Evertz Technologies Limited (TSX: ET) is a leading supplier of software, equipment and technology solutions to content creators, broadcasters, specialty channels and television service providers.

Key Updates:

• Increase in dividend distribution: In 9MFY22, the company reported a higher dividend payment of CAD 117.4 million, as compared to CAD 27.4 million in pcp. This is impressive as most of the companies are lowering their distribution in order to retail liquidity. Moreover, the stock of ET carries a dividend yield of ~5.021% on an annualized basis, which looks impressive considering the ongoing interest rate scenario.

• Surge in income: Total revenue for the nine-month of FY22 stood at CAD 324.9 million, reflecting a growth of 30% y-o-y basis. The increase in revenue is due to projects coming online and a general increase in activity compared to the prior year. We expect the above trend to continue in the coming days supported by higher demand dynamics.
  

• Healthy Balance-sheet: At the end of Q3FY22, the company reported a debt-to-equity ratio of 0.13x, as compared to the industry median of 0.26x. This might result in lower financial flexibility along with higher interest costs. Moreover, the company’s long-term debt to total capital stood at 10.3%, as compared to the industry median of 15.6%, which indicates a lower balance sheet risk.
  

Risk associated with investment:

The company’s operations are exposed to various risks such as foreign exchange volatility, credit risks, risk from competition etc. Moreover, due to a rise in competition, the company’s might have to lower its product prices, which might lead to margin pressure and lower cash flows. 

Financial Highlights: Q3 FY22:

Q3FY22 Income Statement Highlights (Source: Company Report)

• ET announced its first quarter result, wherein the company posted its revenue of CAD 120.5 million, surged from CAD 92.7 million in Q3FY21. The growth was driven by higher income from all the geographies.
• Total expenses stood higher at CAD 38.8 million v/s CAD 37.6 million in pcp, due to a rise in Selling, administrative and general, and research & development cost. Earnings before income taxes stood at CAD 28.8 million v/s CAD 14.0 million in pcp.
• The company reported a net income of CAD 21.5 million, surged from CAD 10.3 million in pcp, thanks to higher earnings before income taxes, partially offset by higher income tax expenses.

Valuation Methodology (illustrative): P/E based metrics

 Analysis by Kalkine Group

Stock Recommendation:

The company would continue maintain the financial flexibility needed to fund working capital needs and investment opportunities in the foreseeable future. The company reported its EBITDA margin and net margin at 27.3% and 17.9%, respectively, in Q3FY22, as compared to the industry median of 13.7% and 5.1%, respectively. This indicate better operational efficiency and is a key positive.

We have valued the stock using the price to earnings based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Harmonic Inc, Casa Systems Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 14.34 on May 16, 2022.

One-Year Technical Price Chart (as on May 16, 2022). Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV

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