Wi-LAN is significantly undervalued, says Industrial Alliance Securities

Late last year, Wi-LAN initiated litigation against Apple, HTC and Sierra Wireless, claiming infringement of WiLAN's U.S. Patent Nos. 8,315,640 and 8,311,040, which are related to LTE technologies.

Late last year, Wi-LAN initiated litigation against Apple, HTC and Sierra Wireless, claiming infringement of WiLAN’s U.S. Patent Nos. 8,315,640 and 8,311,040, which are related to LTE technologies.

On March 6th, before market open, Wi-LAN (TSX:WIN) will report its fourth quarter and full year results for fiscal 2012.

After a Q3 that was regarded as mixed, management said it expects revenue to be at least $20.7 million, excluding the potential impact of any additional royalty agreements.

The Ottawa-patent player’s stock, meanwhile, has languished. After spiking to more than $9 midway through 2011, shares of Wi-LAN have slowly trailed off to current levels near the $4 mark.

Industrial Alliance Securities analyst Al Nagaraj says 2013 should be a much more active year for Wi-LAN than last year was. He notes that the company has an active docket of legal actions against vendors such as Apple, Dell, Sierra Wireless, HP, Alcatel and Ericsson. Because Wi-LAN has key patents in CDMA, Digital TV and WiFi, he expects a lot of success in these cases, which will he expects will boost revenue and EBITDA. In a research update to clients this morning, Nagaraj reiterated his BUY recommendation and $7.70 target on Wi-LAN.

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Because of the absence of upfront fees from major licensing deals, Nagaraj isn’t expecting much from Wi-LAN’s Q4. He thinks the company’s topline will come in at $20-million, down 19.4% from the same period last year, and less than the consensus estimate of $22-million. He thinks gross margins will fall to 64% from last year’s 74%, for the same reason.

Nagaraj’s says his valuation is based on excess cash and 10x his 2014 EBITDA forecast of $97-million.

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