David Barr and Amar Pandya of PenderFund Capital Management presented their in-depth investment theses on MAV Beauty Brands (Canada: MAV) and ProntoForms (Canada: PFM) at Best Ideas 2021.

Thesis summaries:

ProntoForms is a Canadian micro-cap company that provides low-code software solutions to help customers transform paper forms to mobile forms and to collect and analyze field data. Dave likes ProtoForms for its solid track record of organic growth (CAGR of 28% in the last seven years), predictable recurring revenue profile (90% of revenue), strong gross margins (90% gross margin from recurring revenue), and a high revenue retention rate. In recent years, ProntoForms has built up a direct sales team to drive sales, especially adding enterprise customers that have revenue expansion opportunities.

The company appears to be at an inflection point, with cash flow breakeven. ProntoForms is led by its founder CEO and has a strong board that is aligned. The business has a long runway ahead given that the field automation market is largely untapped and demand for low-code applications has been increasing.

Unlike mega cap companies, ProntoForms has not enjoyed the same valuation lift, trading at 5x revenue. ProntoForms is an attractive emerging compounder that could also be a potential takeover target. The company is an emerging compounder, and Dave is content to own the business while waiting for value-unlocking catalysts.

MAV Beauty Brands is a Canadian small-cap personal care company with a platform focused on acquiring independent, founder-led brands and helping them scale and expand market share. The company has a portfolio of four complimentary personal care brands diversified by channel, hair care segment, and consumer base. The company operates with an asset-light business model, generating robust FCF to fund the acquisition of additional brands. MAV continues to expand the distribution footprint through new retailer partnerships, having recently grown to become the 8th-largest hair care company in the U.S. Food/Drug/Mass channel.

MAV Beauty went public in 2018 with a rich valuation and anchored to high expectations, but the share price declined by 80+% after five consecutive quarters of missed expectations. A new operationally focused management team that joined the company in 2019 has turned around the business, cutting costs, expanding margins, and growing the business.

A reset in expectations, insiders increasing their ownership to 58%, and a strong growth outlook provide a compelling setup to unlock shareholder value. MAV trades at a fraction of peer multiples despite outpacing industry growth and outgrowing peers significantly. As the company continues to demonstrate and gain recognition for the strength of its platform, Amar expects the multiple to expand or the company to be acquired as another market participant takes advantage of the valuation disconnect.

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About the instructors:

David Barr is the President and CEO of Pender. He is also the Portfolio Manager of the award-winning Pender Value Fund and Pender Small Cap Opportunities Fund. He began his investing career in 2000, initially working in private equity. He joined Pender in 2003, was appointed Chief Investment Officer in 2007 before becoming President and CEO of Pender in 2016. Mr. Barr holds an MBA from the Schulich School of Business and earned his Chartered Financial Analyst designation in 2003. Mr. Barr looks for value in unpopular places to find high quality businesses at a price that includes a “margin-of-safety”. Investing in a company trading below intrinsic value decreases the risk and increases the potential for generating significant long term performance.

Amar Pandya is a Senior Investment Analyst and Associate Portfolio Manager. He joined Pender in October 2017. Amar started his investment career in 2011 in the Portfolio Management Training Program at a large global financial services company. The program provided him with experience in a variety of investing roles in various asset categories, including Fixed Income and Equities. Prior to joining Pender, Amar was an Associate Portfolio Manager at a large-cap equity value investment firm based in Winnipeg, Manitoba where he specialized in the Industrial, Consumer, Materials, Telecom and Real Estate Sectors. Amar advocates a contrarian value investing strategy, identifying out of favour, quality compound growth businesses, as well as opportunistic close-the-discount investment opportunities trading at a significant discount to intrinsic value. He holds a Bachelor of Commerce degree in Finance (Honours) from the University of Manitoba. He earned his Chartered Financial Analyst designation in 2015. Amar is actively involved with CFA Society Vancouver where he serves as a member of the CFA Vancouver Programs Committee. He also sits on the Steering Committee for the Vancouver chapter of Women in Capital Markets.

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