Haivision Systems Inc T.HAI

David Fawcett- Epic Capital

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David Fawcett, MA, CFADavid Fawcett, MA, CFA • 2nd • 2nd Founder of Epic Capital ManagementFounder of Epic Capital Management 1mo • Edited •

1mo • Edited •

 

 

 

Unearthing another undervalued Small-Cap Canadian Tech company – Haivision

Haivision Systems is projecting modest growth and cost reduction over the next couple years. Based on these financial forecasts, Haivision trades at 4.6X and 3.2X EV/EBITDA based on 2024 and 2025 estimates, respectively. The company is an award-winning provider of real-time video encoding, streaming, and decoding hardware and software, catering to a wide variety of industries where low latency is critical, notably in live sports broadcasting exemplified by clients like the NFL, and in critical defense applications with drone technologies. The company boasts a clean balance sheet, high free cash flow generation, and notable management ownership (30%). With specific selling pressure abating (explained below) we believe there is a strong case for a 50% to 100% share price appreciation.

In April 2023, competitor Evertz Technologies launched a hostile bid to acquire Haivision for $4.75 per share. Management successfully thwarted the bid, demonstrating their commitment to the company's strategic direction. Evertz had previously disclosed a 10% position, however after the failed bid, they began to sell their stake. Merger arbitrage funds also started exiting, and given the lower liquidity, the combined selling pushed the share price lower in 2023 despite improving fundamentals. We saw this as an opportunity and purchased a block of shares from the exiting funds at $3.35 per share.

Prior to the bid, Haivision had made two acquisitions (Aviwest in 2022 and CineMassive in 2021) that temporarily compressed EBITDA margins as the company worked through the integration stage, dipping into negative in 3Q22. Management expects margins to rebound to 20% as they begin to realize synergies and economies of scale, with improvements already evident in the latest quarter (4Q23) with +15.9% EBITDA margins.

It’s also worth noting the company anticipates robust free cash flow, with a 70% conversion rate from EBITDA to free cash flow. Using this, we estimate cash balances will accrue close $40 million by the end of 2025, or nearly a third of the entire current market cap.

With a promising financial outlook and the current undervaluation, Haivision yesterday announced a normal course issuer bid, adding a further data point that Haivision is undervalued.

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