Mitel CEO Rich Mcbee. Cormark analyst Richard Tse says the market has been pricing both Mitel and Aastra as legacy plays for a number of years and has ignored their considerable moves to the cloud.Cormark analyst Richard Tse says the potential synergies presented by Mitel (TSX:MNW) on its acquisition of Aastra Technologies seem conservative to him. The upside he sees has prompted him to rerate the stock as a “Top Pick”.
Last Friday, Mitel announced it had completed the acquisition of peer Aastra for approximately $392-million. Concord, Ontario-based Aastra markets a range of telephony solutions for large businesses, and had, in recent years, been hit by a slowdown in Europe, where approximately 80% of its revenue comes from.
Mitel CEO Rich Mcbee says the sheer size of the pickup creates opportunities.
“With this merger the combined annual revenue of Mitel exceeds $1-billion, which we believe creates the financial scale and operational leverage to drive shareholder value and profitable growth in an opportunity-rich consolidating market,” he said. “We now have double the talent, tools and range of solutions to aggressively compete for a greater share of our market.”
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Mitel says it expects approximately (U.S.) $50-million of run rate synergies within two-and-a-half years, Tse does not pinpoint a figure believes this estimate is too low.
Tse says the market has been pricing both Mitel and Aastra as legacy plays for a number of years and ignored their considerable moves to the cloud. He says enterprise communications platforms are quickly moving from on-premise to virtualized solutions and the combined entity of Mitel and Aastra, with more than 60-million potential customers, has a lot of runway to capitalize on this trend.
The Cormark analyst says he sees Mitel’s EBITDA moving from $85-million in fiscal 2013 to $146-million in 2014 and and $200-million in F2015. In a research update to clients Monday, Tse maintained his $12.50 one-year target on Mitel, but upgraded the stock to TOP PICK from BUY.
At press time, shares of Mitel on the TSX were up 3.5% to $9.79.
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