M Partners reveals its top seven stock picks for 2022 Quarterhill Inc. (
, $4 target)
“Quarterhill recently announced that it is undergoing a corporate rebranding to become a pure play intelligent transportation systems (ITS) company. This included appointing Bret Kidd as CEO (previously CEO of ETC) and conducting a strategic review of WiLAN. We think that the Mr. Kidd’s operational experience within ITS will support the rebranding of QTRH as an ITS company, from its current status as a holding company (that trades at a discount to its holdings). Furthermore, we believe WiLAN was the biggest pain-point in the QTRH story given its extremely lumpy financials; the sale of WiLAN should help QTRH re-rate to ITS multiples (12-15x) and provide even more liquidity to deploy in ITS M&A. We also think that the magnitude of the ETC acquisition will be highlighted in Q4/21 financials, where ITS will represent 80% of QTRH’s revenue; further supporting the re-rating.
“QTRH currently has over $80M in cash after closing its $57.5M convertible debenture offering and has two potential large cash windfalls coming in the next six months: the Apple trial (US$109M) and the sale of WiLAN ($200M+). Therefore, QTRH has plenty of excess liquidity to execute on its ITS acquisition strategy of allocating $400M to ITS M&A by 2025 (deployed $159M so far).
“We are expecting the ITS segment to grow revenue +25% in 2022 and WiLAN to bounce back from a weak 2021. QTRH currently trades at 9.4x 2022E EBITDA compared to patent licensing peers at 9.7x and ITS peers at 10.3x.”