Mitel Networks Corp. – Value Analysis (NASDAQ:MITL) : September 25, 2017

Capitalcube gives Mitel Networks Corp. a score of 50.

Our analysis is based on comparing Mitel Networks Corp. with the following peers – ShoreTel, Inc., Microsoft Corporation, Inventergy Global Inc and Cisco Systems, Inc. (SHOR-US, MSFT-US, INVT-US and CSCO-US).

Investment Outlook

Mitel Networks Corp. has a fundamental score of 50 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It’s current Price/Book of 2.87 is about median in its peer group.
  • The market expects faster earnings growth from MITL-US than from its peers and also a turnaround in its current ROE.
  • MITL-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • Over the last five years, MITL-US‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • Compared with the peers chosen, MITL-US has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company is likely overinvesting in a business with only median returns.
  • MITL-US does not seem to have the flexibility to raise more debt.

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Leverage & Liquidity

MITL-US does not seem able to raise more debt easily.

  • MITL-US‘s debt at 24.09% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 18.21%), and interest coverage level of 2.32x, would make major new borrowings difficult.
  • Of the 4 chosen peers for the company, only 3 of the stocks have an outstanding debt balance. Companies with no debt include SHOR-US.

MITL-US has moved towards a median liquidity and leverage from an Some Capacity profile at the recent year-end.

  • MITL-US‘s interest coverage has declined 1.29 points from last year’s high and is now close to its five-year average interest coverage.
  • The decrease in its interest coverage to 2.32x from 3.61x (in 2016) was also accompanied by a decrease in its peer median during this period to 2.32x from 3.61x.
  • MITL-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 64.01% in 2012.
  • Like the interest coverage trend, the decrease in its debt-EV (to 24.09% from 44.54%) was also accompanied by a decrease in its peer median during this period (to 18.21% from 28.03%).
  • Relative to peers, debt-EV fell 10.63 percentage points.

Access the detailed analysis for Mitel Networks Corp.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
ShoreTel, Inc. 0 1.54 -25.54 999
Microsoft Corporation 18.21 2.48 11.01 53.17
Inventergy Global Inc 15.83 0.13 -1.06 -85
Cisco Systems, Inc. 28.03 3.03 14.94 42.62
Mitel Networks Corporation 24.09 1.35 2.32 41.4
Peer Median 18.21 1.54 2.32 42.62
Best In Class 15.83 3.03 14.94 999

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Company Profile

Mitel Networks Corp. engages in the provision of cloud and enterprise communications and collaboration solutions through software product development. It operates through Enterprise, and Cloud segments. The Enterprise segment offers a broad range of unified communications and collaboration solutions, which address and support the full spectrum of technology specifications from digital to internet protocol to mobile, and from platforms to applications to end-user devices. The Cloud segment offers a full range of private, public, hybrid, and mobile software as a service solutions for businesses of all sizes. The company was founded by Terence Hedley Matthews in 1972 and is headquartered in Ottawa, Canada.

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