Savaria (TSX: SIS) designs, manufactures, distributes, and installs accessibility equipment, providing solutions to people with physical challenges worldwide. It also manufactures and markets pressure management products, medical beds, and medical equipment and solutions that help ensure the safe movement of patients.
Along with its manufacturing facilities in Canada, Europe, the United States, China, and Mexico, Savaria leverages a global dealer network and direct sales offices in Canada, the United States, seven European countries, and Australia to market its products worldwide.
After delivering an impressive 35% return last year, the company has underperformed the broader equity markets this year, with returns of 6.5%. Let’s assess its recently reported second-quarter performance and growth prospects to evaluate potential buying opportunities in the stock.
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Savaria’s second-quarter performance
Savaria reported revenue of $226.7 million in the second quarter, representing a 2.4% increase from the same quarter in the previous year. Along with favourable currency translation, the contribution from Western Elevator’s acquisition helped overcome a 0.7% sales contraction during the quarter, driving its sales. Further, its gross profits increased by 6.6%, while its gross margins expanded by 150 basis points to 39%. Its focus on realizing efficiencies in procurement, pricing, and operations through the “Savaria One” initiative has led to an expansion of its margins.
Supported by topline growth and an expansion of gross margin, the company reported an operating income of $26.7 million, representing an 18.2% year-over-year increase. Meanwhile, its operating margin expanded by 160 basis points to 11.8%. Additionally, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 20.6% to $46.7 million, with its adjusted EBITDA margin improving by 160 basis points to 20.6%.
The company’s net income came in at $16.32 million. However, removing special or one-time items, its adjusted net income stood at $20.83 million or $0.29/share, representing a 26.1% increase from the previous year’s quarter. Additionally, the company has strengthened its financial position by lowering its net debt-to-adjusted EBITDA ratio from 1.63 at the end of last year to 1.34. Now, let’s look at its growth prospects.
Savaria’s growth prospects
The global population is aging, thereby driving the demand for accessibility solutions. Given its comprehensive product lines, Savaria is well-equipped to benefit from the addressable market expansion. The company is working on product innovation, boosting capacity, strengthening efficiency, and achieving cost reductions through procurement streamlining. At the end of the second quarter, the company had $275 million in available funds, allowing it to invest in marketing initiatives and pursue strategic acquisitions.
Further, the company’s management has initiated the second stage of the “Savaria One” initiative, which will outline its strategy for the next three years. Additionally, its acquisition of Western Elevator in May has strengthened the company’s position in Vancouver’s luxury residential elevator market. Amid these growth initiatives, the company’s management predicts its 2025 revenue to come around $925 million, representing a 6.6% increase from the previous year. Management also expects its adjusted EBITDA margin to improve from 18.6% to 20% this year. Considering all these factors, I believe Savaria’s growth prospects look healthy.
Investors’ takeaway
On the back of its underperformance this year, Savaria currently trades at an attractive valuation. Its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples stand at 1.6 and 17.2, respectively. Furthermore, the company increased its monthly dividend earlier this week to $0.0467/share, resulting in a forward dividend yield of 2.70%. Considering all these factors, I believe Savaria offers an excellent buying opportunity at these levels.
