ADF Group, Inc. (DRX.T)

February 28, 2021

We continue with examples of Boole’s quantitative investment process in action.

Recently, we looked at the following companies:

Thermal Energy International Inc. (TMGEF):

Helix Energy Solutions Group, Inc. (HLX):

Five Star Senior Living Inc. (FVE):

North American Construction Group Ltd. (NOA):

Vera Bradley, Inc. (VRA):

Lazydays Holdings, Inc. (LAZY):

Karora Resources Inc. (KRRGF):

Diamond S Shipping Inc. (DSSI):

DHI Group, Inc. (DHX):

Saga Communications Inc. (SGA):

Northwest Pipe Co. (NWPX):

Smart Sand Inc. (SND):

Terravest Industries Inc. (TVK.TO):

LGL Group, Inc. (LGL):

G-III Apparel Group, Ltd. (GIII):

Hummingbird Resources Plc. (HUMRF):

Micropac Industries, Inc. (MPAD):

Barrett Business Services, Inc. (BBSI):

Delta Apparel, Inc. (DLA):

AdvanSix, Inc. (ASIX):

Universal Technical Institute (UTI):

Burnham Holdings Inc (BURCA):

Select Interior Concepts (SIC):

Manitowoc (MTW):

Ciner Resources LP (CINR):

Global Ship Lease (GSL):

Alico, Inc. (ALCO):

Genco Shipping (GNK):


Tidewater (TDW):

TravelCenters of America (TA):

Teekay Tankers (TNK):

Ranger Energy Services (RNGR):

Macro Enterprises (Canada: MCR.V):

This week, we are going to look at ADF Group, Inc. (DRX.T), a Canadian company.  (The company trades in the U.S. stock market over the counter under the symbol ADFJF.)  From the company’s website: “From a blacksmith shop founded in 1956, ADF Group Inc. has become over the years a North American leader in the design and engineering of connections, fabrication and installation of complex steel structures, heavy steel built-ups, as well as miscellaneous and architectural metalwork.  The Corporation’s products and services are intended for the following five principal segments of the non-residential construction market: Office Towers and High-Rises – Commercial and Recreational Complexes – Airport Facilities – Industrial Complexes – Transport Infrastructures.”

DRX.T has a market cap of $57.7 million.  The stock price is $1.69.  (All values are in terms of Canadian dollars.)

Step One

First we screen for cheapness based on five metrics.  Here are the numbers for ADF Group:

    • EV/EBITDA = 4.90
    • P/E = 4.83
    • P/B = 0.56
    • P/CF = 2.67
    • P/S = 0.32

(Earnings per share is estimated at $0.35.)

Step Two

Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company.  For more on the Piostroski F-Score, see my blog post here:

DRX.T has a Piotroski F-Score of 8.  (The best score possible is 9, while the worst score is 0.)  This is very good.

Step Three

Then we rank the company based on low debt, high insider ownership, and shareholder yield.

We measure debt levels by looking at total liabilities (TL) to total assets (TA).  ADF Group has TL/TA of 45.2%, which is good.

Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders.  At ADF Group, insiders own 89% of the shares in terms of voting rights.

Shareholder yield is the dividend yield plus the buyback yield.  At ADF Group, the dividend yield is 1.2%, whereas the buyback yield is zero.  So shareholder yield is 1.2%.

Step Four

The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.

See  ADF Group’s most recent quarterly report (October 31, 2020):

Intrinsic value scenarios:

    • Low case: Book value per share is $3.03.  The company may be worth half of book value.  That’s $1.52, which is 10% lower than today’s $1.69.
    • Mid case: ADF Group is probably worth at least book value of $3.03 per share.  That’s about 80% higher than today’s $1.69.
    • High case: EPS (earnings per share) may reach $0.40.  With a P/E of 12, the company would be worth $4.80 per share, which is over 180% higher than today’s $1.69.



An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.  See the historical chart here:

This outperformance increases significantly by focusing on cheap micro caps.  Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals.  We rank microcap stocks based on these and similar criteria.

There are roughly 10-20 positions in the portfolio.  The size of each position is determined by its rank.  Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost).  Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.

The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods.  We also aim to outpace the Russell Microcap Index by at least 2% per year (net).  The Boole Fund has low fees.


If you are interested in finding out more, please e-mail me or leave a comment.

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Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.