Evertz Technologies Limited. (TSX: ET) is a Canada-based provider of telecommunications equipment and technology solutions to the television broadcast and new-media industries. More than half of the firm's revenue is generated in the United States. 

Key highlights

• Dividend Declaration: On March 8, 2022, the company declared a quarterly dividend of CAD 0.18 per share which will be paid to the shareholders of record on March 18, 2022, and it will be paid on or about March 24, 2022. The company has a strong corporate and governance policy which is reflected well across its dividend-paying history mentioned below.

Source: Company presentation

• Decline in the Cash flows: The company reported a decline in its cash flows from operations to CAD 8.26 million for Q3FY22 as compared to CAD 10.29 million in pcp. The major drag was from the increase in the non-cash working capital items of CAD 20.82 million for the reported period vs CAD 3.65 million in pcp.

• Strong order book: On March 1, 2022, the company reported a fresh purchase order of more than CAD 10 million for the delivery of solutions services. At the end of February 2022, the group reported an order backlog of more than CAD 176 million and shipments for the same month of CAD 25.5 million. The strong order book reflects the probable cash receipts in the coming quarters.
  

Risks associated with investment

The company is currently exposed to various risks such as foreign exchange volatility, credit risks, market and liquidity risks, technology risks, etc. For the group to sustain the competitive market, extensive price wars are an integral part, which impact the margins negatively is also a key challenge.  

Financial overview of Q3FY 2022 (Expressed in thousands CAD)

Source: Company Filing 

• The company reported an increase of 30% in total revenues CAD 120.56 million for Q3FY22 as compared to CAD 92.77 million in pcp. The United States / Canada region recorded a rise of 40% in its revenues to CAD 78.88 million in the reported period vs CAD 56.26 million in pcp Q3FY21. The revenues from the other geographies reported a 14% rise in the Q3FY22 to CAD 41.69 million vs CAD 92.77 million in pcp.

• For Q3FY22 the total expenses were reported at CAD 38.88 million as compared to 37.65 million in the pcp. The major increase was in Selling and administrative to CAD 16.01 million in Q3FY22 which was CAD 11.73 million in the previous comparable period.

• The Earnings before income taxes for the reported period stood at CAD 28.89 million in Q3FY22 vs CAD 14.02 million in pcp. 

• The company reported Net earnings attributable to its shareholder for Q3FY22 of CAD 21.25 million as compared to CAD 10.27 million in pcp.
  

Valuation Methodology (Illustrative): Price to Equity multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 10.76% in past one month and 17.35% in the past six months. The group reported strong Q3FY22 revenue numbers of CAD 120.56 million along with the quarterly dividend of CAD 0.18 per share. Further, the Net Income for the reported period, almost more than doubled to CAD 21.59 million from CAD 10.38 million in the previous comparable period. On the valuation front, the stock is measured on the Price to Earnings base, and we have considered Harmonic Inc., Cambium Networks Corp, Comtech Telecommunications Corp., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 14.68 on March 10, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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