end of the year, the 40% number is skewed higher. Customers two and three are both less than 10%.
Thanks for that clarification. There’s progress in the right direction but still quite concentrated imo. Any of the top 3 customers pulling out for any reason (not that there’s any likelihood of this happening) has a material impact on their valuation and business.
I think we saw in 2023 what happened when their biggest customer (72% of revenue!) ended their project — they mostly maintained revenue QoQ since they were able to upgrade and relocate those towers.
So I agree that losing a big customer is not great and they didn’t show much revenue growth (as a result of the upgrade and relocation time), but not really a material impact on their business as (1) there is excess demand right now and (2) the initial tower capex is not lost, just relocated.
If customer concentration does continue to decline, losing a customer should have even less of an effect.
So long as they have demand > than the number of towers they can put in the field (and there is a big question of how long it will last) customer concentration risk shouldn’t be as bad as it is for some other companies.
We’ll see though; just thinking out loud.