Norsat (TSX:NII) has a stable current business, several opportunities for growth, and is trading below its industry peers, says Global Maxfin Capital analyst Ralph Garcea.
Norsat yesterday reported its Q3, 2014 results. The company earned (U.S.) $967,588 on revenue of $8.1-million, a topline that was down 8% from last year’s third quarter.
“Revenues for the nine-month period have increased 4 per cent, while EBITDA has increased 32 per cent during the quarter,” said CEO Amiee Chan. “We continue to drive cash flows and improve our capital structure. Operationally, the diversity of our products and offerings have really been highlighted during the quarter, with the microwave components segment acting as a catalyst for growth during the year and hopefully for years to come. Looking forward, while there is some continued softness within land mobile radio, we believe that demand will resume within the coming quarters, which, when coupled with an improvement in our satellite solutions backlog, leaves me enthusiastic about our future prospects. We remain confident in our abilities to continue executing upon our business plan and believe we are well on our way to being the leader in providing wireless communications solutions to remote and/or challenging applications for years to come.”
Garcea says Norsat’s Q3 met his expectations. He thinks the company will continue to diversify its revenue, pursue M&A opportunities and expand outside the U.S. market. The analyst says there are several near term catalysts for Norsat, including the opportunity to leverage the Sinclair customer base, and to pursue growth in emerging markets and verticals.
Garcea points out that Norsat’s progress is happening against the backdrop of a stock that is trading at a discount to its industry peers. The company, he notes, is currently trading at his estimated 2015 EV/Sales of 0.8x and EV/EBITDA of 5.1x versus comparables that trade at 1.3x and 7.8x, respectively.
In a research update to clients following the Q3, results Garcea maintained his “Strong Buy” rating and $1.30 one-year target on Norsat, implying a return of 106.3% at the time of publication.