Mitel’s progress is underappreciated, says Cormark analyst Tse

Cormark analyst Richard Tse says the fact that Ottawa’s Mitel (Mitel Stock Quote, Chart, News: TSX:MNW) doesn’t operate in one of the most exciting sectors of technology is obscuring the company’s real progress.

Yesterday, after market, Mitel reported its Q4 and fiscal 2013 results. For the quarter the company earned $14.1-million, or $0.25 a share on revenue of $150.9-million. For the year, the company earned (U.S.) $6.2-million on revenue of $576.9-million.

CEO Rich McBee said the quarter was another solid one.

“In the fourth quarter, we are pleased to have exceeded our guidance for revenue and gross margin,” he said. “We had solid sequential revenue growth of 6 per cent resulting from our continued focus on both our premise-based business and our cloud service offerings. This month, we announced and completed the acquisition of the contact centre OEM supplier prairieFyre, which will allow us to capitalize on the increasing market demand for contact centre solutions. We also significantly enhanced our sales leadership with the appointment of three new sales executives in the Americas.”

Tse says Mitel’s Q4 exceeded his expectations. He thought Mitel would earn $0.22 a share on revenue of $145-million. He thinks the quarter underscores the company’s continued operational progress, but says its valuation is a partial reflection of the realities of the marketplace in operates in, where investors are simply not assigning a premium. He says this leaves Mitel undervalued, as it ignores the fact that the company is building leverage, a growing channel, and making inroads with new products.

In a research update to clients this morning, Tse reiterated his BUY rating and $5 one-year target on Mitel.

Tse notes that Mitel has a perceive leadership position in the virtualized, or “cloud” market, but he cautions that he has yet to see financial disclosure that breaks down its overall contribution. Nonetheless, he sees this business as an increasingly larger part of the company’s growth, noting that Mitel added more than 33,000 new cloud-based user in 2013’s fourth quarter, bringing its installed based to more than 262,000.

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