Sandvine’s (TSX:SVC) maturing channel partnership is creating greater earnings leverage for the Waterloo-based company, says M Partners analyst Ron Shuttleworth.
Last week, Sandvine reported its Q3, 2013 results. The company earned $4.65-million (U.S.) on revenue of $27.2-million, a topline that was up 25% over last year’s thrd quarter.
Shuttleworth says Sandvine Q3 EBITDA of $6.5-million was $1.0-million ahead of our forecast of $5.5-million and $1.6-million better than street consensus.
While revenue fell short of his estimate of $29-million, the company made up for this, he says, with gross margins that came in at 76%, which was 5% above his estimate and resulted in gross revenue of $20.6-million, in line with his estimate.
The M Partners analyst says there is very little recurring revenue in Sandvine’s business model, which makes its especially sensitive to macro-economic conditions. This has hurt the company in recent times, but Shuttleworth says an environment where the European debt crisis is receding and Asia-Pacific opportunities are emerging will make this flaw in the company’s business model less prominent.
In a research update to clients following the quarterly results, Shuttleworth maintained his BUY recommendation and increase our 12-month share price target to $2.60, up from his previous target of $2.40.