Marvelous Microcaps

Aviat Networks, Inc. (AVNW)

INTRO:

At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.”  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.

THE COMPANY:

Aviat Networks, Inc. (AVNW) is the leading expert in wireless transport solutions and works to provide dependable products, service, and support to its customers.  Network operators are facing enormous capacity demands driven by 5G, rural broadband, and private network requirements. Aviat is responding to that challenge with game-changing innovations in wireless transport systems, software, and services.  They provide a carrier-class wireless transport system that simplifies network complexity, lowers costs, and delivers a superior customer experience.  They focus on lowering the total cost of ownership while providing increased capacity, improved network efficiency, and performance all with less equipment, lower power consumption, minimized site costs, and fewer resources.

WHY WE OWN: THE PERRITT ADVANTAGE

Aviat has been focused on acquisitions.  They tried to purchase Ceragon last summer, but it fell through.  They have rebounded by making an interesting bolt-on deal for wireless activities from NEC.  They will pay $70 million for NEC’s Wireless Transport Business, adding $150 million in revenue per year.  This purchase provides them with greater diversification, more product offerings, and synergies.  Pro forma EBITDA is anticipated to be around $50 million.

AVNW has been posting double digit increases in sales each quarter.  They reported their fourth quarter earnings recently and revenues increased 8%, core profitability was up 30% and they posted their highest quarter for bookings in seven years.  Despite their strong track record, the shares trade at only 7x earnings and 6x AEBITDA.  The company has many catalysts including government funding, 5G private network cycle, rural broadband cycle, acceleration of international revenue, and ramp of new products.