Wi-LAN’s outlook for 2016 is rosy, says Paradigm Capital

With license deals showing a steady upswing, 2016 looks to be a strong year for Ottawa’s Wi-LAN (Wi-LAN Stock Quote, Chart, News: TSX:WIN), says Paradigm Capital analyst Daniel Kim.

Yesterday, Wi-LAN reported its Q4 and fiscal 2015 results. In the fourth quarter, the company earned $15.7-million on revenue of $26-million, a topline that as up 18 per cent over the same period last year. The company also announced its board had approved a share buyback of up to 10 per cent of all issued and outstanding shares.

“In 2015 we delivered revenue and earnings growth, and made considerable progress operationally to position the business for long-term growth,” said CEO Jim Skippen. “We signed 11 new partner agreements, which is a low-cost and low-risk way for us to acquire new patent portfolios, bringing our total to more than 50 programs covering nine industry verticals. We signed 45 patent licence agreements, including 16 in Q4 alone. And the acquisition of the Qimonda and Freescale patent portfolios combined to add more than 10,000 high-quality patents to our portfolio. We now have more than five times the number of patents than we did just a year ago, which we expect to be a key factor for driving future growth.”

Kim says Wi-LAN’s Q4 bested his expectations. He notes that the company signed 16 license deals in the quarter, bringing the total number of deals signed to 45, with more than 60 in the pipeline.

“Q4 was another quarter of excellent  results which highlights the company’s incredible FCF generating capacity,” says Kim. “The share buyback is a great decision in our opinion, as this is the best way for the company to drive a permanent increase in earnings leverage. Based on our estimates, we have 2016 FCF of C$36M (52% yield), implying WIN is trading at 1.9x FCF. We maintain our Buy rating and C$5.00 target, which implies shares are only trading at 8x 2016e EPS.

In a research update to clients today, Kim maintained his “Buy” rating and one-year target price of $5.00 on Wi-LAN, implying a return of 208 per cent at the time of publication.

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