Espial Group is in need of catalysts, says Mackie

Mackie Research Capital analyst Nikhil Thadani thinks there is more upside than downside potential over the next year for Espial Group (Espial Group Stock Quote, Chart, News: TSX:ESP), but says the company needs details on new contracts and deployments to get things moving.

Espial tomorrow will report its Q2, 2016 results. Thadani thinks the company will post an EBITDA loss of approximately $1.1-million on revenue of $5.1-million, numbers that compare to the street consensus of a $1.2-million loss on revenue of $5.4-million.

The analyst says notes the disappointment regarding a North American contract last year, but says Espial’s European opportunity is already much larger, and could move the stock with some news.

“Contract catalysts (are) needed for stock price appreciation,” says Thadani. “New contract wins, which could lead to meaningful high margin license revenue and/or additional colour of the two existing major next gen Set Top Box (RDK STBs) contracts with Tele Columbus (Germany) or NOS (Portugal) could provide catalysts for stock price appreciation. Anecdotally, we believe NOS is pleased with ESP’s value add and the launch is proceeding very well. ESP’s likely unchanged business model and potential lucrative license revenue stream deserves a premium multiple.”

In a research update to clients today, Thadani maintained his “Buy” rating on Espial Group, but lowered his one-year target price on the stock from $4.25 to $4.00, implying a return of 78 per cent at the time of publication. The analyst explains that he has taken his estimate for North American Tier 1 customer deployments to zero starting in the first quarter of 2017, as he expects that customer will deploy non Espial software on its RDK set-top boxes. He is also modeling fewer 4K boxes with Espial software will be deployed in 2016.

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