National Bank Financial Still Lukewarm on Sandvine

A quarter that held no surprises isn’t shaking National Bank Financial analyst Richard Tse’s tepid take on Sandvine (Sandvine Stock Quote, Chart, News: TSX:SVC), though the analyst thinks the long term picture could be brighter.

Yesterday, Sandvine reported its Q4 and fiscal 2016 results. In the fourth quarter, the company earned $2-million on revenue of $27-million, a topline that was down 23 per cent from the same period last year.

“While market conditions didn’t support revenue growth, 2016 was our fourth consecutive year of profitability,” said CEO Dave Caputo. “During the year, we developed innovative new functionality and products that increase the value of our solutions for customers. Also, our strong cash balance and profitability supported the acquisition of our TCP Accelerator product, the ongoing repurchase of our stock and the introduction of our quarterly dividend, which we increased today.”

Tse says he is currently playing the waiting game with Sandvine.

“Those following our research will know we like the long-term prospects for Sandvine as we see the potential for accelerating growth from: 1) a product upgrade cycle for its PTS 32000; 2) an expanding set of products paired with 3) a growing base of customers,” says the analyst. “At 1.1x EV/Sales, 5.6x EV/EBITDA, 17.0x P/E (F17E) and a yield of 3%, we don’t see much downside. But consistent with our initiation of coverage in the Fall, we’re still looking for those “green shoots” before jumping on board.”

In a research update to clients today, Tse maintained his “Sector Perform” rating and one-year price target of $3.00 on Sandvine, implying a return of 17 per cent at the time of publication.

Tse thinks Sandvine will generate EBITDA of (US) $24.9-million on revenue of $124.3-million in fiscal 2017. He expects these numbers will improve to EBITDA of $26.6-million on a topline of $131.1-million the following year.

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