DreamCatcher BRAVO Studio Will Improve Future Efficiency With AI

Key Takeaways

• Emphasis on high-margin tech and recurring software services suggests potential for increased revenue and improved net margins.
  
• Strong order backlog and investment in R&D position the company to capitalize on future market opportunities.
  
• Declining international revenue and increased R&D costs threaten profitability and growth, compounded by decreasing foreign exchange gains and liquidity concerns.

Catalysts

Engages in the design, manufacture, and distribution of video and audio infrastructure solutions for the production, post-production, broadcast, and telecommunications markets in Canada, the United States, and internationally.

• The strong growth in reoccurring software services, highlighted by a 23.7% year-over-year increase, suggests a future increase in revenue as the company emphasizes this part of the business going forward.
  
• The ongoing adoption and deployment of Evertz's IP-based software-defined video network solutions and cloud technologies could lead to increased demand and revenue growth.
  
• The significant order backlog of $298 million indicates a strong demand pipeline, suggesting potential revenue growth as these orders are fulfilled.
  
• The company's focus on high-margin, advanced technologies like the DreamCatcher BRAVO Studio, which utilizes AI for more efficient live productions, may contribute to improved net margins in the future.
  
• The continuous investment in research and development, totaling $36.3 million, positions Evertz to potentially capitalize on new market opportunities and drive future earnings growth.

Evertz Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evertz Technologies's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 13.1% in 3 years time.
• Analysts expect earnings to reach CA$73.4 million (and earnings per share of CA$0.88) by about February 2028, up from CA$58.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, up from 16.6x today. This future PE is greater than the current PE for the CA Communications industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.17%, as per the Simply Wall St company report.

Evertz Technologies Future Earnings Per Share Growth

Risks

• International revenue has significantly decreased by 46% quarter-over-quarter and 29% for the six months ended, which could negatively impact overall revenue growth and profitability.
  
• Increased research and development expenses, which rose to 31.1% of revenue compared to 25% last year, may pressure net margins if the investments do not lead to revenue-generating advancements.
  
• The decrease in foreign exchange gains compared to the previous year suggests potential volatility in earnings, especially as the company has international exposure.
  
• Cash and working capital declined slightly over the period, which might affect liquidity and the ability to fund future growth or operations.
  
• The decline in deferred revenue indicates potential challenges in securing long-term contracts or sustained future earnings from software and service agreements.

Valuation

• The analysts have a consensus price target of CA$15.5 for Evertz Technologies based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$561.4 million, earnings will come to CA$73.4 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of CA$12.69, the analyst price target of CA$15.5 is 18.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.