A better than expected quarter has Eight Capital analyst Eyal Ofir feeling bullish about Spectra7 Microsystems (TSX:SEV).
Yesterday, Spectra7 reported preliminary first quarter results that revealed revenue of (U.S.) $2.7-million, a record for the company.
“The first quarter was one of tremendous achievements across our business,” said CEO Raouf Halim. “I’m delighted to report record revenues of $2.7-million (1) in the first quarter, with this strong revenue growth accomplished in what is seasonally a weak quarter for the industry. Furthermore, we had record revenue while maintaining healthy gross margins from previous quarters and reducing our operating expenditures, greatly improving the profitability of the company. We are also pleased to have achieved expanded market acceptance of our data centre solutions, transformative design wins in the AR/VR/MR markets and sequentially higher backlog due to growth in our AR/VR portfolio. These achievements are the hallmark of our first quarter. We look forward to an exciting year ahead.”
Ofir says Spectra7’s recent success is all about execution.
“Along with the financial update, the company also highlighted that the interest for the data center market solution has translated to early testing by major suppliers, which we view as a significant development for the long term thesis of the company. Simultaneously, management highlighted three major design wins in the AR/ VR/MR markets, with one that the management believes will drive material revenue growth in the back half of the year. Overall, the Q1 financial update, the improving backlog picture, and incremental design wins combined with the strong refocus of the organization under the refreshed leadership provides us with incremental confidence of the company’s ability to execute.
In a research update to clients today, Ofir maintained his “Buy” rating, but raised his one-year price target on Spectra7 Microsystems from $0.60 to $0.70, implying a return of 54 per cent at the time of publication.
Ofir thinks Spectra7 will generate EBITDA of negative $2.5-million on revenue of $16.0-million in fiscal 2017. He expects these numbers will improve to positive EBITDA of $3.5-million on a topline of $25.5-million the following year.