A dragging energy market isn’t shaking Cantor Fitzgerald Canada analyst Ralph Garcea’s faith in Redline Communications (TSX:RDL).
Yesterday, Redline Communications reported its fourth quarter and fiscal 2015 results. In the fourth quarter, the company reported an EBITDA shortfall of $1.1-million on revenue of $5.1-million, a topline that was down 39 per cent over the same period last year. Management noted that order bookings for the quarter were $7.3-million, down 39 per cent over the same period last year.
Redline CEO Rob Williams talked about the company’s attempts to diversify.
“Redline is continuing to develop business from non-energy-sector clients,” he said. “With the recent hiring of an experienced vice-president of sales and marketing, the repositioning of our products to be more attractive to the telecom service provider market and the upcoming introduction of a new [long-term evolution]-based product line, we are confident that our revenues should grow. We are already seeing a shift in market mix with approximately 62 per cent of 2015 order bookings coming from the non-energy sector compared with 50 per cent in 2014.”
Garcea notes that Redline’s new LTE product is in three trials with a service provider, a military customer, and an energy customer. He thinks this product offering will begin to add revenue by the second half of 2016 and through 2017.
“As a result of the continuing weak rig count data, we expect a continued ‘energy drag’ for RDL,” says Garcea. “Longer-term, we expect RDL to benefit from the growth in the industrial M2M (machine-to-machine) and IoT (Internet of Things) markets. At the end of September 2015, the Company undertook a minor restructuring, reducing the number of employees and contractors by 14 – reducing annual costs by $2M.”
In a research update to clients today, Garcea maintained his “Buy” rating and one year price target of $5.00 on Redline Communications, implying a return of 150 per cent at the time of publication.