Shareholder activism could push Espial higher, says PI

A potential board shakeup could be a positive for Espial (Espial Stock Quote, Chart, News: TSX:ESP) shareholders, says PI analyst David Kwan.

Yesterday, Espial announced that it had received notice from shareholder Vantage Asset Management of four director nominees who may be put forward for election to the board of directors at the coming annual and special meeting of shareholders on June 13.

Kwan says he view this development as a positive that could unlock value.

“Low insider ownership creates opportunity for change,” says Kwan. “Although execution has improved in recent quarters, the shares have remained range-bound since Q4 FY2015 (following the plunge after the announcement of the potential loss of Rogers) which has likely frustrated certain shareholders and possibly helped lead to this vent. The low insider ownership (<5%) means Vantage has one less obstacle to implement the changes it desires.”

In a research update to clients today, Kwan maintained his “Buy” rating and one-year price target of $2.85 on Espial Group.

Kwan thinks Espial will post Adjusted EBITDA of negative $1.7-million on revenue of $38.3-million in fiscal 2017. He expects these numbers will improve to EBITDA of positive $8.3-million on a topline of $53.6-million the following year.

“Espial is attractively valued given a superior organic growth profile, pristine balance sheet, and discount valuation, with key near-term catalysts including Tier 1 customer wins and now shareholder activism potentially driving the stock out of its current (depressed) trading range,” Kwan says.

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