Sierra Wireless Inc.

SW Ready to Ride the Growth Wave: Sierra Wireless Inc. (TSX: SW) provides Internet solutions that are comprised of connectivity services, IoT platforms, embedded cellular modules, and gateways. As on 16 July 2020, the market capitalization of the company stood at ~CAD 429.86 million.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, the company met its expectations for revenue and reported robust recurring revenue win activity. During the quarter, revenue stood at USD 157.6 million as compared to USD 173.8 million in the first quarter of 2019 and gross margin was USD 43.6 million or 27.7% of revenue. In the same time span, cash and cash equivalents stood at USD 72.8 million, representing a decrease of USD 6.3 million from the end of 2019. The decrease in cash was primarily driven by the acquisition of M2M Group, an operating loss in the quarter and capital expenditures, partially offset by short- term borrowings under its revolving credit facility.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: As a result of the evolving COVID-19 outbreak and subsequent restrictions, manufacturing and component supplier partners were impacted due to factory closures. While the work-from-home situation did not directly impact the company’s manufacturing partner in Vietnam, it was affected by dependencies on component suppliers in China. Continued shutdowns or other business interruptions could result in material and negative effects on the company’s ability to conduct business.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company expects gateway growth to re-establish itself when the dust settles, driven by re-vitalization of Go-to-Market capability and new product offerings. Despite the foregoing uncertainties and reduction in operating expenditures, the company is expecting growth prospects and retains confidence in its long-term strategy. As per TSX, the stock of SW is trading slightly above the average 52-weeks’ trading levels but retains the potential for further growth. The stock of SW gave a return of 23.62% in the past three months. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target price of lower double-digit upside (in percentage terms). For the said purposes, we have considered Digi International Inc, TESSCO Technologies Inc, NETGEAR Inc, etc. as peers. Considering the current trading levels, decent returns in the past three months, decent performance and the company’s capability to benefit from future opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 11.83, down by 1.2521% on 16 July 2020.

SW Daily Technical Price Chart (Source: Refinitiv, Thomson Reuters)

Tecsys Inc

Tecsys Inc (TSX: TCS) is a software & computer services company based out of Canada. The Company is engaged in the business of developing, marketing and selling of software related to supply chain management across the enterprise. The software offered is used for management of logistics, transportation, warehousing and distribution.

Financial Highlights – Financial Year 2020 (30^th April 2020, CAD, thousand)

(Source: Quarterly Report, Company Website) 

For the financial year 2020, driven by an increase in revenue from third-party products, professional services and cloud, maintenance and subscription, the revenue increased to CAD 104,855 thousand (FY2019: CAD 76,449 thousand). The revenue in Q4 FY2020 surged to CAD 27,750 thousand (Q4 FY2019: CAD 23,191 thousand). The adjusted EBITDA increased significantly to CAD 10,271 thousand in FY2020 (FY2019: CAD 2,776 thousand), and adjusted EBITDA stood at CAD 1,951 thousand in Q4 FY2020 (Q4 FY2019: CAD 684 thousand). The profit from operations stood at CAD 4,708 thousand in FY2020 (FY2019: loss from operations of CAD 1,798 thousand), reflecting higher revenue. The PBT (profit before tax) stood at CAD 3,580 thousand in the financial year 2020 (FY2019: LBT (loss before tax) of CAD 1,759 thousand), reflecting higher revenue and adjusted EBITDA. The reported profit stood at CAD 2,346 thousand in FY2020 (FY2019: loss of CAD 741 thousand), and profit for Q4 FY2020 stood at CAD 375 thousand (Q4 FY2019: CAD 79 thousand). The basic and diluted earnings per share stood at $0.18 for FY2020 versus a basic and diluted loss per share of $0.06 for FY2019. The cash balance stood at CAD 27,528 thousand as on 30^th April 2020 (30^th April 2019: CAD 14,913 thousand).

Share Price Performance

Daily Chart as of 16 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Tecsys Inc shares closed at CAD 29.15 at the time of writing after the market close on 16 July 2020. Stock's 52 weeks High is CAD 32.44 and Low is CAD 12.43.

Key Risks

The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce the financial performance as well. Any change in regulations and government policies could affect the overall business of the Company.

Conclusion

The Group has shown an increase in financial performance for the financial year 2020. Both the top-line and the bottom-line performance improved, with an increase in the profitability for the period. The revenue from the core operations has increased significantly with an improved cash balance for the financial year 2020. The operating expenses for the period have also increased, which needs to be controlled unless it will reduce the financial performance in the long run and will also impact operational performance as well. For the FY2021, the Group maintained its outlook for revenue and expected its adjusted EBITDA to increase. The Group operations are impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening its balance sheet and return with capital discipline and reducing its costs.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 29.15 (as on 16 July 2020).

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.