Evertz Technologies Ltd (TSX:ET) is a Canadian provider of telecommunications equipment and technology solutions to the television broadcast and new-media industries. Evertz equipment is used in the production, post-production, and transmission of television content. More than half of the firm's revenue is generated in the United States.

Key highlights

• Change in Revenue and Earnings: Revenue was CAD107.2 million for the second quarter ended October 31, 2021; an increase of CAD6.7 million, when compared to CAD100.5 million for the same period ended October 31, 2020. Net earnings were CAD17.2 million, a decrease from CAD21.2 million for the second quarter ended October 31, 2020. Gross margin for the quarter ended October 31, 2021, is 57.0% compared to 59.4% in second quarter ended October 31, 2020. Fully diluted earnings per share was CAD0.22, decrease from CAD0.28 in the second quarter ended October 31, 2020.

Source: Company Filings 

• Cash Position: Company had cash and cash equivalents of CAD 37.7 million, compared to CAD108.8 million on April 30, 2021. Company used cash from financing activities of CAD91.7 million, which was principally driven by dividends paid of CAD 90.3 million, including a special dividend of CAD 76.3 million.
• Order Backlog & Shipments: At the end of November 2021, purchase order backlog was in excess of CAD162 million and shipments during the month of November 2021 were CAD39 million.

Risks associated with investment           

Since, the company competes in a Technology market, it must adapt to and compete with new technologies, research and developments, competitors, demand and supply constraints, fluctuation in foreign exchange, and client preferences to stay afloat. 

Financial overview of Q2 FY 2022 (In CAD thousands of, except per share amounts)

Source: Company 

• Total revenue for the six-month period ended October 31, 2021 was CAD 204.4 million, an increase of CAD47.6 million or 30% as compared to revenue of CAD 156.8 million for the six month period ended October 31, 2020, due to projects coming online and a general increase in activity compared to the prior year.
  

• Gross margin for the six-month period ended October 31, 2021 was CAD 117.8 million, compared to CAD 91.9 million for the six month period ended October 31, 2020. For the second quarter ended October 31, 2021, gross R&D expenses were CAD24.4 million, an increase of CAD4.7 million as compared to an expense of CAD19.7 million for the second quarter ended October 31, 2020.The Company invests in research and development to maintain its position in the markets it currently serves and to enhance its product portfolio with new functionality and efficiencies.
  

• For the second quarter ended October 31, 2021, the Company generated cash for operations of CAD0.9 million, compared to CAD20.8 million cash used for the second quarter ended October 31, 2020.
  

Valuation Methodology (Illustrative) EV to EBITDA Based

  Analysis by Kalkine Group

Stock recommendation

Company believes the pandemic to be temporary, and the Company has shown improvement since the first quarter of fiscal 2021. The Company believes the situation is temporary and is well positioned to benefit from an economic revival and the industry transition to IP and Cloud based solutions. The Company will continue to maintain the financial flexibility needed to fund working capital needs and investment opportunities in the foreseeable future. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 13.14 on, December 31, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Summary Analysis

One-Year Price Chart (as on December 31, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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