Echelon Wealth Partners analyst Andrej Krneta says the impact of the deferred financing resolution to the company’s risk profile is the reason he has lowered his rating on the ViXS Systems (TSX:VXS).
Last Wednesday, ViXS reported its Q1, 2017 results. The company lost (U.S.) $3.25-million on revenue of $5.7-million, a topline that was down 42.7 per cent over the same period last year.
“This quarter, we stabilized the business with improved financial results,” said CEO Sohail Khan. “Our backlog is strong, which will translate into revenue growth over the coming quarters. Our focused strategy is just beginning to yield results as we return to growth and experience positive customer engagements with both existing and new customers.”
Krneta says the first quarter results outperformed his expectations, which he admits were dampened down. Overall, he sees positive trends emerging in the mid to long term for the company.
“ViXS’ FQ117 results (April 30th quarter-end) outperformed our set of fairly cautious forecasts,” says the analyst. Legacy design-wins continue to make for a depleted, but stubbornly stable revenue base. Add in the seasonal uplift in FQ117, and a sequential rise helped to top our expectations. More important, a backlog cited at $10M+ has provided the much-needed visibility. The evidence of an emerging design-win up-cycle that underpins our thesis came through in FQ117. Also, we see multifaceted options for new financing as carefully weighted to maintain tight shareholder fiduciary standards. The announced new policy of aligning the Boards’ interests with those of shareholders buys VXS a vote of confidence.
In a research update to clients Thursday, Krneta maintained his target price of $0.75, but change our rating from “Buy” to “Speculative Buy”, implying a return of 114 per cent at the time of publication.