Espial Group’s platform is validated by the Eastlink order, Haywood says

A new order for Espial Group (TSX:ESP) is just what the doctor ordered, says Haywood analyst Pardeep Sangha.

On Wednesday, Espial announced that high-speed internet and digital television provider Eastlink would adopt the former’s cloud-based SaaS platform. Eastlink is the largest privately-owned cable company in Canada.

“The video industry is in the middle of significant change, where pay-TV operators face a highly competitive environment,” said CEO Jaison Dolvane. “Espial’s cloud-based Elevate SaaS platform provides a platform that helps operators rapidly introduce new innovations to their television services and leverage the scale of this multitenant cloud platform. We are excited to partner with Eastlink to enhance and enrich their subscribers’ entertainment experience.”

Sangha says Espial’s share price has been down for the past six months as the market has waited for a meaningful contract from its pipeline. The analyst says this is that order.

“Eastlink validates the Company’s cloud-based video platform and shift to a recurring revenue model,” he says. “Eastlink was previously a WHS customer that has since switched to a SaaS-based model. We assume Espial receives approximately $10 per subscriber per year of recurring revenue.”

Sangha today maintained his “Buy” rating and one-year price target of $3.00 on Espial Group, implying a return of 62.2 per cent at the time of publication.

Sangha thinks Espial will generate Adjusted EBITDA of negative $7.3-million on revenue of $30.8-million in fiscal 2017. He expects those numbers will improve to EBITDA of negative $200,000 on a topline of $37.9-million the following year.