Another big acquisition could be on the horizon for Norsat (TSX:NII), says Cantor Fitzgerald Canada analyst Ralph Garcea.
On Friday, Norsat reported its fourth quarter and fiscal 2015 results. In the fourth quarter, the company earned $1.5-million on revenue of $9.5-million, a slight bump over the $9.4-million topline the company posted in last year’s fourth quarter.
“Fiscal 2015 demonstrated continued solid operating results as we continued to work through the sizable backlog of orders booked earlier in the year,” said CEO Amiee Chan. “We have been experiencing increased demand for components including our successful and expanding ATOM product line and solutions supplied to militaries around the globe which is driving improvements in our satellite communications segment. Offsetting the improved results within the satellite communications segment was a continuation of headwinds within our land mobile radio (LMR) segment both in the United States and particularly in the Canadian public safety markets. Partially offsetting the softness in LMR was an increase in sales of our positive train control (PTC) products as railroads worked toward the Dec. 31, 2015, deadline. In late December, 2015, the deadline for certain railroads to install PTC technologies was extended to Dec. 31, 2018, with a possibility of further extending the deadline to the 2020 year if railroads meet certain conditions. Therefore, we believe the program’s scope will continue over the coming years as thousands of locomotives and miles of track still need equipment to enable PTC to be fully operational, providing Norsat with a strong backlog of order flow for years to come.”
Garcea says he expects there will be a continued focus on M&A that could have a impact similar to the Sinclair deal. In 2011, Norsat acquired U.S.-based Sinclair Technologies Holdings for (U.S.) $19.25 million. The move effectively doubled Norsat’s revenue.
“Norsat is focused on getting to $100M in revenue and 15% EBITDA,” says Garcea. “With the Company now debt free, we could see an M&A deal that doubles its size the way Sinclair did (“scale or be scaled”). The Company expects to announce something this fiscal year.”
In a research update to clients today, Garcea maintained his “Buy” rating and one-year target price of (C) $12.50 on Norsat, implying a return of 105 per cent at the time of publication.