Cantor Fitzgerald analysts Justin Kew and Tom Liston say that after its splashy recent acquisition, Redknee (TSX:RKN) has a stable core business and “tremendous” upside.
Last December, Redknee surprised the market with the announcement of the $54-million acquisition of certain assets owned by Nokia Siemens Networks’ Business Support Systems. The Mississauga-based company added a total of 130 customers in ninety countries, 90% of which were new to it.
The Cantor Fitzgerald analysts say they believe Redknee has an opportunity to create significant shareholder value out of the acquisition, pointing to the company highly-recurring maintenance revenue (now 47% of total revenue) and ballooning backlog of $160 million.
This morning, the analysts initiated coverage of Redknee with a BUY rating and $4.50 one-year target.
Kew and Liston say the relatively low price Redknee paid for the Nokia Siemens Network assets is key because they believe this business can generate EBITDA margins of more than 15% by 2015. This would translate into more than $40-million annually.
Founded in the solarium of Lucas Skoczkowski’s apartment in 1999, Mississauga-based Redknee delivers real-time converged billing, and policy management solutions for telcos. The company now serves more than two-billion subscribers through 200 communications providers in more than ninety countries.
Kew and Liston say their target price is based on eight times their estimate of Redknee’s 2015 EV/EBITDA. They say they believe the company’s forecast growth warrants a multiple in line with its Canadian software peers.
Shares of Redknee closed today up 10.7% to $3.10