Buy Guestlogix for fundamentals, not takeover potential, says Shuttleworth

M Partners analyst Ron Shuttleworth says Guestlogix’s (Guestlogix Stock Quote, Chart, News: TSX:GXI) Q2 results should be better than its recently announced Q1, owing to a rapidly improving deal pipeline.

On Wednesday, Guestlogix reported its Q1, 2013 results. The company lost (U.S.) $1.2-million on revenue of $7-million, which was up from $5.6-million in the same period a year prior.

CEO Brett Proud said he was happy with the company’s progress.

“Amid a series of corporate changes over the past quarter, Guestlogix took the time to reset as an organization, and we are pleased to start showing the results of that work within our first quarter results,” he said, adding: “The opportunities that lie ahead of us as a company are tremendous.”

Shuttleworth says the results of Guestlogix’s Q1 were mixed. He says the company’s revenue number, while besting last year’s performance by 25% was below his expectations of $8-million. The M Partners analyst notes, however, that Q1 did not include contributions from recently signed long term deals with Cathay Pacific, Thales and Panasonic Avionics, which management says will start to be realized in the current Q2.

Despite the Q1 miss, Guestlogix’s increased pipeline both in air and in rail is the real story here, says Shuttleworth. In a note to clients this morning, Shuttleworth increased his fiscal 2013 revenue forecast by $1-million, to $32.8-million, while maintaining his BUY recommendation and 12-month target price of $1.35.

Shuttleworth says some investors who bought Guestlogix after the company announced a strategic review might be exiting, but they are fast being replaced by those who are buying on improving fundamentals. He says there is now very little difference between the fundamental value of the company and the potential takeout price, which he pegs at between $1.30 and $1.50.

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