PKKFF: Q3 Prepares Tenet Fintech for its Quest to Triple Revenues Next Year

By Lisa Thompson

OTC:PKKFF

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Management at Tenet Fintech PKKFF positioned the company for better margins and new business segments in Q3 as it pursues its goal of more than tripling revenues in 2022. It bought Cubeler, provider of its technology platform which primarily gave it the rights to launch its business platform in geographies outside China. While China is certainly a large enough market to grow substantially, companies in other countries that deal with China, voiced an interest in expanding the reach of the platform. Certainly the concept is portable and by focusing on specific verticals Tenet should be able to succeed. It is starting with its own backyard and expects to be live in Canada by year end. While we expect it to be focused on consumer goods to start it will be interesting to see how it is adopted outside China. Future counties include the US, UK, France (where they speak French) and Brazil. If successful, these new geographies should add substantially to revenues.

Also in Q3, the company bought the assets of Heartbeat, a platform to connect insurance companies with corporate customers. Since the corporate customers are already doing business with Tenet, this new revenue stream is just another product to sell these businesses already on the platform for loans. These new service offerings are why management changed calling the platform a lending platform and has widened the description to business platform. Insurers are eager to join Heartbeat as regulations are compelling them to interconnect for data sharing anyway, and this also solves the regulatory compliance.

Another issue on investors' minds is the status of the NASDAQ listing. To recap -- in an unusual move, NASDAQ allowed Tenet to list and trade on its exchange for about a month when the SEC turned around and decided it really needed more information. As a result Tenet was delisted from NASDAQ and returned to the OTC where it now trades in the US. The company has refilled information with the SEC as requested and is awaiting any further comments it may need to address to regain its NASDAQ listing. The SEC has until November 27th to comment, after which the company will either be relisted (no comments) or have to submit further information (comments). The SEC has recently decided to scrutinize companies with the majority of their business in China, and Tenet is not being singled out in that respect. The company expects no problems, is complying with all requests, and expects to be relisted soon.

Q3 2021 Earnings Results

Q3 was a sequentially down quarter merely by the huge success of JD.com's 618 Shopping Festival that occurred during Q2, which is somewhat like the Chinese version of Amazon's Prime Day. The company said that event alone added $5 million to revenues in Q2 as it financed 789 transactions worth approximately $200,000,000 for retailers and suppliers. The company expects that Singles Day, an event that already took place in Q4, may be even more successful. At the time of its earnings call, the company did not have the data on the results of revenues generated for that event at Tenet. In Q3, Tenet generated $25 million in sales -- growth of 70% compared with last year. We have redone our sales segments to show two as the company has recently been reporting. On our income statement we now break out supply chain revenues and non-supply chain which includes loan interest generation from the bank and ASCS loan servicing fees, insurance sales and other. Supply chain related revenues were $23.6 million in Q3 2021 compared to $13.5 million a year ago, or growth of 212%. Non-supply chain revenues were $2.2 million versus $1.7 million.

Applying cost of service to the supply chain revenues gives us a gross margin of 10.5% compared to 0.5% in Q3 2021 and 4.3% in Q2 2021. Gross margin is expected to continue to improve by the shift to using Gold River rather than outside suppliers. Total gross margin was 17.8% this quarter versus 11.5% last year and 10.5% in Q2 2021.

Expenses decreased to $2.2 million compared to $2.6 million aided mostly by the one-time gain on purchase of the Heartbeat platform of $1.9 million. Taking that out, it would have been $4.1 million in expenses in the quarter. Salaries and fringe benefits increased by almost a $1 million, and consulting fees decreased a million. Other large increases were in PR and press releases (up $334,000), professional fees (up $264,000) and board remuneration (up $249,000.) Financing costs dropped $239,000 with reduced borrowing. Stock-based compensation in the quarter was $816,000 compared to $113,000 last year.

The pretax income was $2.4 in Q3 2021 and was a loss in Q3 2020 of $845,000. Without the gain on purchase, that would have been income of $473,000 this year. The tax rate came in at 36% due to losses in countries where the company pays no income tax and profits where it does. After paying taxes and taking out minority interest, the net income to common shareholders was $1.4 in Q3 2021 compared to a loss of $1.3 in the Q3 2020. On a non-IFRS basis it was a profit of $433,000 compared to a loss of $1.2 million last year.

The earnings per share to common shareholders was $0.02 compared to a loss of $0.03 a year ago. On a non-IFRS basis, taking out stock based compensation and the one-time expense, we calculate non-IFRS earnings of $0.005 per share compared to a loss of $0.019 in Q3 2020. During that time the share count increased 85%. Adjusted EBITDA for Q3 2021 was $1.5 million versus a negative $545,000 a year ago.

With CN$36.4 million on cash on hand and a fully diluted share count of 94.7 million this puts its US market cap at US$701 million and its enterprise value at US$672 million. Using company guidance of US$86.8 million for 2021 estimated revenues, the stock is trading at 7.7xs EV to sales versus its peers who trade at 12.7 times. Our current estimate for 2022 is lower than company guidance as we await the events to occur that could push the numbers up to management's guidance.

Current Company Guidance

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