Redline Communications’ acquisition strategy is sound, says Cantor Fitzgerald

Cantor Fitzgerald analysts Justin Kew and Tom Liston says Redline Communications’ (Redline Communications Stock Quote, Chart, News: TSX:RDL) is building on its core network with accretive acquisitions that offer cross-sell and up-sell opportunities.

Yesterday, Redline announced it entered into two non-binding letters of intent to acquire two unnamed wireless communications businesses, one in North America and the other in the Middle East.

CEO Eric Melka says the company’s acquisition strategy is a key to its growth.

“We have deliberately set out to grow through acquisitions to continue to meet the needs of our global customers,” he said. “We have been seeking companies which can extend our product line and which can provide additional products, applications and solutions that will accelerate the use of our networks and drive a faster return on investment to our customers. These two companies do exactly this.” Melka added; “One of our first goals is to reach $100-million of profitable revenue as quickly as possible. These types of acquisitions contribute significantly to achieving this goal.”

Kew and Liston say that although no terms were announced, they believe these are “highly material” acquisitions, and that the Middle East business will extend the company’s value added solutions to digital oil fields in that part of the world. The North American acquisition, they say, will provide infrastructure product that will expand the company’s product depth and customer reach.

In a research update to clients yesterday, Cantor Fitzgerald maintained its BUY rating and $8.25 one-year target price on Redline. This target, say Kew and Liston, is based on 15× their expectation of Redline’s fiscal 2015 P/E.

At press time, shares of Redline Communications were even at $6.

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