Canaccord Genuity trims target on Evertz, maintains buy rating

Canaccord Genuity analyst Robert Young says the optics were worse than the reality of Evertz Technologies’ (TSX:ET) fourth quarter results, but the analyst has nonetheless trimmed his price target on the stock.

On Tuesday, Evertz reported its fourth quarter and fiscal 2018 results. In its Q4, the company earned $8.3-million on revenue of $93.0-million, a topline that was down from the $106.7-million the company posted in the same quarter a year prior.

Young says this wasn’t the Scarborough-based broadcast tech company’s finest hour, but warns against an overreaction.

“FQ4 was a messy quarter but we believe the optics are worse than reality,” the analyst says. “Quarterly financial metrics missed our forecast and consensus across the board. One-time cost items (a $3.4M inventory write-down and a $4.5M SR&D tax provision) negatively impacted the bottom line while the timing of shipments on larger deals pushed revenue from the quarter into the backlog. With the shift of revenue, Evertz reported a massive sequential uptick in its backlog + shipment metric heading into Q1/F19. The ~$10M revenue miss on our estimate appears to be contained in the backlog which was up $9M QoQ to $85M at the end of May.”

In a research update to clients Wednesday, Young maintained his “Buy” rating, but lowered his one-year price target on Evertz from $19.00 to $18.25, implying a return of 10.3 per cent at the time of publication.

The Canaccord Genuity analyst thinks ET will post EBITDA of $105.2-million on revenue of $433.4-million in fiscal 2019. He expects those those numbers will improve to EBITDA of $118.4-million on a topline of $468.1-million the following year.

“We remain confident that Evertz has a competitive lead on IP-based products over its traditional broadcast equipment vendor competition based on feedback at NAB in April,” Young adds. “We also believe that Evertz is making strong inroads into the Pro A/V space. While we are incrementally cautious on the recent weakness in Evertz quarterly results, we have seen lumpiness increase as deal size has grown.”