The current price of Mitel (TSX:MNW, Nasdaq:MITL) is making the upside from its accelerating cloud business a cheap option, says Cormark analyst Richard Tse.
On Thursday, Mitel will report its Q2, 2015 results. Tse expects the company will post (all figures in U.S.) Adjusted EBITDA of $38-million on revenue of $293-million, slightly above the street consensus of Adjusted EBITDA of $37-million on a $291-million topline.
Tse thinks uncertainty about the progress of Mitel’s cloud business and the integration of its recent $650-million acquisition of U.S-based 4G LTE player Mavenir is spooking investors, making them blind to the underlying value in the company right now.
“In our view, the uncertainty around that progress is what has reigned in the valuation on this name to 1.2x EV/S, 7x EV/EBITDA and 7.9x P/E despite having growth businesses (cloud and Mavenir),” says Tse. “No doubt, that caution is reasonable considering Mavenir had a number of operational (not technology) challenges prior to Mitel’s acquisition. But given the current valuation plus Mitel’s cloud segment, we believe investors are getting an inexpensive option on that growth at the current valuation.”
Tse says his view of Mavenir is that of a company with great products that should benefit from the management experience that Mitel brings to the table. He points to the company’s “marquee” customer base that includes service providers like AT&T, Deutsche Telekom, T-Mobile, and Vodafone.
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 .6% to $9.49.