Espial’s long-term prospects remain excellent despite setback, says Haywood

The news that Espial’s (Espial Stock Quote, Chart, News: TSX:ESP) unnamed tier-one North American operator will not deploy the company’s next-gen RDK solution is a clear negative, but the company’s long term prospects remain excellent, says Haywood analyst Pardeep Sangha.

This morning Espial announced its third quarter results, but all eyes were on the following statement from boss Jaison Dolvane.

“In the third quarter, we delivered software licences for current generation and new 4K set-top boxes to a channel partner for deployment at a North American cable operator,” he said. “The same operator is currently working on its next-generation platform, and we have been informed that this operator does not intend to deploy our software as previously contemplated, and we are in discussions regarding this. We continue to work with our channel partner and operator to improve current user experience and deliver 4K ultrahigh definition on its current platform.”

That paragraph sent shares of Espial reeling today, but Sangha notes that the company’s key Tele Columbus win is on track to launch in the fourth quarter. The analyst says that while he was disappointed with today’s news he is still a long-term believer in the company’s technology and solutions.

“We were disappointed to learn that Espial’s North American Tier1 operator has decided not to deploy the company’s software as previously contemplated,” said the analyst. “On a positive note, the North American customer will continue to use Espial’s software on its legacy set top boxes and also on its 4K set top box roll-out. We believe this North American customer has had a strong positive reaction to its 4K deployment announcement; hence, this operator does not feel the urgency to upgrade to Espial’s next generation RDK set top box. We believe this operator will continue to deploy its 4K set top boxes for the next 18 to 24 months then start to deploy its next generation solution. Although Espial’s management has not confirmed that Rogers is a customer of Espial’s, investors continue to speculate that Rogers is the North American Tier1 customer.”

In a research update to clients today, Sangha maintained his “Buy” rating on Espial, but lowered his one-year target price on the stock from $5.00 to $4.40.

Espial earned $2.2-million on a record topline of $8.7-million in its third quarter.

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