Redknee’s prospects remain “outstanding”, says Cantor Fitzgerald

Despite a “noisy” fourth quater, Redknee’s acquisition of assets from Nokia Siemens Networks represents an outstanding long term opportunity, says Cantor Fitzgerald.Redknee’s (TSX:RKN) fourth quarter, reported yesterday, was a “noisy” one, says Cantor Fitzgerald analyst Justin Kew, but investors should focus on the company’s stable support revenue and longer-term opportunity, which remains “outstanding”.

Shares of Redknee fell sharply today after the company reported a net loss of 1-million on revenue of $57.4-million. The topline was lower than Kew’s forecast of $59.9-million and the street consensus of $59-million. The company’s EBITDA of $4.5-million was lower than Kew’s expectation of $6.6-million and the street’s $5.9-million.

CEO Lucas Skoczkowski focused on the company’s progress.

“Customers are responding positively to Redknee, and we continue to make excellent progress with our integration strategy. This is reflected in our financial results for the quarter, as well as a growing pipeline, driven by renewals with existing customers, a healthy demand for upgrades and a general sales momentum. In 2014, we will continue to emphasize high-quality customer service, while we focus on cross-selling and increasing revenue opportunities with our existing customer base and acquiring new customers.”

In a research update to clients this morning, Kew reiterated his BUY rating and raised his target on Redknee to $7.75, up from his previous target of $5.25.

The Cantor Fitzgerald analyst says he remains confident that the watershed acquisition of assets from Nokia Siemens Networks represents an outstanding opportunity with tremendous upside and low risk, given the blue chip customer base Redknee can leverage. He notes that this was just the second quarter with contribution from the Nokia Siemens Networks pickup, and the miss can be chalked up to lower than expected software and services revenue. He notes that the company’s support revenue of $31.5-million was ahead of his forecast of $30.7-million.

Kew points out that management kept to its guidance of single digit EBITDA margins in the first 12 months following the acquisition that they expect to climb through the mid-teens and towards a long term goal of 20-25%. He expects that this guidance is conservative, and that the company will reach it on an accelerated timetable.

Shares of Redknee closed today down 19.5% to 5.73.

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