Nortech Systems Incorporated reports 179% EBITDA growth in 2018 and 1.9 pp EBITDA Margin growth from 1.1% to 3.0%
04/01/2019 • About Nortech Systems Incorporated (
$NSYS) • By InTwits
Nortech Systems Incorporated reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is relatively stable: 3.0% in 2018 vs. 1.1% in 2017 vs. 3.0% in 2014
- EBITDA Margin is quite volatile: 3.0% in 2018, 1.1% in 2017, 2.5% in 2016, 1.6% in 2015, 3.0% in 2014
- Nortech Systems Incorporated has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.4%. At the same time it's in pair with industry average of 3.6%
- CAPEX is quite volatile: $0m in 2018, $0m in 2017, $0m in 2016, $0m in 2015, $0m in 2014
- The company has potentially unprofitable business model: ROIC is 3.6%
- It operates with medium-size leverage: Net Debt/EBITDA is 3.8x while industry average is 3.9x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue increased slightly on 0.92%. Revenue growth showed acceleration in 18Q4 - it increased 12.7% YoY. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased slightly on 1.9 pp from 1.1% to 3.0% in 2018.
Gross Margin increased slightly on 0.95 pp from 10.8% to 11.7% in 2018. SG&A as a % of Revenue decreased slightly on 0.78 pp from 11.4% to 10.6% in 2018. During 2014-2018 SG&A as a % of Revenue topped in 2017 at 11.4%.
Net Income margin increased on 2.3 pp from -2.2% to 0.15% in 2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 1.2% in 2018. Nortech Systems Incorporated's CAPEX/Revenue showed almost no change from 2015 to 2018. It's average level of CAPEX/Revenue for the last three years was 1.2%.
Return on investment
The company operates at low ROIC (3.6%) and ROE (0.8%). ROIC increased on 7.2 pp from -3.6% to 3.6% in 2018. ROE jumped on 12.6 pp from -11.7% to 0.82% in 2018.
Leverage (Debt)
Company's Net Debt / EBITDA is 3.8x and Debt / EBITDA is 4.0x. Net Debt / EBITDA dropped on 7.0x from 10.9x to 3.8x in 2018. Debt decreased slightly on 1.4% while cash increased slightly on 1.5%.
Nortech Systems Incorporated has short term refinancing risk: cash is only 61.5% of short term debt.
Valuation and dividends
The company's trades at EV/EBITDA 6.3x and P/E 51.1x.
Financial and operational results
FY ended 12/31/2018
Nortech Systems Incorporated ($NSYS) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 112.0 | 115.2 | 116.6 | 112.3 | 113.4 | 0.9% |
| Gross Profit | 13.3 | 12.1 | 13.8 | 12.1 | 13.3 | 9.8% |
| SG&A | 12.0 | 12.5 | 13.2 | 12.8 | 12.1 | -6.0% |
| EBITDA | 3.4 | 1.8 | 2.9 | 1.2 | 3.4 | 179.1% |
| Net Income | 0.9 | -0.6 | 0.0 | -2.4 | 0.2 | |
Balance Sheet
|
|---|
| Cash | 0.1 | 0.0 | 0.3 | 0.5 | 0.5 | 1.5% |
| Short Term Debt | 0.7 | 1.5 | 1.6 | 1.0 | 0.8 | -22.2% |
| Long Term Debt | 12.1 | 13.6 | 12.2 | 12.9 | 12.9 | 0.2% |
Cash flow
|
|---|
| Capex | 2.2 | 1.7 | 2.0 | 0.8 | 1.4 | 72.1% |
Ratios
|
|---|
| Revenue growth | 0.9% | 2.8% | 1.2% | -3.7% | 0.9% | |
| EBITDA growth | -3.1% | -45.3% | 59.2% | -57.9% | 179.1% | |
|
|---|
| Gross Margin | 11.9% | 10.5% | 11.9% | 10.8% | 11.7% | 1.0% |
| EBITDA Margin | 3.0% | 1.6% | 2.5% | 1.1% | 3.0% | 1.9% |
| SG&A, % of revenue | 10.7% | 10.8% | 11.3% | 11.4% | 10.6% | -0.8% |
| Net Income Margin | 0.8% | -0.5% | 0.0% | -2.2% | 0.1% | 2.3% |
| CAPEX, % of revenue | 2.0% | 1.5% | 1.7% | 0.7% | 1.2% | 0.5% |
|
|---|
| ROIC | 3.8% | -1.2% | 1.7% | -3.6% | 3.6% | 7.2% |
| ROE | 4.0% | -2.6% | 0.2% | -11.7% | 0.8% | 12.6% |
| Net Debt/EBITDA | 3.8x | 8.2x | 4.6x | 10.9x | 3.8x | -7.0x |
Nortech Systems Incorporated ($NSYS) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 26 | 29 | 30 | 29 | | -6.6% | -5.3% | 4.4% | 12.7% |
| EBITDA | 0 | 1 | 1 | 1 | | -38.3% | 74.6% | 29.6% | |
| Net Income | -0 | 0 | 0 | -0 | | | | 739.3% | |
Balance Sheet
|
|---|
| Cash | 0 | 0 | 0 | 0 | | 126.8% | 129.2% | -25.2% | 1.5% |
