Amfil Technologies Inc (OTCMKTS:AMFE) is a company that we first highlighted way back in February when it traded for $0.02 a share. Mid-May, the company had run up to just shy of $0.1 a share and has since corrected a bit to trade at current levels of $0.07 a share. Even with correction, that still a more than 250% run across the period.
As the stock has matured toward its current point, and as our coverage has shifted to reflect this ongoing maturity, we have attempted to identify which of Amfil’s operational arms (for those new to this one, this will become a little clearer in a moment) would likely prove the real driver from a near and long-term growth perspective.
It is now becoming abundantly clear which of said operational arms is the real winner and – as such – we are watching the arm in question closely for developments that feed into this valuation thesis. Over the last few weeks, we have had a couple such developments, so it’s about time we updated our coverage and restated our thesis with a focus on what we are looking for next from Amfil as supportive of future growth.
So, Amfil is a holding company that has three primary operational arms, by way of three primary subsidiaries. These are Snakes & Lagers (and Snakes & Lattes), GROzone and Interloc-Kings Inc. The first is a coffee shop brand that offers board games to its customers. The second is a hydroponic tech company. The third is a construction entity operating in and around Toronto.
It is the first of these, the Snakes & Lagers subsidiary, that’s the real darling of the company right now, and that we see (as mentioned above) as being the key driver going forward.
Think of it as a sort of restaurant or coffee shop where individuals can go to drink beer, coffee or other soft drinks whilst playing board games. There are two locations live and operational now, both in Toronto, and a third set to open (that at 10,000 sq. ft. is nearly double the size of the first two) near term.
The two live locations brought in more than $7 million CAD revenues during 2016, and this is expected to increase during 2017, but that’s not the most interesting thing about this side of the company’s operations. As well as being a recreational location type company, Snakes & Lattes also buys up the rights to board games and generates revenues from the distribution of these board games in various regions.
Back in May, the company announced it had the exclusive rights to Cards Against Humanity in Canada and various other global regions. This is a game that’s literally been flying off shelves and causing stocking issues globally for the half decade subsequent to its release. It’s the number one game on Amazon and the majority of other online retail platforms.
Also in May, and shortly after the distrubition rights announcement, we got word that Snakes & Lattes in the final process of closing a purchase order with a large name-brand box store to sell approx. 50,000 units of a single title for which it holds exclusive distribution rights to in Canada. The release didn’t name the game, but it’s almost certainly Cards Against Humanity.
This is a $1.25 million deal and is expected to be a recurring annual distribution arrangement, meaning that one deal alone has tacked on 17% to annual revenues. One deal, from one big box store. This is a winning strategy for Amfil and one that it’s actively trying to leverage right now.
Going forward, then, we’re looking for the same sorts of deals to boost revenue (recurring revenue, ideally). If any of these deals hit press, this stock will bottom out on its current consolidation/correction very quickly and start climbing towards its true valuation.
As we said last time, and this is unusual for us, we’d like to see the company raise a bit of cash. We think it can be done on good terms (given its potential and the deals that are coming in) and we think the capital resources any raise would provide could be put to smart use at this high growth time.
Don’t get us wrong – we don’t want to see anything incredibly dilutive – but a carefully structured raise could allow management to allocate towards various growth opportunities while maintaining a degree of value-add for the shareholders that are footing the bill.
Make sure you’re on top of this one by checking out our previous coverage here.
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Disclosure: We have no position in AMFE and have not been compensated for this article.