It’s time for an auction on Norsat, says Cantor Fitzgerald

With multiple offers on the table for the company, Cantor Fitzgerald Canada analyst Ralph Garcea thinks only an auction can deliver a higher bid than currently exists for B.C.-based wireless communications company Norsat International (Norsat International Stock Quote, Chart, News: TSX:NII).

This morning, Norsat reported that it has received multiple indications of interest with respect to a strategic transaction, including a cash offer of $8.00 a share from Privet Fund Management LLP. The company, which has retained Raymond James as advisor on the matter, said it has not established a timeline.

Garcea says there are a lot of things to like about Norsat, including the fact that most of its expenses are in Canadian dollars and much of its revenue base is in U.S. dollars and that military spending is returning in the United States, Europe and Eurasia.

The analyst says these offers are symptomatic of larger industry consolidation.

“As projects become larger in nature, crossing international boundaries, the global sat com/LMR industry has been forced to consolidate,” says Garcea. “Recent transactions in the sector are listed below. Similar to other companies in our coverage universe, Norsat is facing the same “scale or be scaled” dilemma.”

Garcea says a better bid could emerge for Norsat, but only with an auction.

“We believe a full auction process could generate a higher bid than Privet’s”, he says.

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of (U.S.) $10.00/C$12.50 on Norsat International, implying a return of 35 per cent at the time of publication.

Garcea believes NII will generate Adjusted EBITDA of $6.0-million on revenue of $37.8-million in fiscal 2016, numbers he expects will change to EBITDA of $5.6-million on revenue of $40.4-million the following year.

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