Sierra Wireless Inc

Sierra Wireless Inc (TSX: SW) is a leading wireless communication equipment designer and Device-To-Cloud IoT solutions provider. The company's product and services portfolio contain high-speed cellular modules and services such as connectivity services, cloud platforms, etc.

Key Highlights

• Revenue guidance for Q2 2021: The company expects revenue for the second quarter of 2021 to be in the range of USD 118 - 122 million, owing to continuing robust demand and investments in working capital to fight industry-wide supply shortages. In light of the present economic situation, we feel these guided statistics are outstanding.

• Introduces 5G Router Portfolio: Recently, the company launched the next evolution in market leading routers with its new XR Series of multi-network 5G routers. World's Most Advanced 5G Router Portfolio would enable the customers to leverage the higher data speeds and lower latency of 5G, required for real-time video streaming and voice communications in mission-critical environments and high-performance business-critical 5G applications.
  

• Launched IOT solution for asset tracking: Acculink Cargo, a new managed IoT solution for tracking the location and condition of high-value and sensitive assets, was recently launched by the company. Asset tracking and other supply chain visibility solutions are a large and rapidly growing market, which is expected to grow at a CAGR of 13.45% from USD 17.14 billion in 2020 to USD 34.82 billion in 2026.
  

• Secured hardware orders and recurring revenue: In Q2 2021, the business obtained hardware orders and recurring revenue that were roughly 20% higher than the mid-point of its Q2 2021 revenue projection, owing to robust demand for goods and services. However, the group is facing a tight global supply chain environment that is constraining the ability to source all the necessary components and fully deliver to this level of demand.

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company reported revenue of USD 108.0 million compared to USD 103.0 million in the previous corresponding period. The increase was primarily attributable to continued growth in Connectivity, Software, and Services revenue, partially offset by reduced hardware revenue.
• The gross margin improved slightly and stood at 34.9% in Q1 2021 as compared to 33.9% in pcp. The modest increase was driven by product and customer mix changes in its Embedded Broadband and IoT Solutions segment.
• The company posted a lower loss from operations at USD 23.0 million in the reported quarter compared to the loss of USD 27.8 million in pcp. The lower operating loss was primarily due to controlled operational expenses, although the admin expenses increased to USD 16.0 million V/s USD 11.7 million.
• The company reported higher net loss of USD 29.8 million, against a loss of USD 22.6 million in Q1 2020, primarily due to foreign exchange loss and loss from discontinued operations.
  

Risks associated with investment

The current economic downturn impacted the Company's operating segments adversely through lower automotive revenue and weak demand for its hardware products. Any further shutdown could result in material and adverse effects on the Company's ability to conduct business. Other risks such as currency fluctuations, technology risks, regulatory risks are also present.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite a tight supply chain environment, the firm managed costs efficiently in Q1 2021 and reduced operational expenses, thereby, lowering its operating loss compared to the previous equivalent quarter. Additionally, the management anticipates sales to be around USD 122.0 million in Q2 2021, owing to robust demand for the company's products and services. The company also secured hardware orders and recurring revenue of approximately 20% above the mid-point of its Q2 2021 revenue guidance. We believe these guided numbers are exceptional, keeping in view the current economic conditions. The group holds healthy liquidity with almost debt free books, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 23.68 on July 08, 2021. We have considered NETGEAR Inc, EXFO Inc, Evertz Technologies Ltd, etc. as the peer group for comparison.

One-Year Technical Price Chart (as on July 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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