Savaria (TSX:SIS) manufactures and markets mobility solutions, including elevators, lifts, and adapted vehicles for home and commercial use. It has manufacturing facilities across North America, Europe, and China. It also markets its products worldwide through its extensive dealer network.
Since reporting its third-quarter performance in November, the company’s stock price has increased by 36.3%. Its solid third-quarter earnings and improving broader market environment have increased its stock price. Despite the surge, the company still trades over 25% lower than 2021 highs. So, let’s assess whether the stock is a buy at these levels by looking at its performance in the first three quarters of 2023 and growth prospects.
Savaria’s recent performance
Savaria has generated a revenue of $620.1 million in the first three quarters of this year, representing a 7.5% increase from the previous year. Organic growth of 6.9% and a favourable currency translation of 3.6% drove its top line. However, the divestment of its Norway operations offset some of its growth. The company’s operating income grew by 17.6% to $20.6 million amid top-line growth and expansion of its operating margin by 1.1% to 9.8%.
Further, the Laval-based accessibility solutions provider generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $93.8 million, a 7.95% increase from the previous year. However, its adjusted EBITDA margin remained constant at 15.1%, primarily due to the decline in profitability from its accessibility segment amid the unfavourable impact of the implementation of enterprise resource planning in Europe.
The company also generated $41.5 million in cash from operations, which it utilized to make capital investments and pay interest and dividends. The company’s financial position also looks solid, with its net debt-to-adjusted EBITDA declining from 3.07 to 2.28. Its adjusted EPS (earnings per share) stood at $0.45, a 7.1% increase from the previous year.
Now, let’s look at its growth prospects.
Savaria’s business outlook
The growing aging population and government investments in healthcare facilities are expanding the addressable market for Savaria. Given its high backlog levels, cross-selling initiatives, and rising demand, the company is well-positioned to continue its growth in the coming quarters. Also, improving synergies between Savaria and Handicare and favourable prices could boost its financial growth.
Amid these growth initiatives, the company’s management expects its 2023 top line to grow 8-10%, excluding the impact of the sale of the Norwegian auto division. The management also expects its adjusted EBITDA margin to be around 16%. The company is confident of growing its annual revenue to $1 billion by the end of 2025. So, its growth prospects look healthy.
Investors’ takeaway
Yesterday, Statistics Canada announced that the annual inflation in January increased by 2.9%, which was lower than analysts’ projection of 3.3%. It was the first time in the last seven months that the country’s inflation has fallen below 3%. With inflation showing signs of easing, hopes of interest rate cuts by the Bank of Canada are rising. Amid the improving broader market environment, I believe Savaria would be an excellent buy, given its solid financials and healthy growth prospects.
The company trades at an attractive next-12-month price-to-sales multiple of 1.3 and pays a monthly dividend, with its forward yield currently at 3.1%.
