DataWind’s margins will expand in Q3 and beyond, says Haywood

Tomorrow’s third quarter results will reveal expanding margins for DataWind (DataWind Stock Quote, Chart, News: TSX:DW), a trend that will continue into 2016, says Haywood analyst Massimo Voci.

On Thursday, after market, DataWind will report its Q3, 2015 results. Voci expects that DataWind’s gross margins will increase to 17.2% in the third quarter, up from 15.4% in Q2. The analyst believes this could expand to more than 25% in fiscal 2016, as internet subscriptions begin to supplant hardware revenue.

Voci thinks hardware unit sales will increase to more than 150,000 in the third quarter, up from 122,215 in Q2.

Though Voci thinks DataWind has “significant” investment risks such as bureaucratic red tape, an evolving end market, and financial capacity, he believes the opportunity the company is targeting is great.

“DataWind has built a synchronized value chain through lowering the cost of internet connectivity at a device level and a data consumption level,” says Voci. “The Company’s unique Internet Delivery Platform allows it to drive down data consumption and device specifications, opening the door to mobile internet access on existing 2G infrastructure and resulting in materially lower costs for the end user. This positions the company to penetrate the substantial opportunity in emerging markets.

In a research update to clients this morning, Voci reiterated his “Buy” rating and $7.00 one-year target price on DataWind, implying a return of 243% at the time of publication.

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