Paradigm Capital analyst Gabriel Leung says time he recently spent with the management of NeuLion (TSX:NLN) has reinforced his belief that the company is well positioned to capitalize on a “significant growth opportunity”.
In a research update to clients this morning, Leung maintained his “Buy” rating on NeuLion, but raised his one-year target on the stock from $1.25 to $1.40.
The Paradigm analyst, who was recently ranked in the Thomson Reuters 2014 Starmine Analyst Awards as the top stock picker for Software & IT Services, says macro trends are playing directly to the company’s strengths. He notes that overall internet traffic growth appears to be largely driven by internet video, citing one report that says video is set to grow from 60% of all internet traffic in 2013 to 69% in 2017.
Leung says there is also a push coming from the increasing cost of content rights, particularly for sports programming. He believes rights holders will continue to look for ways to expand their respective audiences, playing into NeuLion’s hands.
Founded in 2004, Neulion specializes in the digital video broadcasting, distribution and monetization of live and on-demand content to mobile devices. The company has partnered with the NHL, NBA, and NFL, as well as more minor organizations such as The Big Ten Network and the Ontario Hockey League. The company earned $2.2-million on revenue of $47.1-million in its fiscal 2013, which was reported in March.
Leung says his target raise reflects upside from several recent wins for NeuLion, inlcuding deals with Rogers and Univision, and also his application of a higher multiple. He arrives at his new target by applying a 20x multiple to his expectations for the company’s fiscal 2015 EV/EBITDA, noting that its peer group trades at 19x.