Espial Group is still very undervalued, says Haywood

A trip to the site of Espial Group’s (Espial Group Stock Quote, Chart, News: TSX:ESP) most recent acquisition has Haywood analyst Pardeep Sangha feeling confident about his bullish stance on the stock, which he currently has a “Buy” rating and one-year price target of $3.75 on.

In June, Espial announced announced an agreement to acquire ARRIS’s Whole Home Solution (WHS) platform, a turn-key IP video solution. Suwanee, Georgia-based ARRIS is the world’s largest supplier of cable set-top boxes.

“WHS expands our solution portfolio with a cloud-hosted Video-as-a-Service platform that is complementary to and will leverage Espial’s current solutions for next-generation IP video services,” explained CEO Jaison Dolvane. “By driving service velocity and innovation for our service provider customers, we expect to help them improve subscriber satisfaction, reduce churn and increase revenue. Espial gains a broad base of new customer relationships and further scales our world-class integration, operations, and software development teams. We look forward to collaborating with ARRIS to enhance the Whole Home Solution, strengthen support, and expand the customer base going forward.”

Recently, Sangha visited the Kirkland, Washington facility that Espial acquired with the WHS platform and conducted a due diligence call with senior management of ARRIS. He related the result of the experience.

“Although we did not make any changes to our BUY recommendation and 12-month target price of $3.75 target price, we feel more confident of the WHS acquisition and Espial’s future growth prospects,” says the analyst. “Espial can sell its HTML5 based (non-RDK) client software and eventually upgrade these customers to an integrated WHS/RDK based G4 client user experience. In addition, Espial gains increased engineering and integration talent, increased scale, larger market opportunity and expanded product portfolio.”

Sangha’s price target of $3.75 implied a return of 97.4 per cent at the time of publication.

The analyst believes the price of the acquisition was very favourable to Espial, but cautions that it will have to absorb the cost of the business until it becomes profitable, something he expects will happen in 2018.

Sangha thinks Espial will post EBITDA of negative $5.8-million on revenue of $25-million in fiscal 2016. He expects these numbers will improve to positive EBITDA of $3.5-million on a topline of $45.7-million the following year.

More Cantech Software