| Short Term Debt | 1 | 1 | 1 | 1 | | -35.9% | -4.8% | -12.1% | -22.2% |
| Long Term Debt | 13 | 11 | 12 | 13 | | 6.2% | -4.9% | -9.9% | 0.2% |
Ratios
|
|---|
| Gross Margin | 11.4% | 13.4% | 11.5% | 10.7% | | 0.5% | 2.2% | -1.0% | 2.3% |
| EBITDA Margin | 1.7% | 4.5% | 4.0% | 1.8% | | -0.9% | 2.1% | 0.8% | 6.3% |
| Net Income Margin | -1.5% | 1.4% | 1.2% | -0.7% | | -1.4% | 1.4% | 1.1% | 8.9% |
Peers in Electronic Manufacturing Servi
Below we provide Nortech Systems Incorporated benchmarking against other companies in Electronic Manufacturing Servi industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| RF Industries, Ltd. ($RFIL) | | 41.9% | -7.8% | -24.0% | 118.4% |
| Alpine 4 Technologies Ltd ($ALPP) | | | 35,893.8% | 5.8% | 71.5% |
| Kemet Corporation ($KEM) | | -1.3% | -10.7% | 3.1% | 58.4% |
| SMTC Corporation ($SMTX) | | -3.5% | -23.9% | -17.1% | 55.2% |
| Deswell Industries, Inc. ($DSWL) | | -7.0% | 17.1% | -0.1% | 36.3% |
| |
|---|
| Median (27 companies) | | 2.6% | 1.7% | 3.0% | 9.8% |
|---|
| Nortech Systems Incorporated ($NSYS) | | 2.8% | 1.2% | -3.7% | 0.9% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Neonode Inc. ($NEON) | 68.2% | 66.0% | 86.9% | 77.1% | 89.2% |
| Andrea Electronics Corp ($ANDR) | 83.8% | 99.1% | 88.5% | 96.2% | 70.4% |
| Data I/O Corporation ($DAIO) | 53.9% | 52.4% | 55.0% | 58.9% | 59.4% |
| IPG Photonics Corporation ($IPGP) | 54.1% | 54.6% | 54.9% | 56.6% | 54.8% |
| CTS Corporation ($CTS) | 32.2% | 33.2% | 35.4% | 33.2% | 35.1% |
| |
|---|
| Median (27 companies) | 14.7% | 19.4% | 22.2% | 15.8% | 15.2% |
|---|
| Nortech Systems Incorporated ($NSYS) | 11.9% | 10.5% | 11.9% | 10.8% | 11.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| IPG Photonics Corporation ($IPGP) | 41.5% | 42.4% | 41.8% | 44.7% | 40.9% |
| TE Connectivity Ltd. ($TEL) | 19.7% | 19.3% | 20.9% | 20.4% | 21.4% |
| CTS Corporation ($CTS) | 14.7% | 9.0% | 20.7% | 14.0% | 17.8% |
| Methode Electronics, Inc. ($MEI) | 12.6% | 15.4% | 16.5% | 16.5% | 16.1% |
| RF Industries, Ltd. ($RFIL) | 12.4% | 6.7% | -12.1% | 3.1% | 15.9% |
| |
|---|
| Median (27 companies) | 4.8% | 5.8% | 5.4% | 5.0% | 4.8% |
|---|
| Nortech Systems Incorporated ($NSYS) | 3.0% | 1.6% | 2.5% | 1.1% | 3.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Maxwell Technologies, Inc. ($MXWL) | 3.7% | 2.5% | 4.9% | 6.6% | 11.3% |
| IPG Photonics Corporation ($IPGP) | 11.5% | 7.8% | 12.6% | 9.0% | 11.0% |
| eMagin Corporation ($EMAN) | 5.8% | 4.7% | 6.7% | 6.2% | 8.8% |
| TE Connectivity Ltd. ($TEL) | 5.3% | 4.9% | 5.3% | 5.6% | 6.7% |
| CTS Corporation ($CTS) | 3.2% | 2.5% | 5.2% | 4.3% | 6.1% |
| |
|---|
| Median (27 companies) | 2.7% | 2.4% | 2.8% | 3.4% | 2.5% |
|---|
| Nortech Systems Incorporated ($NSYS) | 2.0% | 1.5% | 1.7% | 0.7% | 1.2% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| RF Industries, Ltd. ($RFIL) | 8.5% | 4.6% | -18.7% | 0.9% | 29.2% |
| IPG Photonics Corporation ($IPGP) | 27.0% | 27.8% | 25.1% | 29.9% | 22.9% |
| Methode Electronics, Inc. ($MEI) | 19.7% | 26.1% | 22.7% | 20.8% | 19.2% |
| TE Connectivity Ltd. ($TEL) | 17.3% | 15.1% | 15.9% | 16.2% | 18.4% |
| Kemet Corporation ($KEM) | -2.8% | 3.8% | 6.2% | 6.9% | 16.9% |
| |
|---|
| Median (29 companies) | 5.0% | 5.3% | 6.7% | 5.7% | 6.7% |
|---|
| Nortech Systems Incorporated ($NSYS) | 3.8% | -1.2% | 1.7% | -3.6% | 3.6% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Alpine 4 Technologies Ltd ($ALPP) | | | | 34.1x | 65.7x |
| SigmaTron International, Inc. ($SGMA) | 2.7x | 4.1x | 2.4x | 3.4x | 16.0x |
| SMTC Corporation ($SMTX) | 3.5x | 1.8x | 1.0x | | 11.3x |
| IEC Electronics Corp. ($IEC) | 7.1x | 14.0x | 2.0x | 5.6x | 4.9x |
| Key Tronic Corporation ($KTCC) | 0.2x | 3.4x | 2.6x | 2.5x | 3.9x |
| |
|---|
| Median (22 companies) | -0.5x | -0.9x | -0.0x | -0.1x | -0.2x |
|---|
| Nortech Systems Incorporated ($NSYS) | 3.8x | 8.2x | 4.6x | 10.9x | 3.8x |
