The stock has been a disappointment for a number of years, but all signs point toward better days ahead for transportation tech company Quarterhill Inc (Quarterhill Stock Quote, Charts, News, Analysts, Financials TSX:QTRH). That’s according to portfolio manager Stephen Takacsy who cautions long-time shareholders to not throw in the towel just yet.
“It’s definitely not the time to cut your losses and move on,” said Takacsy, CEO of Lester Asset Management, who spoke about Quarterhill on a BNN Bloomberg segment on Friday. “There are a lot of catalysts right now.”
Toronto-based Quarterhill has seen its share price drop steadily for much of the 2010’s before lifting in 2020 and then drifting in 2021. And the new year hasn’t been any better, with QTRH, a $250-million market cap company with a dividend currently sporting a 2.25 per cent yield, going from $2.70 per share at the start of January to now $2.22.
But the company has made some big strategic decisions recently, announcing in December a plan to concentrate its efforts on the more growth-oriented segment of its business in the Intelligent Transportation Systems (ITS) industry, at the same time planning to shed its intellectual property licensing business through its Wi-LAN subsidiary.
Quarterhill said the global ITS sector — which uses sensors and smart tech across the length and breadth of the transportation industry, from intelligent parking management to automatic tolls and freight management — is expected to double from $45 billion in 2020 to $90 billion by 2025. And so, the company has decided to concentrate going forward on its two divisions in the ITS space, Electronic Transaction Consultants (ETC) and International Road Dynamics (IRD).
“ITS has significant tailwinds,” Quarterhill said in a December 15 press release. “Governments face massive declines in traditional infrastructure funding sources and are turning to tolling and other forms of mobility user fees to fill the gaps. At the same time, advances in mobility technology are enabling public policies around congestion management, safety and sustainability in ways that weren’t possible just a few years ago. These same technologies are improving convenience and choices for consumers and businesses with ever smarter vehicles and ‘Mobility as a Service’ models that enable transportation to be purchased exactly how and when it’s needed.”
Quarterhill also did a shakeup at the top to put a point on it, promoting ETC CEO Bret Kidd as the company’s new CEO and then-CEO Paul Hill leaving Quarterhill, which he joined just in June of 2020.
“If you’ve been following the news on the company, they announced in December that they are going to be divesting of their Wi-LAN IP portfolio, so they’re out to monetize that,” said Takacsy. “I would expect they will announce very soon which investment banker will be handling the sale of the IP portfolio. That has really gone nowhere over ten years and that’s the reason that stock has been going nowhere.”
“But they’ve made a few acquisitions lately in the intelligent transportation solution space which is very, very interesting. One of the companies they bought has 23 per cent market share of the electronic toll roads in the US and another company they bought is the world leader in weight in motion, where we can weigh heavy vehicles while they’re moving. And this is a huge growth area,” he said.
Takacsy said simply by pricing the current pieces of the company he thinks the stock should be at least a double from here.
“Just the wireline patent portfolio is probably worth $1.50 per share and the IPS businesses that they own right now are worth at least $2.50 a share, so we think the stock is worth at a minimum $4.00 and it’s trading at $2 and change,” he said.
“The other big catalyst is that I would expect to see some changes to the board of directors, adding some new directors with more direct experience on the IPS segment [in] transportation and technology and so on,” Takacsy said. “There are a lot of catalysts coming up and I think the best days are to come. It’s a stock that went nowhere for ten years but it’s going to really get a multiple expansion as a pure play in the IPS segment.”
Ahead of Quarterhill’s fourth quarter 2021 financials due on March 10, the company last reported in November where its third quarter featured revenue of $36.3 million, down from $88.0 million a year earlier, and adjusted EBITDA of $7.6 million compared to $39.0 million a year earlier. Quarterhill said the year-over-year drop in top and bottom lines was due to high levels of licensing activity in WiLAN during the third quarter 2020. By segment, the company’s Q3 2021 delivered $11.4 million in licensing revenue and $24.9 million in ITS revenue compared to $67.3 million and $20.7 million, respectively, in Q3 2020.
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