Wi-LAN has limited downside, says Paradigm

A quarter that bested his expectations has Paradigm Capital analyst Daniel Kim feeling bullish about Wi-LAN (Wi-LAN Stock Quote, Chart, News: TSX:WIN, Nasdaq:WILN).

Yesterday, Wi-LAN reported its Q1, 2016 results. The company earned $4.92-million (U.S.) on revenue of $30.1-million, a topline that was 48 per cent better than the $20.4-million the company posted in the same period last year.

“Our strong performance in the first quarter reflects the continued execution of our partner and portfolio program strategy and our focus on closely managing expenses,” said CEO Jim Skippen. “We signed 11 licences in the quarter including agreements with two of the top three semiconductor foundries in the world — TSMC and GlobalFoundries — which helped to drive our revenue growth. Our 65-per-cent EBITDA margin and cash flow generation in Q1 reflect the scalability and profitability in our model and its ability to deliver results over the long term.”

Kim says despite shares of Wi-LAN doubling this year he still sees a lot of upside and little downside.

“Management continues to evaluate a number of partnership patent portfolio acquisition opportunities, particularly in the face of patent valuations coming down with high-quality portfolios at reasonable terms,” he says. “On a trailing basis, WIN has generated $70M in EBITDA, implying the shares are trading at 2.3x TTM EV/EBITDA (peers trade at 20x). Another metric that demonstrates the company’s terrific leverage is its TTM 24.4% ROIC, a new high. We see limited downside owing to WIN’s extreme valuation and as it continues to assert its proven portfolio of high-quality IP, we see upside to our forward estimates.”

In a research update to clients today, Kim maintained his “Buy” rating and one-year price target of $5.00 on Wi-LAN, implying a return of 82 per cent at the time of publication, including dividend.

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