Photon Control is still undervalued, says Euro Pacific

Euro Pacific Canada analyst Amr Ezzat says Photon Control’s (Photon Control Stock Quote, Chart, News: TSXV:PHO) third quarter results highlight the resilience of the company’s business model against the backdrop of a weak semiconductor market cycle.

Yesterday, Photon Control reported its Q3, 2015 results. The company earned $2.64-million on sales of $6-million, an 18 per cent bump over the $5.1-million topline the company reported for the same period in 2014.

“We are very pleased to continue reporting strong results in the current 2015 fiscal year,” said CEO Christopher Weston. “Our team’s expertise and technical capability provides a solid platform for the company’s future growth. Photon Control’s focus on operational excellence, financial discipline and commitment to customer satisfaction will continue to create value for all of our stakeholders.”

Ezzat says Photon Control’s third quarter results surpassed his expectations. The analyst thinks the company’s strong balance sheet and free cash flow generation makes it a prime candidate for acquisitions in the semiconductor space.

“We believe the Company’s scope of potential acquisitions extends from technology-focused to client-focused acquisitions with the goal to diversity its revenue base.” said the analyst. “Namely, we expect Photon to use its balance sheet strength to acquire and diversify its revenue base within other areas of the semiconductor space and outside that space altogether. From our discussions with management, we do not believe that the Company would jeopardize its balance sheet strength. While we expect the Company to deploy cash into acquisitions, we do not model any contribution from M&A in our forecasts.”

In a research update to client today, Ezzat maintained his “Buy” rating and one-year price target of $1.00 on Photon Control, implying a return of 51.5 per cent at the time of publication.