The volume of new pilot projects for Redline Communications (TSX:RDL) suggests the company will continue to grow its EBITDA and revenue, says Cantor Fitzgerald Canada analyst Justin Kew.
On Monday, Redline reported its Q3, 2014 results. The company lost (US) $94,697 on revenue of $9.1-million, 29% better than last year’s third quarter topline.
“We’re pleased to see our revenues increase year over year and quarter over quarter, as Q3 is traditionally a slower quarter for Redline,” said CFO George Kypreos. “We continue to see demand for Redline to act as the overall network solution provider, which gives us better control over the quality of the solution and increased revenue for services and third party products. While the increase in revenue from third party products has put and may continue to put downward pressure on overall margins, we expect to see them improve and be closer to normal levels in future quarters.”
Kew notes that the revenue Redline posted was well ahead of his expectation of an $8.1-million, but that the company’s EBITDA of $0.3-million was lower than his forecast of $0.7-million and the street consensus of $1.01-million.
The analyst points out that Redline initiated a record 12 new pilot projects in the third quarter, and now has begun 20 pilots so far this year, matching its target for 2014. He notes that the company has had tremendous success in converting pilots to full deployments, and he expect its conversion rate will remain close to 100%. Kew says these pilots, combined with the company’s current backlog of $17.4-million, gives him confidence that Redline will continue to grow.
In a research update to clients yesterday, Kew maintained his “Buy” rating and one year target of $4.50 on Redline Communications, implying a return of 50% at the time of publication.