Evertz Technologies Limited (TSX: ET) provides software, equipment, and technology assistance and produces, markets video & audio infrastructure solutions for the television, telecommunications, and media segments. 

A look at Q3FY20 Highlights: For the period ended January 31, 2020, the group reported revenue of CAD 121.23 million, as compared to the CAD 120.94 million in the previous corresponding quarter. The increase was led by improved performance from the International segment, while a lower income from the United States remained as a drag. The company reported its gross margin at CAD 67.85 million, which remained flat against the previous corresponding quarter. Operating income, during the quarter, stood at CAD 26.21 million, declined from CAD 28.17 million in Q1FY20. The decrease was primarily attributable to an elevated selling & administrative expense, rise in general expense, and a higher research & development expenses, partially supported by a gain on foreign exchange. Net income squeezed to CAD 19.40 million, against CAD 21.93 million in pcp, majorly due to a lower operating income, higher finance costs, lower finance income. The company exited the quarter with cash and cash equivalents of CAD 51.65 million and total assets of CAD 437.34 million. At the end the quarter, ET reported a purchase order backlog of more than of CAD 93 million and shipments during the month of February stood at CAD 39 million

Q3FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of ET corrected more than 20% in the last six months, due to a massive sell-off in the broader market-driven by negative investors sentiment amid COVID 19 pandemic. The stock offers an attractive dividend yield of 5.07% on an annualized basis, which is lucrative amid the lower interest rate environment. The company reported higher cash flow from the operation of CAD 67.8 million, against CAD 48.1 million in pcp, which is impressive and indicates that higher operational efficiency. The Business is financially strong and has a lower D/E ratio, which is a good option for long-term investors. The stock corrected ~12% in the last three months, which provides a good entry point. We have valued the stock using Price/Earnings based relative valuation approach and taken Industry (Technology) median on NTM basis and arrived at a target price offering a lower-double digit upside potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 14.35 as on June 5, 2020.

ET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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