Evertz Technologies Limited

Evertz Technologies Limited (TSX: ET) is an equipment provider to the television broadcast telecommunications and media industries. The Company designs, manufacture and markets video and audio infrastructure equipment for the production, post-production and transmission of television content. 

Key highlights 

• An Income Play:Despite the challenging environment, the company maintained its dividend distribution, reflecting its financial strength and suggests that the group is a friend of income investors. Recently, the company paid a quarterly dividend of CAD 0.18 per share on March 19, 2021. At the last closing price, the stock was offering a dividend yield of 4.58%, which looks lucrative considering the current interest rate environment.

Source: Refinitiv (Thomson Reuters)

• Secured a purchase order of more than CAD 21 million: Recently, the firm announced that it has secured a buying order for worth more than CAD 21 million from a major US broadcaster for Evertz solutions. We expect that this order would help the company's sales and margins to grow even further.

• Acquired Studer’s strategic assets: HARMAN International recently sold the Studer brand, technology, and related properties to the group. Furthermore, the company would invest in Studer to create next-generation solutions that would address the potential needs of broadcast consumers while building synergies between its existing product suite and the Studer product ecosystem.

• Improving market scenarios: The Company believes the effects of the pandemic are only temporary, since hints of change have emerged in the last two quarters. The company is well poised to benefit from a resurgence in the economy as well as the industry's shift to IP and Cloud-based solutions. Furthermore, it would maintain the financial stability needed to finance working capital requirements and investment opportunities in the near future.

Financial Overview of Q3 2021 (In thousands of CAD)

Source: Company

• In Q3 2021, the company reported revenue of CAD 92.7 million, compared to CAD 121.2 million in the previous corresponding period. The revenue decreased mainly due to travel restrictions and the postponement or cancellation of sporting and other live events and various other related projects.
• The company posted a gross profit of CAD 51.9 million compared to CAD 67.8 million in the previous corresponding period. The gross margin as a % to sales remained steady at 56%. 
• The company’s net earnings stood at CAD 10.3 million, compared to CAD 19.4 million in Q3 2020. The decrease in net earnings was mainly due to lower revenue.

Risks associated with investment

Prolong delay in the project execution may lead to a slide in revenue, followed by a lower cash flow. Further travel bans and cancellations of sports events, other live events, and various other related projects may also lead to a fall in the Company's order book.

Valuation Methodology (Illustrative): EV to EBITDA

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

Stock recommendation

The Company caters to the IT segment and offers innovative offerings across software, equipment, and technology segments. Furthermore, the IT and cloud business has grown drastically in the recent past and is expected to retain the momentum driven by a shift in business, changing consumer preferences etc. Furthermore, recently the Company received a purchase order by a Major US Broadcaster totaling over CAD21 million. Besides this, the group also offers a healthy dividend yield, which is encouraging from an income investor’s standpoint. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 15.72 on April 15, 2021. We have considered CGI Inc, Harmonic Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

Dream Unlimited Corp

Dream Unlimited Corp (TSX: DRM) is a leading developer of exceptional office and residential assets in Toronto. The trust owns stabilized income generating assets in both Canada and the U.S and has an established and successful asset management business.

Key Highlights 

• Introduced Dream Impact Fund for private investors: As of late, the organization declared that its private capital business has adequately received CAD136 million of commitments for the first close of Dream Impact Fund in less than six months. This fund would be world’s first open-ended fund, devoted exclusively to impact investing. 

• Expanding Asset Management Platform: The Company is extending its asset management platform through making private value firm "Dream Equity Partners" to seek opportunities for investing capital on behalf of institutional and retail clients. It entered a partnership with a global investment manager to make a multifamily platform in the US. In total, the gathering would dispatch the US multifamily platform with 2000 units worth USD 300 million. 

• Healthy development pipeline: The Company holds alluring advancement pipeline of ~19,500 private units and 4 million square feet of commercial/retail space in Toronto and Ottawa. Besides, more than 7,400 units and 1,750 acres of land anticipated to get approval in 2021, which marks huge advancement and expanded value potential in the development pipeline. We believe this pipeline would open the gateways for the next fresh recurring revenue and cash flows, which would be a key positive. Below is the matrix of 2021 expected approvals. 

Source: Company 

Ample Liquidity: With an emphasis on preserving liquidity and managing risk throughout the year, the company ended 2020 with CAD 426 million in liquidity, increased by CAD 103 million against the previous corresponding period. Furthermore, the management believes that cash from operations and recurring income would continue to provide enough liquidity to fund operating expenses and debt service requirement, which is quite impressive. 

Source: Company 

Financial overview

Source: Company 

• In 2020 the company posted total revenue of CAD 347.6 million, against CAD 580.4 million in the previous corresponding period. The revenue declined primarily due to low performance from the recurring income segment due to ongoing capacity restrictions at many properties in Toronto due to the COVID-19 pandemic.
• Gross margin stood lower at CAD 105.1 million, against CAD 364.2 million in pcp, primarily due to lower revenues, combined with higher direct expenses.
• The company posted an Earnings before income tax of CAD 197.6 million in 2020, against CAD 440.4 million in 2019.
• Earning for the year stood at CAD 159.6 million in 2020, against CAD 331.7 million in 2019. 

Risks associated with investment

Due to the ongoing pandemic, the group reported lower revenue, primarily due to low performance from recurring income. Any continuation of the above stated trend would impact the company’s overall performance. 

Valuation Methodology (Illustrative): EV to Sales 

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

Stock recommendation

The company ended FY2020 with CAD 426 million in liquidity, increased by CAD 103 million, against 2019. This implies the management's emphasis on preserving liquidity and managing risk amid the current economic slowdown. The group also holds a healthy product pipeline. We believe this pipeline would open the gateways for the subsequent fresh recurring revenues and cash flows in the foreseeable period, which would be a key positive. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 22.81 on April 15, 2021. We have considered Morguard Corp, Crombie Real Estate Investment Trust, Mainstreet Equity Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 15, 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.