If, in 2007, Redline Communications (TSX:RDL) stock chart was a ski hill, it would have been a double black diamond, with an ambulance waiting at the bottom.
Shares of the Markham-based company were hammered from more than $6 to pennies, as its move into the WiMAX space prove to be a disaster. Redline’s losses, particularly in 2008 when it was in the red by nearly $30-million, were staggering and ultimately forced the company upon on a restructuring that would return it to its roots in providing broadband wireless equipment to niche markets.
But the Redline of today, says Byron Capital analyst Tom Astle, bears little resemblance to the company “vapourized over $100 million into the WiMax equipment markets”. Today’s version has new management, positive cash flow, reorganized sales and distribution, and a stock trading at about one times sales. In a research report to clients yesterday, Astle initiated coverage of Redline with a Speculative Buy rating and a twelve-month target of $1.70.
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Astle thinks Redline could be a tech turnaround because it now has “considerable technology strength, existing customer base, strong gross margins, and manageable operating costs faces a growth opportunity in its vertical market niches – especially the oil and gas segment.”
The oil and gas sector is becoming increasingly tech-centric, with major players like Chevron and Shell laying out big bucks to create “digital oil fields” that do everything from monitoring wells to providing video surveillance, to equipping the site with a stable internet connection. Redline is well positioned, says Astle, because it has existing relationships with major systems integrators like Haliburton, who turn to Redline because its gear is designed for an industrial/military user who needs a much more robust, reliable network.
Shares of Redline Communications closed today down 5.5% to $1.04.