Evertz Technologies Limited

Evertz Technologies Limited (TSX: ET) is a Canadian company engaged in providing telecommunications equipment and technology solutions to the television broadcast and new-media segment.

Key Highlights:

• Stable Dividend Payment despite Sluggish economic scenario: The company has reported continuous dividend payment despite the ongoing economic jolt, which is impressive as most of the businesses are suspending their dividend payment to retain liquidity. Notably, the stock of ET carries a dividend yield of ~4.7%, which is lucrative, considering the current interest rate scenario.

Five years dividend payment history

• Impressive Margin Profile: The company commands a higher margin than its peers, which is a key positive and denotes operational efficiency and improved cost-management. Gross margin and EBITDA margin stood higher at 59.6% and 25.7%, respectively, in Q4FY21, as compared to the industry median of 54.5% and 15.7%, respectively. The corporation reported operating margin and net margin of 15.1% and 10.5%, respectively in Q4FY21, significantly higher than the industry median of 10.5% and 5.4%

• Positive outlook: The company’s operations have seen a revival in FY21, while the management believes that the company is well-positioned to take advantage of any opportunities coming from the industry. Moreoever, the company’s transition to IP and Cloud-based solutions is likely to create more efficient and agile workflows for the group. Moreover, ET is focusing on research and development and would invest in innovative product developments in the coming days. Notably, the corporation has an excellent track record of rapid innovation and has evolved as a leader within the expanding Internet Protocol Television market and a leader in Software Defined Video Network technology.

Q4FY21 Financial Highlights:

• ET announces its quarterly result, wherein the company posted revenue of CAD 93.293 million, improved from CAD 92.167 million in the previous corresponding period (pcp). The increase was supported by higher income from the United States/Canada region (CAD 63.6 million v/s CAD 58.7 million in Q4FY20), partially offset by a slide from the international region (CAD 29.7 million v/s CAD 33.5 million in pcp).
• Gross margin increased to CAD 55.558 million from CAD 52.053 million in pcp. The increase was supported by higher income coupled with a lower cost of goods sold.
• Total Expenses stood at CAD 41.503 million, increased from CAD 30.653 million in the previous corresponding period (pcp). A surge in the expenses was primarily due to higher general expense, research and development costs combined with a foreign exchange loss, partially offset by a lower selling and administrative expense.
• Net earnings stood lower at CAD 9.810 million, declined from CAD 16.038 million in pcp.

Q4FY21 Income Statement Highlights (Source: Company Report)

Risks: Postponement or cancellation of sporting events or other live events due to the restrictions imposed on account of pandemic would have an adverse effect on the overall performance of the company due to lower orders from its clientele.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group is virtually debt free, which is a key positive and enhances its overall financial flexibility and lowers the company’s finance costs, which supports the profitability and cash flows. We believe the company’s future revenues would be supported by the group’s innovative offerings coupled with several cost efficiency services offered to its customers. Moreover, the stock is offering a lucrative dividend yield amid low interest rate environment. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Communications and Networking) mean on the next twelve months basis. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 15.18 on June 21, 2021.

One-Year Price Chart (as on June 21, 2021). Source: Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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