Trending >

Spectra7 Microsystems is facing strong headwinds, says Canaccord Genuity

Spectra7 Microsystems

Spectra7 Microsystems Semiconductor company Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSX:SEV) is dealing with strong headwinds in its virtual reality/mixed reality business, says analyst Robert Young of Canaccord Genuity, who on Thursday dropped his recommendation from “Speculative Buy” to “Hold” and lowered his price target to C$0.20.

San Jose-based Spectra7 released its Q4 and year ended December 31, 2017, financials earlier in March, showing a 16 per cent increase in revenue over Q4/16 at $2.9 million (all figures in US dollars unless noted otherwise) and a 23 per cent increase in revenue for the year at $10.6 million.

Nevertheless, Young says that in meeting with management following the Q4 and year end release, he was concerned to hear about how the company would respond to what he saw as a strained balance sheet.

“The VR/MR market, which represents ~70% of Spectra7’s current business, has met heavier-than-expected headwinds in Q1/18. This weakens the bridge to a ramp in DCI sales, which we model starting in Q4/18,” says Young in a research update to clients. “Given these factors, we have reduced estimates, which puts added strain on the balance sheet. We now see the need for a cash infusion before the end of Q3/18.”

The analyst estimates 2018 Sales and Adj. EBITDA for SEV of $13.0 million (down from $13.7 million) and negative $7.1 million (down from $6.0 million), respectively, while for 2019, his maintains his Sales estimate at $23.6 million and lowers his Adj. EBITDA from $2.7 million to $3.5 million.

Young’s C$0.20 price target (down from C$0.50) implies a 1.4x 2019E EV/Sales and represents an 11 per cent potential return on investment as of publication date.

  •  
  •  
  •  

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

Comment

Leave a Reply

Your email address will not be published. Required fields are marked *