Evertz Technologies Limited (TSX: ET) is an equipment provider to the television broadcast telecommunications and media industries. The Company designs, manufacture and markets video and audio infrastructure equipment for the production, post-production, and transmission of television content.

Key Highlights

• Strong order book: 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. Moreover, recently it reported a fresh purchase order of more than CAD 10 million for the delivery of solutions services.

• Industry beating margins: The management’s solid determination and cost saving strategies helped them leaping the industry median margins on many fronts in Q3 2022, which is a key positive. The chart below gives a glimpse of this.

   Source: REFINITIV, Analysis by Kalkine Group 

• An income play: The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. This dividend pay-out practice translates into an essential factor for regular income-seeking investors with a long-term horizon. Recently, the Company paid a quarterly dividend of CAD 0.18 per share on March 18,2022. Moreover, at the last closing price of CAD 13.94 as on April 26, 2022, the stock offered a healthy dividend yield of 5.165%, which looks decent considering the current macros and interest rates.

Source: Kalkine, Analysis by Kalkine Group 

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.
• For Q3FY22, the total expenses were reported at CAD 38.88 million as compared to CAD 37.65 million in the pcp. The major increase was in Selling and administrative to CAD 17.29 million in Q3FY22 which was CAD 13.01 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 21.59 million as compared to CAD 10.38 million in pcp.
  

Valuation Methodology (Illustrative): EV to EBITDA based Valuation

Analysis by Kalkine Group

Stock recommendation

In Q3 2022, the company reported robust financial numbers where its revenue increased 30% to CAD 120.56 million and the net income for the reported period doubled to CAD 21.59 million from CAD 10.38 million in the previous comparable period. The company’s order book also got boosted to CAD 176 million in Q3 2022, it was also awarded a fresh order intake of worth CAD 10 million.

Additionally, the company is leading on the margin front compared to an industry median on numerous parameters, which is a key positive. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of ET at the last traded price of CAD 13.94 on April 26, 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 April 26, 2022). Source: Kalkine, Analysis by Kalkine Group

Disclaimer

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