Pat McKeough recently replied to an Inner Circlemember looking for an opinion on Savaria Corp. The maker of chair lifts and other accessibility aids has seen its share price double, but that could be too much of a good thing.
Q: Pat: What do you think of Savaria Corp. on Toronto? Thanks.
A:SAVARIA CORP. (symbol SIS on Toronto; www.savaria.com) makes products for people with limited mobility.
The company has two main businesses:
Accessibility (81% of revenue) makes elevators for homes and businesses as well as stairlifts (electrically powered chairs used to carry a person up and down a flight of stairs) and platform lifts (powered devices used to lift a wheelchair and its occupant over a step).
Adapted Vehicles (19%) installs ramps and lowered floors in minivans so they can accommodate wheelchairs. This business serves both owners of private vehicles and taxi fleets.
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Savaria operates two plants in Canada and one in China. It mainly sells its products and services through 300 independent dealers; its major markets are the U.S. (51% of revenue), Canada (41%) and other countries (8%).
The company’s revenue in the three months ended September 30, 2016, was a record $32.4 million. That’s up 35.2% from $24.0 million a year earlier. Strong demand for Savaria’s accessibility products led to the increase. A record 147 conversions for its adapted vehicles business also contributed.
In May 2016, the company completed its $10 million acquisition of the automotive business of Shoppers Home Health Care. The purchase added revenue of $4.6 million in the quarter. It also enhances Savaria’s vehicle-conversion operations, particularly in larger cities such as Vancouver, Victoria, Calgary, Edmonton and Toronto.
The company’s earnings rose 45.2% in the latest quarter, to $3.4 million from $2.4 million a year earlier. Earnings per share rose 28.6 %, to $0.09 from $0.07, on more shares outstanding. The increase was primarily due to revenue growth, along with cost-control measures.
Savaria holds cash of $46.5 million, or $1.31 a share. Its long-term debt is just $14.5 million.
The company has raised its quarterly dividend by 30.0%, to $0.065 from $0.07. It now yields 2.4%. The shares have more than doubled over the past year, and now trade at a high 32.0 times the $0.34 a share Savaria will likely earn in 2017.
Inner Circle recommendation: Savaria is okay to hold, but only for aggressive investors.
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