Cantor Fitzgerald Canada lowers target on Redknee Solutions, maintains buy

A quarter of “mixed” news has Cantor Fitzgerald Canada analyst Ralph Garcea feeling slightly less bullish about Redknee Solutions (RedKnee Solutions Stock Quote, Chart, News: TSX:RKN).

Yesterday, Redknee reported its Q1, 2016 results. The company lost (U.S.) $4.3-million on revenue of $50.1-million, a 20 per cent drop from the $62.6-million topline the company reported in the same period last year. Shares of Redknee fell sharply today in response the results.

“As we look out to the year ahead, amidst the expected ongoing softness in service provider spending, we will remain laser-focused on maximizing our profitability and cash flow generation, while growing our proportion of recurring revenue,” said CEO Lucas Skoczkowski. “We remain steadfast in our commitment to continuing to advance our strong competitive position as the provider of choice for monetization and subscriber management solutions for service providers worldwide in our core communications market, while leveraging our reputation and experience in pursuit of the significant opportunities related to the Internet of things.”

Garcea says foreign exchange woes continue to plague Redknee, but notes that on a constant currency basis the company’s backlog is trending in the right direction. The analyst says Redknee currently requires patience from investors and underscores that the stock is cheap compared to its peers.

“On C2016E, RKN currently trades at an EV/Sales of 0.6x and EV/EBITDA of 3.6x vs its BSS/OSS and Global Software comparable comps at an average of 1.7x/7.1x and 4.0x/11.9x, respectively,” says Garcea.

In a research update to clients today, Garcea maintained his “Buy” rating, but lowered his one-year price target on Redknee from $5.50 to $5.00, implying a return of 209 per cent at the time of publication.

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