M Partners raises target on Redknee to $2.60

Redknee CEO Lucas Skoczkowski. M Partners analyst Ron Shuttleworth says the company’s  weak Q4 results were made irrelevant by the Nokia acquisition, which he calls “transformational”. He says that by integrating the entity, which has more than three times the revenue of Redknee itself, Redknee could triple its earnings.

Yesterday Redknee (TSX:RKN), amid the release of lucklustre Q4 earnings, surprised the market, announcing it had acquired the Business Support Systems division of Nokia Siemens Network.

After the announcement, shares of the Mississauga company spiked more than 20%, and the company finished the day as one of the TSX’s most active stocks.

M Partners analyst Ron Shuttleworth says the weak Q4 results were made irrelevant by the Nokia acquisition, which he calls “transformational”. He says that by integrating the entity, which has more than three times the revenue of Redknee itself, Redknee could triple its earnings.

In an update to clients today, Shuttleworth maintained his BUY recommendation and upped his one-year target price on Redknee to $2.60, from his old target of $1.95.

Shuttleworth says the acquisition will cost Redknee $54-million, comprised of $29-million in cash, plus a $25-million earn out. He says that during the conference call following the announcement it was revealed that Redknee gained a major footprint into the tier-one carrier market, instantly gaining 35 such customers. The company, he says, gained a total of 130 customers in ninety countries, 90% of which are new to Redknee.

Shuttleworth arrived at his target by applying the same 15x EV/EBITDA multiple to Redknee’s fiscal 2014 earnings, which he thinks will now grow from $12.5-million to $29-million.

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