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Redknee’s Q3 revenue could surprise to the upside, says Clarus

Redknee CEO Lucas Skoczkowski prepares his speech for Oracle OpenWorld.

Because of multiple upgrades and contract renewals, Redknee’s (TSX:RKN) third quarter revenue number could be higher than expected, says Clarus analyst Eyal Ofir.

Ofir says he expects Redknee will generate EPS of $0.03 on revenue of (US) $62.7-million in its Q3, 2014, which is due Wednesday. The analyst thinks a revenue bump might come from increased third party hardware and software sales, which have a lower margin profile overall. Under this scenario, Redknee’s revenue number would be higher, but its bottom line would not move much.

The Clarus analyst says he does expect quarter-over-quarter improvement in Redknee’s gross margins. He is modeling margins of 55%, up from 48% in the company’s second quarter. Another number he will be watching closely is recurring revenue, which fell from the company’s norm of about 60% to a historic low of 36% in Q2.

In May, Redknee reported its Q2, 2014 results. The company earned $4.8-million on revenue of $72.4-million.

Overall, Ofir says he remains bullish on Redknee because of a “significant” number of expansion and upgrade opportunities from its acquisition of Nokia Siemens Networks assets, and a number of other contracts it is bidding on.

In a research update to clients this morning, Ofir maintained his “Buy” recommendation and C$6.75 one-year target on Redknee, implying a return of 41.5% at the time of publication. His target, he says, is based on 21x his estimate for the company’s adjusted EPS in 2015.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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