Cantor Fitzgerald chops target on Redknee after “messy” Q3

Yesterday, Redknee posted its Q3, 2014 results. The company lost (U.S.) $6.87-million on revenue of $63.9-million.

CEO Lucas Skoczkowski said the company was looking to move forward following the integration of its largest acquisition ever.

“We are focused on continuing to drive our share of higher-margin revenues, and, with the integration of the Nokia Networks BSS acquisition complete, we have initiated the next phase of our plan to optimize our operating structure and strategically reduce our cost base,” he said.

Kew says the “surprising” EBITDA loss came from a $9-million order the company was not able to close in this quarter. That, combined with a restructuring charge of $15-20-million made for what he calls a “messy” quarter. Noting that management believes it can achieve EBITDA margins in the mid-teens over the next four quarters, the analyst today pared back his expectations on that metric.

Kew now believes Redknee will deliver an EBITDA margin of 3% in 2014, down from his previous estimate of 11%. For 2015 and 2016, he believes the company will post 11% and 19%, respectively, down from his previous estimate of 20% and 25%. He now believes the company’s EBITDA will come in at $30.6-million in 2015 and $54.8-million in 2016, down from his previous expectation of $54.4-million and $71.3-million.

In a research update to clients today, Kew maintained his “Buy” rating, but lowered his one-year price target on Redknee from $7.75 to $5.50, implying a 38% return at the time of publication.

Kew says long-term, he is bullish on Redknee because of its solid order backlog, clean balance sheet and because of the “stickiness” of its support revenue.