FREE

KNR: Trading at Cash with Proven Private Market Value

What you need to know:
• Kontrol Technologies recently completed the sale of two subsidiaries for over $24M, allowing it to pay off all of its debt and reach a net cash position of $11.5M. KNR plans to reinvest the proceeds into organic growth, tuck-in acquisitions and stock buybacks.
• KNR operates in two secular growth markets, smart building technology and HVAC services, providing a backing for future organic growth.
• Given its large cash balance, KNR trades at only 0.5x 2025E EBITDA

Kontrol Technologies (KNR:Cboe, KNRLF:OTC) is a leading provider of smart building technology and HVAC services to building owners and property managers. KNR recently completed the sale of two subsidiaries, generating total gross proceeds of over $24M, putting it in a net cash position of $11.5M compared to its market cap of $12.0M. KNR plans to use the remaining proceeds to drive organic growth, repurchase shares, and pursue acquisitions. We are initiating coverage on Kontrol Technologies with a BUY rating and target price of $0.35/share.

Investment Thesis Summary
Cleaned Up the Balance Sheet. Through the sale of CEMSI and ORTECH, Kontrol has generated gross proceeds of over $24M which has allowed the Company to pay down all of its debt, repurchase shares, and pursue future acquisitions. Debt levels went from $11.7M in Q4/23 to $0.4M in Q2/24, placing KNR in a large net cash position of $11.5M. Additionally, Kontrol repurchased 1.07M shares thus far in 2024, representing 2% of its shares outstanding.

Reinvesting in Tuck-In Acquisitions. Following the dispositions, KNR is focusing on expanding its sustainable buildings platform via acquisition which has recurring revenue and high margins. Management has completed nine acquisitions since 2016 and has proven that it can create value when selling assets in the private markets.

Tailwinds in its End Markets. Kontrol operates in the smart building technology and HVAC services markets, both of which have secular long-term growth. Drivers of this include the increasing cost of electricity, aging infrastructure, electrification, and emission reduction. KNR’s solutions allow building owners and property managers to gain visibility and control of their energy consumption and drive immediate cost savings, while better maintaining existing energy infrastructure.

Management & Track Record. Kontrol is managed by a small but highly experienced team, led by CEO & Founder Paul Ghezzi who brings over 20 years of experience in M&A and renewable energy. Mr. Ghezzi owns 11% of the outstanding shares, ensuring his interests are aligned with shareholders. We are particularly impressed by management’s ability to monetize acquired assets at premium multiples, which could be an ongoing theme moving forward.

Trading at Cash Value with Proven Private Market Valuation. KNR currently trades at a market cap of $12.0M despite its cash balance of $11.9M and subsidiaries that have proven sellable value in the private markets. Thus, KNR trades at 0.9x/0.5x 2024E/2025E EBITDA compared to public peers at 13.7x/11.4x and private transactions that have occurred at 6-9x. We assume 8.0x 2025E EBITDA to arrive at our $0.35/share target price. We will look to increase the multiple as KNR grows to larger scale via acquisition.