Espial Group is on a roll, Haywood says

A new order for Espial Group (TSX:ESP) has Haywood Securities analyst Pardeep Sangha raising his price target on the stock.

On Wednesday, Espial announced it had reached a deal with an unnamed North American cable operator with more than one-million video subscribers.

“We’re pleased to have another large cable operator deploying our Elevate SaaS video platform,” said CEO Jaison Dolvane. “Our operator customers continue to be impressed with the innovation and road map that we are delivering. They are excited to enhance and enrich their subscribers’ entertainment experiences.”

Sangha says this is an unambiguous positive.

“This is the largest customer announcement on Espials’ Elevate platform and will contribute significant high-margin recurring revenue,” the analyst says. “We are increasing our 12-month target price from $3.00 to $3.50, based on higher valuation multiples given the increased confidence of the SaaS business and potential revenue from this contract.”

Sangha’s new target implied a return of 92.3 per cent at the time of publication.

The analyst thinks Espial will generate 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.

“According to management the customer is already live and should start contributing to revenue in Q1CY18,” Sangha adds. “This customer has over 1 million subscribers, and we are assuming Espial receives approximately $10 per subscriber per year of recurring revenue. We are expecting it will take 4 to 5 years for this customer to become fully deployed – generating $10M in annual recurring revenue. Espial is on a roll, having announced several new customers over the past few months. In December the Company announced Eastlink, who has approximately 400,000 subscribers. Over the past five months Espial also announced several smaller customer wins”