Description

EVS Broadcast is a Belgian company that produces video and sound compression technology. The Company has 90 pct market share in mobile video compression market and 20 pct market share in "near live" video compression market. In clear language: The company makes software and servers that allow anyone (TV Studios) filming anything on a digital system to manipulate the images real time from a production van at the event. Most of the company's software is used at sporting events where it is used to show slow-motion / fast-motion and any other kind of imaginable trick known to man.

The company is extremely profitable  with greater than 60 pct EBITDA margins, pays a dividend of 10 pct, has cash equal to 53 pct of total assets or 13 pct of total market cap, and has 2.6 mln of debt; practically debt free.

2008 was a record year for the company, but with no major international sporting events in 2009 the order backlog decreased dramatically. 

2009 will be consolidation year. The company should be able to take advantage of its solid capital structure to wait out competitors going out of business or make some cheap acquisitions. 

2010 should be a strong recovery year for the company because there are two major worldwide sporting events; 1) the winter olympics in Vancouver in Feb of 2010 and 2) the FIFA world cup in South Africa in June. 

Underlying the future prospects for the company is the trend from analog to digital TV and Cinema where the company is a major beneficiary. 

EVS has had terrific success over the years: 

From 2004 to 2008 revenues have grown 22% annually. EBITDA 26% annually and FCF 28% annnually. 

EBITDA margins have been consistently over 60 % and FCF margins have been consistently over 35 %.

With this type of operating performance metrics the company should trade at a significant premium to its 2010 implied FCF multiple 0f  7.6 x

2010 numbers should improve dramatically from 2009.

2009 2010 Growth

Revenues 84.1 109.4 30%

EBITDA 44.6 64.5 45%

FCF 31.9 40.3          26%

Management is very shareholder friendly; the company pays out most of its FCF in a dividend, but may use the funds to purchase back shares. 

Catalyst

2010 Vancouver Winter Olympics and FIFA World Cup

TV transition from analog to digital