Followers of the DTM5 blog know I like to keep things simple. I don’t mean that I ignore the details or don’t do thorough due diligence. What I mean is that I know what I’m looking for. I’ve fully embraced the Pareto Principle – The Law of the Vital Few, and my due diligence process is focused on identifying ‘the vital few’ things that indicate a venture investment has a better than average chance of being successful.
For more about my process and the Pareto Principle, check out my blog post from May 2, 2021.
Which brings me to Plurilock Security Inc. (TSXV – PLUR). I originally blogged about PLUR on Jan 2, 2022. It passed my merit screens and the price and time seemed opportune to start building a position.
I started acquiring at the 45 cent level and have continued to buy over the past few months. My acquisition strategy has gone according to plan….I’ve been averaging in through a weakening share price at what I suspect will turn out to be a bottoming trend. I think that PLUR’s strategy of growth by acquiring distribution and channeling its high margin software solutions through those channels will prove successful in the next 12-24 months. Success to me means going cash flow and EBITDA positive, or having a run rate that indicates as such, or perhaps being identified and partnering with or being acquired by a larger company.
My conviction level has increased since I first blogged about PLUR. Why? Simply put, they are executing their business strategy. They’ve acquired distribution in Canada, the US and India who specialize in selling to governments. Revenue has increased from 0.479 million to 36.624 million. They’ve made some smart looking management and board appointments. They’ve raised money on good terms. Their cash burn rate is controlled. And they’ve recently started selling their high margin software product through Aurora Systems, their acquired California based subsidiary.
That is all good stuff, but they aren’t out of the woods yet. Closing the negative EBITDA and cash flow gap will require 1) An improvement of margin on their hardware sales – and I think due to the nature of that kind of business significant improvement is unlikely. 2) Ramping up the sales of their high margin software – which seems to be happening but very slowly, and / or 3) Accretive, meaningful acquisitions – which will require smart and strategic financings as they don’t have much of a war chest.
I remain long and strong on PLUR with a (relatively) small position (less than 5%) in the DTM5 strategy. I’m continuing to acquire in the sub 30 cent range and look forward to watching them execute their plans over the balance of 2022.
GLTA!
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