Quarterhill is looking like a cheap stock, Peter Imhof says

Canadian tech patent company Quarterhill (Quarterhill Stock Quote, Chart, News TSX:QTRH) made some impressive gains in 2019 and is starting off the new year on the right note, shooting up 16 per cent over the month of January.

Don’t look now but there could very well be more upside to the name, says Peter Imhof of AGF Management.

“I haven’t really followed the story closely after they turned into a holding company but they settled for $85 million from an infringement from Apple years ago. I think it was going to add maybe 70 cents to the share price just with the money coming in —we don’t know how much of it is going to go right to the balance sheet,” said Imhof vice president and portfolio manager at AGF, who spoke to BNN Bloomberg last Friday.

“I think the stock still looks fairly cheap here,” he says. “I saw the numbers come out on the settlement and I did on a per share basis what it should be accretive to, so I think that the stock should be about ten to 15 per cent higher just from that settlement.”

“In terms of other patents, I believe they still have others in house from which they should be able to garner some money,” Imhof added. “The stock does look cheap here at these prices.”

Kitchener, Ontario-based Quarterhill announced on January 24 that its patent monetizing subsidiary WiLAN had been awarded $85.23 million in damages owed by Apple in a damages-only retrial. The settlement comes after Apple paid $145.1 million in damages from a decision in August of 2018, with the issue in question being two of WiLAN’s patents concerning the downloading of data on cellphones, the latest salvo in an ongoing battle between the two companies over patents and licensing.

Aside from its patent business, Quarterhill is expanding its stable of companies in the Internet of Things and vertical market software, a strategy that started a couple of years ago with the purchase of enterprise software company VIZIYA and intelligent transportation company International Road Dynamics.

Quarterhill made news this past October with the resignation of CEO and President Doug Parker, who appears to have displeased the board with the company’s underperformance on the M&A side.

“Based on his acquisition track record, the Company hired Mr. Parker at the beginning of January 2018 to accelerate the Company's diversification efforts. Since that time, although the Company has not closed any new transactions, it has built out its M&A capabilities, expanded its acquisition pipeline, and improved expense control in certain areas,” read a company press release on October 1.

Ahead of Quarterhill’s fourth quarter earnings due later this month, the company last reported on November 7 where its third quarter featured revenue of $25.4-million compared to $19.6-million a year earlier, with recurring revenues of $4.7 million.

Adjusted EBITDA hit $2.0 million compared to a loss of $2.5-million a year earlier. (ALl
figures in US dollars.)

“Q3 revenue and Adjusted EBITDA increased year-over-year due to stronger performance at IRD and VIZIYA,” said John Gillberry, Chairman of Quarterhill, in a press release. “Overall, on a year-to-date basis, each business is performing ahead of the prior year with the net result being an increase in cash from operations and a strengthening of our balance sheet to support our diversification strategy.”