Sierra Wireless Inc

Sierra Wireless Inc (TSX: SW) is a leading wireless communication equipment designer and Device-To-Cloud Internet-of-Things 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

• Rising trend in revenue: The company is showing spirited performance in its revenue as it continued to improve in the Fourth Quarter of 2020 with 6.3% sequential revenue growth to USD 120.5 million and overall gross margins improving to 36%. The rising trend of revenue reflects that the business is proceeding well.

Source: Company

• Increase in cash and cash equivalents: Cash and cash equivalents at the end of Q4 2020 stood at USD 171.4 million, an increase of USD 99.4 million compared to USD 72.0 million in Q3 2020. The increase in cash was mainly due to net proceeds from the sale of our Automotive Business, partially offset by repayment of short-term borrowings and long-term debt, acquisition of M2M New Zealand.

Source: Company

• Guidance for Q1 2021: The company expects its revenue to be around USD 109.9 million as it witnessed strong demand for its products and services in Q1 2021. The company also secured hardware orders and recurring revenue that is approximately 15% above Street Consensus for Q1 2021. These guided numbers are amazing keeping in view on the current economic conditions.

Financial overview of Q4 2020 (In thousands of USD)

Source: Company

• In Q4 2020, the company reported revenue of USD 120.4 million, compared to USD 125.1 million in the previous corresponding period. Although on sequential basis the company has shown healthy performance.
• Gross margin stood at 36.0% in Q4 2020 as compared to 35.8% in pcp. The modest increase was driven by changes in product and customer mix in our Embedded Broadband and IoT Solutions segment.
• The company posted higher loss from operations at USD 22.3 million in the reported quarter, compared to loss of USD 17.1 million in pcp, the higher operating loss was primarily due to higher cumulative operating expenses.
• On the back of net earnings from discontinued operations the company manged to report net income of USD 0.9 million, against a loss of USD 10.9 million in Q4 2019. 

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

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company is presently working on developing Fifth Generation (5G) cellular embedded modules that are being launched in Europe in Q4 2020.Moreover, the company would strengthen its focus on device-to-cloud IoT solutions, driving high-value recurring revenue and would invest additional in 5G embedded modules and routers would lead to improved business prospects. The management expects its revenue to be around USD 109.9 million as they witness strong demand for its products and services in Q1 2021. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 21.40 on February 26, 2021. We have considered NETGEAR Inc, Viavi Solutions Inc, Digi International Inc, etc. as the comparison's peer group.

Source: Refinitiv (Thomson Reuters)

Tecsys Inc

Tecsys Inc (TSX: TCS), is a Canada-based company engaged in the development, marketing and sale of enterprise-wide supply chain management software for distribution, warehousing, transportation logistics and point-of-use. The Company also provides related consulting, education and support services. 

Key highlights 

• Eighth consecutive quarter of record revenue: The company continuously shows spirited performance as it witnessed eight successive quarters of record revenue. In Q3 2021, the group saw a healthy performance from all the segments where SaaS revenue increased by 89% to CAD 4.7 million, Cloud, maintenance and subscription revenue increased 26% to CAD 13.4 million and Annual Recurring Revenue was up 20% to CAD 50.8 million. 

Source: Company 

• Rise in operating cash flow: Operating activities generated CAD 11.7 million of cash in the third quarter of fiscal 2021 in comparison to CAD 2.9 million in the third quarter of fiscal 2020, primarily due to higher profitability compared to the third quarter of fiscal 2020. The company also reported Cash and cash equivalents of CAD 19.5 million, against CAD 11.9 million on January 31, 2020. 

• Industry beating margins: The Company's resilient business helped them leaping the industry median margins on many fronts, the matrix below gives a glimpse of this. To come out with more conclusive numbers, we took the company's average margins of the past seven quarters. 

Source: Refinitiv (Thomson Reuters) 

Financial overview of Q3 2021

Source: Company 

• In Q3 2021, the company posted higher consolidated revenue of CAD 31.9 million, compared to CAD 26.8 million in the previous corresponding period. Healthy performance from all the segments helped the company to achieve higher mark, partially offset by revenue from proprietary products.
• Gross profit increased to CAD 15.4 million, up 20%, against CAD 12.8 million in Q3 2020.
• The company posted profit from operations of CAD 2.6 million in the reported quarter, against CAD 1.3 million in pcp, partially offset by higher G&A expenses and higher R&D expenses.
• In Q3 2021, the company reported net profit of CAD 1.8 million, against CAD 0.8 million in pcp, primarily due to higher revenue, partially offset by higher income tax expenses. 

Risks associated with investment 

The company earns a significant portion of revenue from a subscription base. If the customers decide to discontinue their subscription or the company fails to attract more healthy customers, it might affect the group’s financial performance. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The performance in the third quarter of fiscal 2021 continues to reflect momentum in the market for Tecsys solutions. This is the eighth straight quarter, where the company had reported record revenue. Moreover, they expect to see its SaaS revenue to continue its growth trend through expansion and migrations of the base customers, and new customer wins. The second major COVID wave delayed some deals resulting in a significant new business pipeline for the last quarter of fiscal 2021. Furthermore, the company is delighted to sign six new accounts in the quarter, three of which were major accounts that signed small initial orders with some significant growth to come. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 52.80 on February 26, 2021.

Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.