On Thursday, Sandvine (TSX:SVC) will report its Q3, 2012 results. The first half of this year has not been kind to the Waterloo company; a $6.5-million loss in Q1, followed by a $4.2-million loss in Q2 has sent its shares into a tailspin.
M Partners analyst Ron Shuttleworth remains cautious on the stock, but says the worst may be behind Sandvine. After consecutive negative quarters, the M Partners analyst is forecasting a return to positive EBITDA. He says the the resolution of the company’s spotty relationship with Telefonica, combined with recent traction in Asia Pacific region means Sandvine deserves to valued in line with the median of its peer set, which is 11.5x EV/EBITDA for next year’s earnings. In a research update to clients this morning, Shuttleworth maintained his SELL rating on Sandvine, but raised his target price to $1 from his previous target of $.80 cents.
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Sandvine was founded in 2001 by a group that had just sold PixStream to Cisco for $554-million. After Pixstream became the 117th acquisition Cisco did in 2000, it curiously shut the division down just four months later. Sandvine grew because web traffic exploded. As networks became increasingly burdened in the latter half of the last decade, the company’s technology gave service providers a window into the world of their chaotic traffic. The company’s deep packet inspection technology equipped network operators with the critical information they need to make decisions and form policies on service plans, capital investments and premium services. Sandvine now has more than 200 clients in 85 countries, including Cricket, Telefonica and Comcast. These wins helped its topline grow from $51-million in 2008 to $92.7-million in 2010. 2011, however, was a step backward, as revenue came in at just $89.3-million.
Shuttleworth describes his assessment of Sandvine’s second half of 2012 as “modest”, but still notes that his Q3 revenue forecast of $22-million would be the company’s third best quarterly performance since 2008. He thinks the company will earn a penny a share in Q3.
Shares of Sandvine closed today down 4.2% to $1.15.