Mission Ready Services Inc. (TSXV: MRS) has a market cap of just $20 million yet could generate $50 million in revenues next year
SmallCapPower | September 27, 2017: Mission Ready Services Inc. (TSXV: MRS) is a manufacturer and service provider of specialized product lines to the military, law enforcement and first-responder communities. In early 2017, the Company began its reorganization with the appointment of a new CEO and a new business strategy that continues to deliver strong operating performance. Mission Ready Services has been bagging new orders and the key Foreign Military Distribution Agreement for the supply of a minimum US$400 million Protect The Force products over five years, which could generate $50 million revenues in 2018. Given the significant growth in revenues over the next five years, the Company’s valuation of just $20 million in market cap looks compelling.
Investment Thesis
- Niche manufacturer and service provider of specialized protection product lines
- Reorganization with a new business strategy continues to deliver strong results
- Five-year, $400 million distribution agreement with a foreign military could completely change the fortunes of Mission Ready over the next couple of years
Niche Protection Solutions Provider in North America
Mission Ready Services Inc. is focused on providing niche specialized product lines to military, law enforcement and first-responder communities. Mission Ready Services brings innovative products, manufacturing and entrepreneurial expertise together into one unified business through four key synergistic business segments – Innovations, Sales, Services and Manufacturing.
The Company’s innovations are being driven by its PTF Innovations division, one of the leading product developers for all verticals within DOD, Federal and State government. Using patented technologies, Mission Ready Services has developed industry-leading products, including Flex9 Armor and No-Contact.
Reorganization and new business strategy delivering strong results
In the first quarter of 2017, Mission Ready Services reorganized through the appointment of a new CEO and announced a new business strategy, which has delivered good results thus far. In March 2017, Mission Ready Services announced Jeff Schwartz as its new CEO, replacing Rod Reum who resigned from the position of President & CEO. Mr. Schwartz has a broad background and experience, having served at director-level positions for privately-held as well as publicly-traded firms, recently as President of LC Industries, which is a $380 million distribution and manufacturing business that grew from $50MM in his 12-year tenure.
Along with the new CEO appointment, Mission Ready Services began implementing its new refined market focus on innovations, manufacturing, and sales. Specifically the strategy includes developing technologically-advanced and commercially-viable protection products; continue manufacturing specialized high-margin apparel, including those developed by its Innovations team (Flex9 ballistic shirt, and other products); increase market adoption of cleaning, decontamination and repair of personal equipment and gear by U.S. Defense Forces and other first-responder organizations, and reduce operational costs. The implementation of this new business strategy has resulted in strong operational performance as evidenced by strong revenue growth of 83% YOY in 2Q17 and a reduction in its comprehensive loss.
Recent orders indicate future potential; multi-year FMDA agreement is significant
As part of its renewed focus, Mission Ready Services has identified multiple foreign military and law enforcement opportunities since the beginning of 2017. In 2Q17, the Company’s subsidiary, PTF, signed a distribution agreement with the Federal Resources Supply Company (FRSC) for the sale of its Flex9Armor into agencies of the U.S. Government, agencies of state governments, and other potential customers. As per the agreement, FRSC will place an initial stocking order and will maintain a minimum inventory level of ~US$30,000 – $40,000 in product for logistical efficiency and expedited fulfillment purposes.
Recently (September 6th 2017), Mission Ready Services announced an key agreement with a U.S.-based contracting partner to supply a minimum US$400MM in Protect The Force products over five years with an initial purchase order for the Flex9Armor and No-Contact Tactical Shield Covers expected during Q4 2017. The agreement includes annual minimum purchase volumes – US$50MM for 2017 through December 31, 2018 – which must be met in order for certain Distributor provisions to remain in effect, including regional exclusivity and an automatic renewal of the contract in 2022 for an additional five-year term. Following this, on September 20, 2017, the Company’s unit PTF received a US$400,000 –purchase order for a domestic government application, to be fulfilled and delivered within 45 days.
In addition to these orders, Mission Ready Services is part of the U.S.-government funded Amber project, which could bring additional opportunities from the commercialization of AMBER uniforms that meet high safety standards, including flame resistance, blood-borne pathogen protection, water repellency, improved comfort.
Improving balance sheet
Mission Ready Services recently cleared C$5.4 million in debt related to the Wild Things transaction, and the cancellation of C$170,000 in directors’ fees. Additionally, the recent jump in its share price has resulted in C$1.2M outstanding warrants exercised and received to date.
Valuation and outlook
Despite the recent sharp move in its stock price post the announcement of the large multi-year FMDA agreement on September 6, Mission Ready Services’ valuation looks inexpensive at only $20 million in market cap. Assuming the Company successfully delivers products and generates $50 million in 2018 from the FMDA order, the current price to sales multiple will be at an attractive 0.40x, which implies Mission Ready Services stock could rise multifold over the next couple of years.
Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in the company mentioned above.
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