Haivision Systems is a Buy, says Paradigm

Streaming video tech company Haivision Systems (Haivision Systems Stock Quote, Charts, News, Analysts, Financials TSX:HAI) received a “Buy” rating from Paradigm Capital in a coverage initiation on Tuesday, with analyst Daniel Rosenberg saying Haivision’s scale and operating leverage are generating improved profitability and cash flow.

Incorporated in 2004 by current CEO Mirko Wicha, Haivision Systems completed its IPO in December, 2020, generating $34.5 million in total gross proceeds at the time. After an initial upward push, the stock has mostly moved down over the past two-plus years, rallying from a low of about $2.20 last fall to now around the $4.00 mark.

Rosenberg sees upside from here and has issued a 12-month target of $3.70 per share, saying HAI is currently trading at 0.8x 2024 EV/revenue and 6.9x EV/EBITDA versus its peer group averages at 2.6x and 10.2x, respectively.

“Current valuation levels present an attractive opportunity for investors to own a technology leader generating strong cash flow with a clear runway of growth opportunities,” Rosenberg wrote.

Haivision provides secure, low-latency video encoders, offering a suite of hardware and software solutions for mission-critical real-time video transmissions. The company developed the Secure Reliable Transport (SRT) protocol to optimize the performance of video streams over unpredictable networks where quality and reliability of the connection can fluctuate. Haivision open-sourced its tech in the mid-2010s and then formed the SRT Alliance in 2017, a group of industry leaders promoting the adoption and development of the SRT protocol, which has since become pervasive across the industry. 

Rosenberg said Haivision has grown through both organic and inorganic means, with its acquisitions helping the company to over time specialize in command and control centres for mission-critical video infrastructure. 

“While there are many providers of encoders/decoders, most competitors only specialize in a single vertical or offer single point solutions. Haivision, on the other hand, offers end-to- end solutions for video-streaming infrastructure,” he said.

In terms of market size, Rosenberg said Haivision has over a $15 billion market for its hardware offerings and once adding software and services to the mix its total addressable market is $23 billion. Further, the analyst said that market is expected to grow at a 16 per cent CAGR over the next ten years as the needs of remote work, cloud adoption and high-speed networks for streaming services continue to evolve. 

“The industry itself is fragmented and we see opportunity for Haivision to scale meaningfully by further consolidating the market. We also see opportunity to leverage its highly respected brand into the mid and lower end of the market,” Rosenberg wrote.

By the numbers, Rosenberg has forecasted Haivision’s revenue to go from $125.7 million in 2022 to $138.1 million in 2023 and to $145.9 million in 2024, with adjusted EBITDA expected to go from $8.1 million in 2022 to $12.4 million in 2023 and to $19.2 million in 2024.

At press time, Rosenberg’s $3.70 target represented a projected one-year return of 69 per cent.