Take a pass on Espial Group, PI Financial says

PI Financial analyst David Kwan says some of Espial Group’s (TSX:ESP) largest customers appear to be experiencing problems with the rollout of their Espial-enabled products.

In an update to clients on Tuesday, Kwan has lowered his target price for ESP to $1.55 (was $1.90) and maintains his “Neutral” rating.

Espial, which provides software solutions for companies deploying video and pay TV services, has major clients in German cable provider Tele Columbus and Portuguese cable provider NOS, both of whom are showing signs of a slower than expected ramp of Espial-enabled products, says Kwan.

Kwan says that Tele Columbus’ ESP-powered advanceTV is currently unavailable to customers, with Espial saying that the problem is due to system support and stability issues. In the case of NOS, uptake has been similarly slow.

“We are concerned about these developments at Tele Columbus, as they are one of ESP’s largest customers and with ~2.4 million pay TV subs, they are by far ESP’s largest potential revenue generator,” says the analyst, who rates the overall impact of these issues as “Negative.”

“To be conservative, we have taken down our estimates, as we are now assuming no new license purchases by Tele Columbus this year, with a modest ramp recommencing in FY19,” says Kwan. “Our revenue estimates are now $25.3 million (was $27.7 million) for FY18 and $30.4 million (was $32.5 million) in FY19. Our Adj. EBITDA estimates are now ($4.3 million) (was ($1.5 million)) for FY18 and ($0.1 million) (was $1.9 million) for FY19.”

Kwan’s target represents a one per cent projected return at the time of publication.