Cantor Fitzgerald initiates coverage of Redline with a BUY, $7.50 target

Cantor's rating punctuates the turnaround of a company that many left for dead. In 2009 CEO Eric Melka (pictured), who joined Redline from Telemedia Ventures has presided over a near clean sweep of the its business, management team, and board.

In a research report to clients this morning, Cantor Fitzgerald analyst Tom Liston initiated coverage of Redline Communications (TSX:RDL) with a BUY rating and $7.50 one-year target.

Cantor’s rating punctuates the turnaround of a company that many left for dead. In 2009 CEO Eric Melka, who joined Redline from Telemedia Ventures has presided over a near clean sweep of the its business, management team, and board.

The company was resuscitated after a disastrous bet on Wi-MAX, a wireless communications standard that was ultimately beaten out by LTE.

Melka refocused Redline on a return to its roots in providing broadband wireless equipment to niche markets. By developing what he calls a “software driven hardware platform” and stopping all Wi-MAX development, Redline instantly reversed its fortunes, turning a loss of $10-million in 2009 to a profit of $4-million the very next year.

Liston says Redline is winning business because its offerings are differentiated from its competitors. He says the company delivers a lower cost of ownership over other technologies, particularly in the oil & gas and public security verticals, where it has had several recent wins.

He also says the company’s flirtation with extinction has an unexpected silver lining; Redline has significant tax losses which will shelter near term profits. At the end of last year, he points out the company had net operating loss carry forwards of $46.8 million, a loss that will be able to reduce taxable income in future year.

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The Cantor Fitzgerald analyst says Redline is showing signs of future growth in that its order backlog has grown substantially in the past two quarters; from $6.5-million in Q1, to $16.1-million in Q3. He says each $5 million contract adds an incremental EPS of $0.10-0.15. His target is based on 13x 2014 adjusted EPS, which he thinks will come in at $.56.

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About The Author / Nick Waddell

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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