Description

Haivision Systems Inc. (TSX: HAI) is CAD 4.20 and is likely worth at least CAD 7.60 currently, which would be 10x EBITDA of CAD 22M (consensus est. of 4 sell-side analysts) for FY ending 10/31/24, and 14x FCF of CAD 16M.  Consensus target price = CAD 7.49.  Company is debt-free, gross margin over 70% over past 7 years, sales growth =15.7% CAGR over past 5 years (CAD 68M in 2018 to CAD 140M in 2023).  EBITDA margin 12% TTM projected to rise to 16% in 2024 while continuing to spend over 20% of sales on R&D every year (R&D % roughly in line with peers).  Liquidity in the shares is torturously tight but worth the pain I think for those managing smaller pools of capital like me.

As described on their website, www.haivision.com, Haivision provides mission critical video solutions for live video broadcast for clients like the NFL.  They compete with much larger companies like Evertz (TSX: ET, CAD 12.77) which I also own, and EVS Broadcast Equipment (Belgium: EVS BB), which is the only pure play written up here on VIC way back in March 2009.  Somehow no one has taken an interest in Evertz or Haivision here on VIC, so before you savage the brevity of this obligated submission at minutes before I lose access at midnight, you're welcome.  Harmonic (HLIT, US$12.57) also has a division in this space which is about the same size as EVS, but it's only about 33% of HLIT's sales (HLIT written up on VIC recently).

Haivision's Chairman, President & CEO, and founder Miroslav ("Mirko") Wicha owns 13.5% of the shares, a 3.9M share stake worth over CAD 16M at current price.

In April 2023 Haivision rejected a non-binding offer to acquire the company for CAD 4.75 per share in cash from its larger competitor, Evertz (TSX:ET), which built a 10% stake in Haivision in the open market that it subsequently sold at a loss after Haivision rejected the offer during Evertz's FY-end 4/30/24.  

I recently (over the past 4 weeks) acquired a position in both Haivision and Evertz around current prices as both traded down sharply on a weaker than expected earnings report from Evertz in June.  I'm recommending Haivision here because while it trades at a comparable 7.6x TTM EBITDA vs. Evertz 7.9x, it's much cheaper on calendar 2025 EBITDA at 4.6x vs. 7.2x for Evertz.  Both have similar margins, both have net cash balance sheets, high insider ownership, but Haivision appears to be growing faster and trading more cheaply while Evertz is 3.7x bigger than Haivision on sales and pays out nearly all of its FCF as dividends (6.1% yield on currrent price of CAD 12.77).  So I like and own both for slightly different reasons.

I think the opportunity here is based on a misperception that because linear broadcast TV is a dying business, it means that these companies are long-term doomed.  But the recent sales trends are up (all 4 mentioned here showing growth over past 5 years) and projected to grow over the next 5 years as Ultra HD becomes more pervasive as well as 5G.

The business model has shifted as well, with more sales from software.  It's less equipment and more Saas.

Catalyst

M&A