Espial Group is almost a double from here, Haywood Securities says

Ahead of Espial Group’s (Espial Group Stock Quote, Chart, News: TSX:ESP) first quarter earnings next week, Haywood Securities analyst Pardeep S. Sangha believes that the software company’s recent transition to a SaaS platform is helping the company’s profitability. In an earnings preview to clients on Friday, the analyst reiterated his “Buy” rating and $3.50 target price for ESP.

Espial Group is expected to announce its Q1CY18 financial results next Friday, with the Street calling for revenue of $6.9 million and an Adj. EBITDA loss of $1.0 million. Sangha’s own estimates are a little higher, expecting revenue of $7.7 million and an Adj. EBITDA loss of $0.2 million.

“Espial is on a roll, having announced over ten new customers over the past few months on its Elevate platform. This includes a large cable operator with over one million subscribers, representing $10M annual recurring revenue once fully deployed,” Sangha says.

“Through both in-house development and acquisitions, the company has amassed a suite of products that are resonating with TV service providers around the globe,” he writes. “We believe Espial’s Elevate platform is showing strong traction and helping TV operators innovate in the face of increasing OTT threats and changing viewing habits. Espial is gaining momentum with recent big contract announcements and combined with the favourable economics of its SaaS model, the company should see continued growth and improved profitability leading to a higher share price.”

From next week’s earnings call, Sangha is expecting to hear about: (i) potential new customer wins and additional Espial Elevate trials; (ii) guidance calling for positive EBITDA during CY18; and (iii) an update on the company’s roll-outs in Portugal and Germany.

The analyst has Espial currently trading at a 1.1x EV/Revenue multiple of his CY18 estimate (compared to its peer group at 3.5x EV/Revenue multiple of CY18E), while his target price is based on a 2.5x EV/Revenue multiple of his CY19 estimate.

At $3.50, Sangha’s target represents a potential return of 94.4 per cent as of publication date.

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