A Tax-Free Savings Account (TFSA) can be a powerful vehicle for long-term wealth creation, allowing investors to grow eligible investments without paying tax on capital gains or dividend income, subject to applicable rules and contribution limits. However, investors should exercise caution when selecting investments, as losses incurred within a TFSA reduce cumulative contribution room. Therefore, focusing on financially sound companies with strong fundamentals and sustainable growth prospects is essential.
Against this backdrop, Savaria (TSX:SIS), a leading provider of accessibility and mobility solutions, stands out as a compelling addition to a long-term TFSA portfolio. Let’s examine the company’s latest quarterly performance, growth opportunities, and dividend profile to understand why the stock could represent an attractive buying opportunity.
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Savaria’s second-quarter performance
Savaria has established a well-diversified global manufacturing and distribution platform, with production facilities across Canada, the United States, Mexico, Europe, and China. Its extensive international distribution network enables the company to reach customers across multiple markets while supporting its long-term growth strategy.
The company delivered an impressive second-quarter performance earlier this month, with revenue increasing 8.4% year over year to $245.8 million. The growth reflected solid organic expansion, contributions from strategic acquisitions, and favourable currency translation. Both operating segments delivered healthy topline growth, with Accessibility revenue rising 8.7% and Patient Care revenue increasing 7.3%.
Profitability also improved significantly during the quarter. Operating income increased 34.1% to $35.8 million, while the operating margin expanded by 280 basis points to 14.6%. The margin expansion was supported by the favourable impact of the Savaria One initiative, along with the absence of certain strategic initiatives that weighed on the prior-year quarter. Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 10.9%, with the adjusted EBITDA margin expanding 50 basis points to 21.1%. Adjusted net income rose 23.1% to $25.6 million, while adjusted EPS (earnings per share) increased 20.7% to $0.35.
Savaria also generated $69.1 million of cash during the quarter, providing ample resources to fund research and development, pursue acquisitions, reduce debt, and return capital to shareholders through dividends. Its balance sheet strengthened further, with the net debt-to-adjusted EBITDA ratio declining from 1.03 at the beginning of the year to 0.87. Now that we’ve discussed its second-quarter performance and financial position, let’s turn our attention to its growth prospects.
Savaria’s growth prospects
Savaria stands to benefit from the global aging population, which could drive sustained demand for accessibility and mobility solutions and expand the company’s addressable market. Its diversified manufacturing footprint also provides greater flexibility to navigate an evolving geopolitical and trade environment. Meanwhile, Savaria continues to invest in product innovation and pursue strategic acquisitions to strengthen its competitive position and accelerate growth. Last month, the company acquired Vipal S.p.A., a manufacturer of residential lifts and elevators, which could enhance Savaria’s elevator manufacturing capabilities and strengthen its presence in the European market.
Looking further ahead, management has provided an encouraging five-year outlook, projecting revenue to reach approximately $1.6 billion by 2030, representing an annualized growth rate of 11.8%. Despite this anticipated expansion, the company expects to maintain an adjusted EBITDA margin above 20% while increasing adjusted EBITDA per share to $4.25 by 2030. This target implies an annualized adjusted EBITDA per-share growth rate of approximately 10.4%. Overall, Savaria’s combination of favourable industry demographics, organic growth initiatives, and strategic acquisitions provides a solid foundation for sustained long-term growth.
Investors’ takeaway
Savaria has delivered an impressive performance over the past 12 months, generating a total shareholder return of more than 40%. Despite this strong appreciation, the stock continues to trade at relatively attractive valuation multiples, with next-12-month price-to-sales and price-to-earnings ratios of approximately 2 and 19.3, respectively.
Beyond its growth potential, Savaria also provides investors with a steady income stream through its monthly dividend of $0.05 per share, which translates into a forward yield of 1.96%. With a resilient underlying business, favourable long-term growth prospects, consistent monthly dividend payments, and a reasonable valuation, Savaria appears well positioned as an attractive addition to a long-term TFSA portfolio.
