Quarterhill is very undervalued, M Partners saysFollowing the company’s fourth quarter results, M Partners analyst Andrew Hood remains bullish on Quarterhill Hood characterized the quarter.
“While financials remain highly unpredictable, the quarter was generally in-line or better than our expectations,” he said. “Revenue in Q4 was $39.2M vs. our expectations of $40.5M, bringing total annual revenue to $146.7M. Recurring revenue was $5.0M in the quarter and $21.1M for the year. Adjusted EBITDA was $12.6M in Q4 vs. our expectations of $11.6M, with the outperformance largely driven by higher gross margins at Wi-LAN (63% vs. 50% expected) and IRD (40% vs. 35% expected). VIZIYA was a drag on the quarter, at 81% gross margin vs. 88% expected, but it is still a compelling high-margin business (91% in 2019) and the weaker quarter was not surprising considering the absence of large contract announcements. SG&A was $1.9M higher than our expectations at $6.6M across the three segments but $0.4M lower at the corporate level at $1.7M. We anticipate cost savings at the Quarterhill level over time, including $1M in annual savings from the NASDAQ delisting announced in December.”
In a research update to clients today, Hood maintained his “Buy” rating and one-year price target of $3.00 on Quarterhill, implying a return of 64 per cent at the time of publication.
Hood thinks QTRH will post Adjusted EBITDA of (US) $13.0-million on revenue of $94.0-million in fiscal 2020.
“At the holdco level, Quarterhill continues to look for a CEO and provided an update in this morning’s press release. They anticipate a potential announcement of a new CEO in early spring. In our view, this will reduce risk surrounding the company, and with the correct CEO in place, could drive a re-rating on the multiple. We are maintaining our BUY rating and $3.00 target price on Quarterhill Inc. based on a DCF analysis,” the analyst concluded.