The language around Redknee’s (TSX:RKN) massive restructuring is dire, but Echelon Wealth Partners analyst Ralph Garcea doesn’t think the picture is as bad as it’s being painted.
On Tuesday, Redknee provided detail on a strategic plan. The company said interim CEO Danielle Royston will implement a plan that will focus on R&D to “close product gaps” with the goal of focusing on customer success.
Garcea says there was more detail on the subsequent call, with Royston and chairman Scott Brighton expressing concern that operations are currently far worse than when ESW invested in Redknee. But the analyst thinks there is silver lining to this particular black cloud.
“We stand by our thesis of following the white knight – in this case ESW Capital – and although the rhetoric may seem negative, we do not believe things are as grave as made to be, nor do we think the situation is rosy, but what we do know is that Redknee has a sticky, deeply integrated solution, that once fixed should trade at 2-5x EV/Sales and 15-20x EV/EBITDA,” says Garcea.
In a research update to clients today, Garcea maintained his “Speculative Buy” rating and one-year price target of $2.00 on Redknee, implying a return of 60 per cent at the time of publication.
Garcea thinks Redknee will post EBITDA of $9.7-million on revenue of $134.8-million in fiscal 2017.