TSE:BYL is a Buy, this investor says

Canadian wireless tech company Baylin Technologies (Baylin Technologies Stock Quote, Charts, News, Analysts, Financials TSX:BYL) is on a multi-year slide but portfolio manager Stephen Takacsy likes the stock in 2022.

Baylin Technology is one of the world leaders in wireless antenna, everything from your cell phones to embedded devices in your equipment at home for WiFi and for broadcast and military applications, satellite communications as well as infrastructure for 5G and micro cells and the like,” said Takacsy, President and CEO of Lester Asset Management, who spoke about Bayiln on a BNN Bloomberg segment on Tuesday.

Despite being in a vital and growing corner of the tech world it’s clear that Baylin had a rough 2021. Supply chain issues and rising costs for materials put a dent in its business, which impacted top and bottom lines in the company’s financials. Baylin saw revenue go from $119.7 million in 2020 to $102.5 million in 2021, a 14.4 per cent drop, while losses ballooned from a net loss of $16.9 million in 2020 to a loss of $67.4 million last year. Adjusted EBITDA was negative $14.8 million compared to positive $6.4 million in 2020.

“The Company’s business continues to face challenges brought about by the COVID-19 pandemic, in particular shortages and increased materials costs due to supply chain disruptions, although we expect these disruptions will begin to ease over the second half of 2022 as spending generally moves away from goods and back into services,” said Baylin in a March 9 press release on its fourth quarter and full 2021 financials.

“Travel restrictions continue to hamper some business activities as well as international travel. Despite these continuing challenges, we are seeing improvements in all areas of our business and expect that 2022 will show improvements in both revenue and Adjusted EBITDA over 2021,” the company said.

The downturn in business has impacted Baylin’s share price, too. Shares for the $70-million market cap company were up in the high $3.00 range in 2019 but tumbled to just under a buck a share by early 2020, and aside from a spike in early 2021 the stock has been stuck in the $0.80-$1.00 range ever since.

But Takacsy likes BYL going forward.

“Baylin is in the middle of a turnaround plan,” he said. “They recently announced a record backlog and significant shareholders have bought more shares at these [current] levels. And so I think we’re going to see a much better year ahead for Baylin.”

“Also, if military spending does pick up as a result of the war in Ukraine, they should be a big beneficiary of that as well,” Takacsy said. “So, it’s a good time to buy the stock. It has very valuable technology. They have a new CEO in place who comes from AT&T and who’s doing a tremendous job growing the business profitably as part of the turnaround plan.”

“I think over the next few years this stock is going to generate a very, very good return,” he said.

On its various business lines, Baylin is conducting a review of its Asia Pacific product portfolio where it has been making antenna for a major customer. That contract is winding down as of the first half of 2022 and the company is aiming to right-size its product mix in that geography. 

For its satellite communications business, the company has been hampered by tighter wallets from commercial customers over the pandemic but Baylin expects a pickup in sales in 2022 to military and other government-related entities.

“Overall, we expect revenue of the Satcom business line to be stronger in 2022 as certain industries start to invest as the world comes out of the COVID-19 pandemic. The Satcom business line continues to show a strong and growing order book but is facing supply chain constraints and a push-out of customer orders,” Baylin said in its fourth quarter 2021 press release.

Otherwise, Baylin has said the Embedded Antenna segment continues with a strong order book into the first half of 2022 while its Wireless Infrastructure business is likely to feel the pinch of changes in the rollout of 5G.

“Customer spending is focused on prioritizing deployment of integrated base station antennas for 5G networks in urban areas over small cell deployments, where the Wireless Infrastructure business line has historically been strongest,” Bayiln said.

“We expect distributed antenna systems (DAS) deployments will strengthen, particularly for use in stadiums and as people return to the office, later in 2022. New Multibeam BSA antennas from Galtronics will come to market in the second half of the year, opening new opportunities to drive sales with wireless carriers,” the company said.