RE:RE:Desjardins SecuritiesValuation
We are initiating coverage of PHO with a Buy–Above-average Risk rating and C$3.50 target. While we consider a comparables analysis vs WFE producers and subsystems component vendors in arriving at our target, we view PHO as relatively unique with no real direct peers. We note that the WFE producers that Photon Control sells its products to are all global, multibilliondollar companies with exposure to many elements of the semiconductor industry (both memory and logic & foundry), with some operating recurring services businesses. Historically, PHO has not necessarily tracked the trading pattern of this highly cyclical group on either an EV/revenue or EV/EBITDA basis. With regard to the subsystems components group, PHO is also a bit of an outlier, as this set of companies is much more diverse with exposure to multiple industries and verticals, and are also much larger in size. Given how we remain more focused on top-line trends and how the pace of orders for Photon Control will materialize on the back of industry tailwinds during the current cycle (5G, cloud computing, AI, etc), we mainly consider a forward EV/revenue approach to PHO’s valuation. PHO is now trading at 2.6x revenue based on 2022 vs WFE producers at ~6.0x and subsystems component vendors at ~3.5x. Our C$3.50 target on PHO reflects an EV/revenue multiple of 4.0x on 2022 estimates.