Redline is a buy ahead of Q3 results, says Cantor’s Kew

Redline Communications (TSX:RDL) has a real opportunity in the oil and gas vertical, says Cantor Fitzgerald Canada analyst Justin Kew.

On Monday, November 4th, Redline will report its Q3, 2014 results. The company is coming off a Q2 in which it earned $600,000 on revenue of $8.7 million, a topline that was down 3% over the same period in 2013.

Redline CEO Robert William struck an upbeat tone about the company’s second quarter.

“This was a strong and encouraging quarter for Redline,” he said. “Orders came from several market segments and especially from oil and gas where our pilot program continues to demonstrate traction. Looking forward, we are comfortable that our expenses are in line with our revenues and we continue to see opportunities in all of our target markets to drive our top line growth.”

Kew says he expects Redline will post EBITDA of $700,000 on revenue of $8.1-million in its third quarter, versus the street consensus of $500,000 in EBITDA on an $8.6-million topline. The analyst, who this morning reiterated his “Buy” rating and $4.50 one-year target on Redline, says he continues to regard the company as a “compelling growth opportunity”.

Noting that Redline’s solutions have already been deployed in 34 oil fields and that the company has another 15 in the pilot stage, Kew thinks its technology will soon become the industry standard in the space. This, says the analyst, would be a lucrative result, as each field has an estimated lifetime value of between $2-million and $5-million, in addition to support and maintenance revenue.

Kew’s $4.50 target on Redline implied a return of 45% at the time of publication.