Evertz Technologies Limited

Evertz Technologies Limited (TSX: ET) is a Canadian company engaged in providing telecommunications equipment and technology solutions to the television broadcast and new-media segment.

Key updates:

• Impressive dividend yield: The stock of ET carries an impressive, annualized dividend yield of 5.150%, which looks attractive considering the persisting interest rate scenario. Notably, the company increased its dividend distribution to CAD 13.731 million in Q1FY22, as compared to CAD 6.880 million in pcp.

• Strong profit margins: The company posted impressive profit margins, which indicates higher operational efficiencies and is noteworthy. Notably, the company posted its EBITDA margin and operation margin of 23.9% and 20.9%, respectively, in Q1FY22, higher than the industry median of 17.5% and 9.9%, respectively. Moreover, the company posted its net margin of 15.1% in Q1FY22, considerably higher than the industry median of 6.1%.

• Robust growth from the United States/Canada region: The company reported a solid quarterly performance and posted a 79% y-o-y surge in its revenues from the United States/Canada region, driven by an increase in order book coupled with a general increase in operating activity. Notably, the group derives approximately two-thirds of its total revenue from the region, and growth from the above segment indicates growing prospects for the company.

Q1FY22 Financial Highlights:

• ET announces its quarterly result, wherein the company posted revenue of CAD 97.165 million, surged from CAD 56.337 million a year ago. The growth was driven by robust performance from both United States/Canada and International geographies.
• Gross margin stood at CAD 56.686 million, jumped from CAD 32.224 million in pcp. The growth was driven by higher income, partially offset by an increased cost of goods sold (CAD 40.479 million v/s CAD 24.113 million in pcp).
• Total Expenses stood at CAD 36.372 million, increased from CAD 31.289 million in the previous corresponding period (pcp). The quarter was marked by higher selling, administrative & general costs, coupled with a surge in research & development expenses.
• Net earnings climbed to CAD 14.688 million, from CAD 0.575 million in pcp. The growth was primarily due to higher operating income, partially offset by higher income tax expenses.

Q1FY22 Income Statement Highlights (Source: Company Report)

Risks: Postponement or cancellation of sporting events or other live events due to the restrictions imposed on account of the pandemic would have an adverse effect on the overall performance of the company due to a decline in its order book. 

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

The company reported improved liquidity and posted its current ratio of 2.34x in Q1FY22, higher than the industry median of 1.84x. Additionally, the company’s D/E ratio stood healthy at 0.09x in Q1FY22, which is significantly better than the industry median of 0.22x. The group recognizes the business opportunities from other geographies and is focusing on investing in personnel and infrastructure in those markets. The management believes that the company is well-positioned to benefit from an economic revival and from the industry transition to IP and Cloud based solutions, which is a key positive. We have valued the stock using the Price to Earnings-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Quarterhill Inc, CGI Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of ET at the closing price of CAD 13.98 on October 26, 2021.

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

Technical Analysis Summary:

One-Year Technical Price Chart (as on October 26, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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