After leaving PI for Haywood, analyst Pardeep Sangha today resumed coverage of Espial (Stock Quote, Chart, News: TSX:ESP) at his new firm with the same “Buy” rating he had at his old firm.

Sangha says the Tele Columbus AG contract win for Espial, announced earlier this month, was an important milestone in the Ottawa company’s history. CEO Jaison Dolvane described Tele Columbus as “the visionary force among European network operators,” and Sangha believes this will translate into future wins.

“We believe Espial has the potential for significant share price appreciation,” says Sangha. “We believe the Tele Columbus launch, expected in Q4, will be a key catalyst that will lead to additional contract wins and announcements for Espial. Hence we encourage investors to accumulate Espial’s shares prior to the Company’s launch with Tele Columbus. We believe Espial is undervalued when compared to its peer group of other Canadian Software and Services companies, which trades at 17.2x EV/EBITDA of consensus CY16 estimates while Espial trades at 7.8x on our estimates.”

Sangha says the bigger picture is that Pay TV operators are facing increasing pressure because of the proliferation of Smart TVs. The analyst thinks the near-term market for Espial’s RDK-based STB client is $500-million in license revenue and more than $100-million in annual support and maintenance revenue. He notes that with a recent equity financing completed, Espial is well-funded to execute on its business plan and to maintain its R&D efforts.

In a research report to clients today, Sangha resumed coverage of ESP with a “Buy” rating and a one year target price of $5.00, implying a return of 51.5% at the time of publication.

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