Titan Logix Corp. (TSXV:TLA, Financial) is an Alberta, Canada-based microcap manufacturer of radar-based electronic fluid gauges for oil tanker trucks as well as stationary storage. It is a play on both the internet of things and the oil market. Its products are mainly used in the upstream and midstream oil industry. The market for its products, which has been in a massive downturn for the past several years, has slowly been recovering over the last two years.
Apart from recovering revenue, there are two other notable aspects of this company that have captured my attention.
Strong balance sheet
Titan Logix has a very strong balance sheet with no debt and 8.4 million Candian dollars ($6.3 million) in cash. The company is trading close to its net asset value and tangible book value. While the company is currently free cash flow negative, given its current revenue and gross margin trajectory, I expect the company to be cash flow positive this year.
Insider ownership and potential catalyst
Titan Logix also has heavy insider ownership. The Jerry Zucker Revocable Trust owns 25% of the common shares outstanding. There is a good chance the trust will attempt to take the company private soon as a standstill agreement, which the two entities inked in 2016, has now expired. In addition, company executives have been steadily accumulating shares of the company. If Titan is taken private, the Zucker Trust will have to offer a substantial premium for the shares. Even if privatization does not happen and the oil market maintains its recovery, the stock is undervalued and has substantial capital appreciation potential.
Meanwhile, Western Canadan Select oil prices appear to be in recovery, as do West Texas Intermediate oil prices. The differential between WCS and WTI has also narrowed lately, boding better times for Canadian oil. Improving oil prices are expected to result in increased production volume and oil shipments.
Demand for Titan Logix's products appears to be corelated to oil shipment volume. My price target for the stock is around $1 a share, which I expect should be acheived in 12 to 18 months even in the absence of further moves by the majority shareholder.Â
Disclosure:Â While I currently have no position, I may take a long position in the coming weeks.
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