Espial has 63.5 per cent upside, says Haywood

Espial Group CEO Jaison Dolvane. After a quarter that was in-line with his expectations, Haywood analyst Pardeep Sangha says he remains bullish on Espial Group (TSX:ESP).

On Tuesday, Espial reported its Q1, 2017 results. The company lost $1.79-million on revenue of $8.7-million, a topline that was up 63 per cent over the same period last year.

“We’re off to a good start in 2017,” said CEO Jaison Dolvane. “In Q1, our customers deploying Espial solutions, including NOS, Tele Columbus and several operators on the Espial Elevate shared cloud service, drove an increase in revenues of 63 per cent over last year. Our Agile and DevOps software engineering processes have increased our velocity in delivering new features and updates to enhance subscriber experience and help our customers expand their footprint. We’re continuing to invest in our cloud and device products aimed at accelerating adoption of Espial solutions. In Q1, we progressed our sales pipeline further and believe we are well positioned to become a partner to major service providers for their next-generation pay-TV platforms.”

Sangha says the quarter was about what he expected, noting that at 74.2 per cent compared to 63.8 per cent last year, margins were very strong, a development he attributes to higher margin software licensing revenue. The analyst says he thinks Espial is undervalued.

“We continue to be bullish on Espial,” he says. “The Company is well capitalized with $41.7M in cash or $1.12 cash/share (basic). We don’t believe Espial is getting properly valued for its WHS acquisition which has resulted in revenue growth, increase in customers and catapulted the Company into cloud based service offerings.”

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $4.25, implying a return of 63.5 per cent at the time of publication.

Sangha thinks Espial will generate Adjusted EBITDA of negative $1.8-million on revenue of $39.3-million in fiscal 2017. He expects these numbers will improve to positive EBITDA of $8.1-million on a topline of $54.6-million the following year.