Redline Communications is still a buy, says Cantor Fitzgerald’s Abernethy

Redline CFO George Kypreos. Its restructuring plan behind it, Redline Communications (TSX:RDL) is showing increasing success in adding and converting pilot projects, says Cantor Fitzgerald analyst Blair Abernethy.

On Monday, Redline reported its Q1, 2014 results. The company earned (US) $574,630 on revenue of $7.1-million, a topline that was down 12% over the same period last year.

CFO George Kypreos had a positive take on the period, despite the downtick in revenue.

“We are very pleased with the results of the restructuring plan we put in place in December, 2013,” he said. “Our reduced expenses, coupled with our strong gross margins, have contributed to a positive EBITDA despite lower revenues. Our goal was to become EBITDA positive in 2014, and we have realized this goal in the first quarter of the year.”

Abernethy says Redline’s top and bottom line both fell slightly short of his expectations, but another metric he considers important -bookings- exceeded them. Q1 bookings, he points out, were $8.9-million, higher than his expectation of $6.8-million. The company’s order backlog, he notes, is up 8.5% over Q4, 2013 to $18.5-million.

Following its quarterly results, Redline announced a $1.7-million order with a large public security network. Abernethy notes that this was a successful conversion of a pilot project, and that the company added six more pilots in the quarter, bringing its current total to 15. The Cantor analyst says he expects these pilots will convert to deployments over the next year and that each will be worth one to two-million dollars per year.

In a research update to clients this morning, Abernethy maintained his “Buy” rating and one-year target of $3.50, implying a 25% return from the date of publication.

______________________________________________________________________________________________________________