Enghouse Systems’ (TSX:ENGH) most recent acquisition has Echelon Wealth Partners analyst Ralph Garcea feeling bullish about the stock.
This morning, Enghouse announced it had acquired Pennsylvania-based broadband software company Tollgrade Communications for approximately $23-million.
“The Tollgrade solution is an excellent addition to our OSS Service Assurance portfolio. It enables Enghouse to offer service providers the ability to reduce costs, increase profitability, assure network reliability and improve service quality,” said Sunil Diaz, general manager, Enghouse Networks Group. “This enables a core strategy for service providers evolving to next-generation broadband over fibre and 5G access networks. We are pleased to welcome Tollgrade’s employees, customers and partners.”
Garcea says this pickup allows Enghouse to expand on currently successful business it is doing. He also thinks more acquisitions could be on the way.
“We view this acquisition as complimenting ENGH’s existing OSS/BSS and network value added services and establishes new relationships with tier 1 and 2 clients in the U.S. and Europe,” says the analyst. “We note that this is ENGH’s first acquisition this FY, and that economic factors continue to be favourable for acquisitions – especially for micro/small cap companies with no clear liquidity exit.”
In a research update to clients today, Garcea maintained his “Buy” rating, but raised his one-year price target on Enghouse Systems from $64.00 to $65.00, implying a return of 15 per cent at the time of publication.
Garcea thinks Enghouse will post EBITDA of $102-million on revenue of $348-million in fiscal 2017. He expects these numbers will improve to EBITDA of $113-million on a topline of $379-million the following year.