Redknee is still a buy, says Cantor Fitzgerald Canada

Following a “mixed” Q1 report, Cantor Fitzgerald Canada analyst Justin Kew is maintaining his “Buy” rating and $5.50 one-year target on Redknee (Redknee Stock Quote, Chart, News: TSX:RKN). The target price implied a return of 83% at the time of publication.

This morning, Redknee reported its first quarter 2015 results. The company earned (U.S.) $2.01-million on revenue of $62.6-million, a topline that was up 4% over last year’s first quarter.

“In the first quarter of 2015, we continued to execute on our plan to improve revenue quality and ensure sustainable growth in order bookings, revenue and EBITDA,” said CEO Lucas Skoczkowski. “We have made progress towards our targets and are in line with our three-year objective, following the acquisition, for margin improvement. We see an opportunity to continue to improve our business in a disciplined way, while addressing the needs of our customers through the delivery of our unified software platform. We have advanced our position as the largest independent real-time converged monetization software provider for communications, and are leveraging our capabilities to address the long-term opportunity we see in the Internet-of-things market.”

Kew thinks the results were “mixed”, with EBITDA besting what he had modeled and support revenue and cash flow weaker than he expected. But the quarter left the analyst still bullish on Redknee’s prospects.

“Despite lower-than-expected cash flow, we are comfortable that management has sufficient liquidity (net cash of $54.1 million) to complete the integration, the restructuring and to significantly grow the overall business’ revenue, profitability and cash flow in F2016,” said Kew.

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