Mitel’s Mavenir acquisition brings risk and potential reward, says Cormark

Cormark analyst Richard Tse says he will be listening closely to Mitel’s (Mitel Stock Quote, Chart, News: TSX:MNW, Nasdaq: MITL) guidance on its Mavenir acquisition, which closed April 29.

On Thursday, before market open, Mitel will report its Q1, 2015 results. Tse thinks the company will post Adjusted EBITDA of (U.S.) $27.4-million on a topline of $254-million, a take he says is “essentially in line” with consensus.

Tse thinks investors should pay close attention to the integration, and subsequent execution of, Mavenir. In early March, Mitel announced that it would acquire U.S-based 4G LTE player Mavenir (Nasdaq:MVNR) in a stock and cash deal worth about $560-million. Tse says the acquisition added to Mitel’s considerable potential, but also added a degree of risk that was not present before.

The analyst says that Mavenir is playing in a market that has the potential for considerable growth.

“In the last 10 years, Mavenir has gained meaningful traction with sales growing at a CAGR of 37% in the last three years to ~$130 MM today,” said Tse. “Industry forecasts have the total addressable market for its products scaling to $14 BB by 2018 (from $2.6B B today). That would suggest that Mavenir’s market share is around 5.2% today. Holding that constant, it would imply Mavenir’s sales potential could grow to $728 MM (from ~$130 MM).”

Tse says questions about Mavenir include the company’s operational discipline and the fact that it operates in the public service provider market, not the enterprise.

In a research update to clients yesterday, Tse maintained his “Buy” rating and (U.S.) $16.00 one year target on Mitel.

At press time, shares of Mitel on the Nasdaq were down 1.3% to $8.85.

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