What does RBC think of Evertz Technologies?

RBC Dominion Securities analyst Paul Treiber has initiated coverage of Evertz Technologies (Evertz Technologies Stock Quote, Chart, News, Analysts, Financials TSX:ET) with a “Sector Perform” rating and a $12.00 target price, describing the Burlington, Ont.-based company as “at the forefront of the IP/digital and cloud transition in media.”

In a Sept. 19 report titled ‘Relevant in a Digital World,’ Treiber said Evertz is a global leader in broadcast and media technology, supporting the shift from linear broadcasting to digital through its software-defined video networking, cloud-based software, and 4K/8K ultra-high definition solutions. Customers include Amazon, HBO/WarnerMedia, Disney/ESPN and Google DeepMind.

“Evertz has averaged 30% ROIC over the last 10 years, which reflects well-managed operations (24% Adjusted EBITDA margin average) and prudent capital management. The company has returned the majority of FCF to shareholders through dividends,” he said. “Executives and the board own 64% of shares, ensuring high alignment with shareholders. We forecast Evertz’s ROIC to decline slightly to the high 20% range, but it is still sufficient to fund continued dividend growth.”

At the same time, Treiber pointed to the company’s long-term growth challenges.

“Revenues dropped 21% in FY21, before rebounding 29% in FY22,” he said. “Despite revenue cyclicality, Evertz has averaged 3.9% organic growth over the last 10 years. We believe cyclicality is likely to decline going forward, as reoccurring software and services revenue now accounts for 46% of total revenue as of Q1/FY26. We forecast 4.1% organic growth between FY25 and FY27e.”

Valuation, he added, is expected to remain broadly in line with historical averages.

“Evertz is trading at 14.5 times NTM P/E, which is 18% below peers (18 times) and 1% below its 10-year historical average (14.7 times),” he said. “Evertz has averaged a 5% discount to peers over the last 10 years, given the company’s smaller market cap. We believe Evertz’s valuation fairly values the company’s long-term growth prospects. The stock is trading at a 10.6% FCF yield on our CY26e estimates, which is likely to equate to its dividend yield over time. We believe multiple expansion is likely limited unless organic growth materially accelerates.”

Treiber’s $12.00 price target, below the Street average of $13.56, is based on 14 times his CY26 earnings estimate and assumes the company continues to trade at a discount to peers.

-30-