Savaria keeps “Buy” rating at Laurentian

Nick Agostino of Laurentian Bank Securities is staying safe in his view of Savaria Corporation (Savaria Corporation Management Corp Stock Quote, Chart, News TSX:SIS), as he maintained a “Buy” rating and $25/share target price for a projected return of 44.4 per cent in an update to clients on Tuesday.

Headquartered in Laval, Que., Savaria Corporation designs, manufactures, and distributes equipment that facilitates the mobility of people with special needs, with its product range including stairlifts, vertical lifts, and inclined lifts.

Agostino’s latest update comes ahead of the company’s fourth quarter financial results for the 2021 fiscal year, which are expected on March 23.

On February 9, the company released its preliminary results for the quarter, headlined by expected revenue of $660 million for a year-over-year increase of 86.4 per cent, and adjusted EBITDA reaching into nine figures at an approximate $100 million to suggest a 15.1 per cent margin.

Based on recent calls with the company, Agostino believes the company’s results will indicate strength in its accessibility sector from the residential market, paired with Omicron-related headwinds in its patient handling sector and incremental increases in its adapted vehicles sector, primarily driven by the integration of its Handicare acquisition.

Consequently, Agostino revised his own fourth quarter projections, as he forecasts revenue increasing from $181.7 million to $189.4 million in the quarter for 4.8 per cent sequential growth and a 109 per cent year-over-year increase while being ahead of the consensus target of $183.1 million, with the accessibility vertical accounting entirely for the difference. However, in accordance with management guidance, Agostino kept his adjusted EBITDA margin at $28.6 million for a projected 15.1 per cent margin, down from the previous margin projection of 15.9 per cent.

“We believe higher costs associated with the B.C. floods in mid-November had an impact on SIS’ supply,
impacting margins,” Agostino said in explaining the maintain on his adjusted EBITDA figure. “Note the
Vancouver port is the primary source of import for SIS for components from China. SIS does carry about three weeks of inventory, but the reduced supply likely impacted Q4 margins on higher freight costs.”
Meanwhile, company management also projected a slight decrease in its operating income from $39 million in 2020 to $35 million, which reflects additional margin from Handicare offset by higher amortization of acquisition-related intangible assets and on-going integration costs.

“This year was perhaps one of the toughest to manage in our history, with challenges at every turn,” said
Marcel Bourassa, President of Savaria in the company’s February 9 press release. “From skyrocketing freight costs to material cost increases and labour shortages, all while managing our facilities to ensure the health and safety of our employees during the pandemic – we had our work cut out for us. But, as a testament to the perseverance of our 2,200 employees, reaching 40 countries, we will attain our business goals. I am so proud of our staff and what we were able to achieve together.”

Once the results become official, Agostino has a number of focus points for the company, including an
assessment of the competitive landscape, a demand assessment as it pertains to residential and commercial elevators, institutional clients and potential rebound in Adapted Vehicles segment, an update on VueLift demand and uptake in Europe in the wake of the pandemic, booking activity through the fourth quarter and into Q1 2022, any plans to boost its organic growth through mergers and acquisitions, commentary on staffing challenges and retention costs, any business impact from the B.C. floods in November, comments on its business supply chain in the wake of lockdowns in China, comments on industrial inflationary pressures, and updates on the company’s integration of Handicare.

With the revenue growth projection in place for 2021, Agostino also includes a projection of $809.6 million in revenue for 2022, which would represent another year-over-year increase of 22.5 per cent.
Meanwhile, after setting the nine-figure adjusted EBITDA projection for 2021, Agostino forecasts further
significant growth in the category to $136.8 million, with the projected margin widening from 15.1 per cent to 16.9 per cent while also representing year-over-year growth of 37.4 per cent.

In terms of valuation, Agostino forecasts the company’s EV/EBITDA margin to continue dropping from the reported 24.4x in 2020 to a projected 14.6x to end 2021, then dropping again to a projected 10.7x in 2022.

Finally, after a slight compression to end 2021 (36.8 per cent to 36.5 per cent), Agostino forecasts the
company’s gross margin to slightly widen again in 2022 to a projected 37.5 per cent.

Savaria’s stock price has stayed somewhat steady throughout the last 12 months at a 3.1 per cent return,
though it is down 3.4 per cent since the start of 2022. Savaria’s stock has been slowly sliding since hitting a 52-week high of $22.52/share on September 16, as it recently hit a 52-week low of $16.76/share on March 7.