Canada’s Evertz Technologies May Score Big From World Cup Broadcasts

What do the World Cup soccer tournament and the U.S. midterm elections in November have in common? For one thing, they both produce winners, but one of those winners is likely to be neither a goalkeeper nor a senator. Both are also significant television events and that may mean a boost for Canada’s Evertz Technologies Ltd. (ET.TO), which makes advanced broadcast systems.

When you saw a slow-motion replay during the U.S.-Belgium match, there’s a likelihood that Evertz provided the system that brought it to your screen. The Burlington, Ontario-based company designs, manufactures and distributes video and audio infrastructure equipment for the production, post-production, transmission and distribution of television content.

Analysts appear to be encouraged by backlog and revenue growth that is supported by a well-diversified sales base — no single customer represented more than 7% of revenues in fiscal 2014. Many analysts also referred to the potential upside driven by the month-long FIFA World Cup and the U.S. federal and state elections to be held at the midpoint of President Obama’s four-year term.

EXHIBIT 1. STARMINE ANALYST REVISION MODEL COMPONENTS

Source: EIKON StarMine

Ratings on the rise

The StarMine Analyst Revisions Model (ARM) measures analyst sentiment and revision momentum. Evertz has an ARM score of 99 out of 100, placing it in the top 1% of North American companies. Analysts are becoming more bullish on the company’s near term fundamentals. As seen above in Exhibit 1, analysts have increased revenue, EBITDA, and EPS estimates for the upcoming quarter and fiscal year. Our May 2014 StarMine Performance Report shows Canadian Small Cap equities with top decile ARM scores saw an increase of 55.1% over the trailing 12 months.

Video replay

On June 11, Evertz reported record high fiscal year 2014 revenue of CAD$325.52 million, up 2.9% yoy. Revenue for fiscal Q4 2014 was CAD$87.24 million, up 33% yoy and beating analyst expectations by 5.77%. However, lower gross margins due to pricing pressures and geographic mix along with lower operating margins partially due to increased R&D spending prevented Evertz from seeing record earnings.

Earnings for the fiscal year were CAD$0.85 per share, down 3.4% yoy. Quarterly earnings were in-line with analyst expectations at CAD$0.20, up 82% yoy. The highlight of the day was the purchase order backlog, which was at CAD$67 million along with shipments of CAD$28 million for the end of May.

In the earnings conference call, EVP of Business Development Brian Campbell stated, “We attribute our solid annual performance to the ongoing transition to high-definition digital television, channel proliferation, the increasing global demand for high-quality video anywhere anytime, the worldwide demand for Evertz’s comprehensive HD, 3G, and Ultra HD video product offerings, and our innovative network video solutions, which provide compelling value to our customers.” He also mentioned the growing adoption of Evertz’s state-of-the-art sports replay and software-defined video network solutions.

EXHIBIT 2. STARMINE ALPHA MODELS

Healthy squad

A snapshot of the StarMine Alpha models, seen above in Exhibit 2, shows that Evertz has several bullish indicators. Seven of the 11 applicable StarMine models score within the top decile. Additionally, Evertz is armed with a healthy balance sheet, and ready to compete. All credit model scores are near or above the top 10%, which indicates little risk of default.

Playing momentum

The company scores within the top decile of North American companies in the StarMine Value-Momentum Model (Val-Mo), which measures the tendency of a stock price to exhibit mean reversion combined with momentum signals. This is supported by strong momentum components — StarMine’s Price Momentum Model score of 94, and ARM score of 99.

The value component, a StarMine Intrinsic Valuation Model (IV) score of 77, points to a price to intrinsic value ratio of 0.81. According to our May 2014 StarMine Performance Report, Canadian Small Cap equities with top decile Val-Mo scores saw an increase of 64.2% over the trailing 12 months.

Heading for the goal

The StarMine Smart Holdings Model (SH) score of 96 shows that Evertz aligns well with the metrics institutional investors tend to use to make their equity selections. Five of the 25 factors place ET.TO above the top 20%. Our May 2014 StarMine Performance Report shows Canadian Small Cap equities with top decile SH scores saw an increase of 39.2% over the trailing 12 months. Seems as if the signals are coming in loud and clear.

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