AirBoss of America Corp.

AirBoss of America Corp. (TSX: BOS) is a Canada based manufacturer of rubber-based products for the resource, military, automotive and industrial markets. The group operates through three segments, namely Rubber Solutions, Engineered Products and AirBoss Defense Group. 

Key Highlights:

• Robust performance indicates a demand revival: The company reported a strong growth from its Rubber Solutions segment and Engineered Products segment. In H1FY21, the company reported a 37% y-o-y revenue growth from Rubber Solutions to USD 79.076 million, supported by increased demand dynamics primarily due to higher tolling and non-tolling volumes. On the other hand, Engineered Products revenue stood at USD 59.984 million, reflected a 37.6% y-o-y growth. This was aided by increased traction from stronger volumes in the SUV, light truck and mini-van platforms coupled with ongoing production of specific molded defense products.

• Solid business-model: Over the years, the company reported a consistent growth in its top-line and profitability, which is a key positive and indicates company’s competitive advantages through product innovation. Moreover, the group has diversified its customer base in order to mitigate the risk of economic and contractual cycles and develop natural hedges.

Source: Company Report

Q2FY21 Financial Highlights:

• BOS announced its quarterly results, wherein the company posted net sales of USD 118.449 million, improved from USD 112.450 million in the previous corresponding period (pcp). The growth was supported by strong momentum from the company’s Rubber Solutions and Engineered Products segments.
• Gross profit climbed to USD 33.303 million from USD 31.473 million in Q2FY20, supported by elevated sales, partially offset by higher cost of sales.
• Results from operating activities stood at USD 20.084 million, declined from USD 21.617 million in pcp, due to a rise in total expenses (USD 13.219 million versus USD 9.856 million in pcp).
• Profit before income tax was reported at USD 18.950 million, as compared to USD 20.815 million in pcp.
• The company reported profit and total comprehensive income of USD 18.320 million, jumped from USD 14.383 million in pcp. The growth was driven by a significantly lower income tax expense of USD 0.630 million, as compared to USD 6.432 million in pcp.

Source: Company Report

Risks: The company’s business might be adversely affected by fluctuations in the commodity prices, loss of any premium clients etc. Moreover, a weak economic scenario might lead to a fall in demand for the company’s products.

Stock Recommendations:

In the recent past, the company witnessed stable growth from both the Rubber Solutions and Engineered Products segments, which is a key positive. In order to combat the rising input costs, the group is focusing on several cost optimization strategies within the Rubber Solutions and Engineered Products segments, which is expected to support the company’s upcoming margins. On the valuation front, the stock is available at an EV to Sales multiple of 1.1x on an NTM basis, as compared to the industry median of 1.4x. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 35.24 on August 17, 2021.

One-Year Technical Price Chart (as on August 17, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Sierra Wireless Inc.

Sierra Wireless Inc. (TSX: SW) is a wireless communication equipment designer and provider of Device-To-Cloud, Internet-of-Things (IOT) solutions. The company's product and services portfolio contain products such as high speed cellular modules and services such as connectivity services, cloud platforms, and cellular gateways, among others.

Key Highlights:

• Integration with Microsoft: The company recently announced that its managed IoT solution, Acculink, has been successfully integrated with Microsoft Azure IoT Central. Acculink helps companies to track the location and condition of high-value and sensitive assets. The above product provides unique expertise for IoT devices, global connectivity, and cloud and delivers single solution for the companies can use to monitor the near real-time status of assets from any place. Acculink has gained traction in the recent past due to easy accessibility and real-time visibility for high-value and sensitive assets, product-level tracking, and exception-based monitoring for its clients within the logistics and supply chain segments.

• Bright Macros: The outlook of the Serviceable Addressable Market, in which the company operates is likely to remain robust in the coming years, supported by increase demand for the public carrier connectivity and higher usage of AirLink routers for smart grid deployments and vehicle fleets. Moreover, increasing demand from the industrial networking supported by higher usage of remotely monitor and control infrastructure, instrumentation, or surveillance equipment also seems favorable for the industry. Notably, the Serviceable Addressable Market (SAM) is expected to record a CAGR of 18% from 2020 to 2023. The company is highly poised to take the opportunities arising from the segment.

Q2FY21 Financial Highlights:

• SW announces its quarterly result, wherein the company posted total revenue of USD 132.785 million, higher than USD 111.718 million in the previous corresponding period (pcp). The increase was driven by strong growth from both IoT Solutions and Enterprise Solutions.
• Gross margin stood at USD 46.231 million, surged from USD 41.008 million in pcp. The growth was primarily driven by higher income, partially offset by a surge in the cost of sale.
• The company reported a slide in total expense at USD 55.559 million as compared to USD 61.133 million in pcp. The improvement was driven by lower research & development costs, coupled with a slide in administrative expenses.
• Net loss stood lower at USD 9.951 million compared to USD 15.607 million in pcp.

Source: Company Report

Risks: The product requires constant innovation and upgradation, which might lead to higher R&D costs. Moreover, arrival of a new player within the industry would lead to a slide in the market share of the company.

Stock Recommendation:

The company has a promising market share within the Device-to-Cloud Solutions for the IoT segment. Moreover, with the deployment of 5G services by most of the tele-communication service providers, the company’s 5G module with mmWave support and 5G Multi-Network Vehicle Router services are likely to remain high in the coming days and is expected to support the company’s performances. On the valuation front, the stock of SW is available at an EV to Sales multiples of 1.1x on NTM basis, as compared to the industry median of 1.8x. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 20.26 on August 17, 2021.

One-Year Technical Price Chart (as on August 17, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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