Savaria Corporation

Frederic Tremblay, CFA, Analyst

Attractive profitable growth story with meaningful organic tailwinds such as an aging population, the age-at-home trend and product introductions. The dividend should also remain on a high-growth trajectory.
Recently announced a large acquisition (Garaventa Lift), which will create a global leader in accessibility products.
High insider ownership, with the CEO and CFO owning a combined 32% of the company.

Savaria designs, manufactures, distributes and installs accessibility equipment such as stair lifts, vertical and inclined wheelchair lifts, elevators for home and commercial use, and patient lifts. In addition, it converts and adapts minivans to be wheelchair-accessible. In 2017, Savaria entered the medical beds and therapeutic surfaces market through the acquisition of Span-America Medical Systems.

Acquired by Chairman and CEO Marcel Bourassa in 1989 for C$0.2m and publicly traded since 2002, Savaria has evolved into a market leader while creating significant shareholder value at the same time; the current market capitalization is above C$700m. With a combined ownership position in Savaria of 32%, Marcel Bourassa and his brother Jean-Marie Bourassa (Savaria's CFO) remain strongly aligned with other shareholders and are focused on taking Savaria to new heights. After lifting the annual revenue run rate to over C$250m (excluding Garaventa Lift) from C$60–70m and doubling EBITDA margin to 15–17% in the past five years, management's objective is to double revenue to C$500m by the end of 2021. We strongly believe that there are many exciting chapters left in this growth story, thanks to an aging population, seniors' desire to 'age at home', product introductions and contributions from acquisitions.

On July 10, 2018, Savaria announced an agreement to acquire Garaventa Lift, a manufacturer of wheelchair lifts and residential elevators headquartered in Switzerland, for C$98m. The transaction is scheduled to close in October. We view this game-changing acquisition positively as it transforms Savaria into a global leader by improving its competitive positioning on the North American West Coast, expanding its footprint into Europe and strengthening its Asian operations. Garaventa Lift generated revenue of C$108m (55–60% North America, 30–35% Europe, 5–10% rest of the world) and EBITDA of C$8.3m in 2017. We view the purchase price as reasonable given a compression from 11.8x trailing EBITDA to 8.0x forward EBITDA, after taking into account expected synergies of C$2m in the first year and C$2m in the second year.

Post Garaventa Lift, we estimate net debt/EBITDA at 1.1x, which is below management's maximum comfort level of 2.0x. Following Span-America Medical Systems in 2017 and Garaventa Lift in 2018, we believe Savaria could be ready for another large transaction in 2019.

The dividend has been on a sharp upward path, supported by Savaria's positive earnings trajectory. Following increases of 25% in 2015 and 30% in 2016, a 38% dividend raise was announced on September 11, 2017, to C$0.36 per share (2.2% dividend yield). We see further potential upside to the dividend in 2018 and beyond, based on Savaria's positive organic and acquisitive outlook.

Our C$22.00 target implies 16x EV/EBITDA on our 2019 estimates. This is at the higher end of where its peers are trading (9–17x) and is warranted, in our opinion, when considering Savaria's healthier growth profile, lower leverage and higher dividend yield. Savaria is one of the preferred names in our coverage universe.