TD bumps 12-month Target to $5.00First of hopefully many more increases to come: TD Securities Target $5.00(prior $4.50) Recommendation Buy (unchanged) Sandvine Corp. (SVC-T) C$3.87 Q1 Profit Beats; Outlook and BUY Thesis are Unchanged Event With this note, we are assuming primary coverage of Sandvine Corp. Q1 (February) revenue of $32.4mm met Street expectations. EBITDA of $9.2mm was ahead of the Street at $7.7mm. We are raising our target price to C$5.00 (from C$4.50). Maintain BUY. Shares rose 7% yesterday after the results. Impact: SLIGHTLY POSITIVE We view Sandvine as a double-digit growth story. Revenue was up 3% from a challenging comp but was more broad-based. Customer concentration was the lowest it has been in over three years. The company reported that its pipeline is as strong as ever. We model 16% growth in revenue in FY2015 and 17% in FY2016. Three trends support this growth outlook: 1) The transition in the industry to 100GE platforms; 2) The emergence of virtualized network architectures; and 3) The ongoing need for service providers to get creative in how they monetize their investments in network infrastructure. Sandvine’s strength in these areas is expected to help it grow share in a market anticipated to grow 15%+ by industry analysts. Hiring delays drive profit upside. EBITDA was ahead of consensus in Q1 as the expense ramp previously forecast by management was slower than expected. These investments should accelerate in Q2. Our forecasts are effectively unchanged. The company said that the pace of hiring picked up towards the end of the quarter. We model an accelerated ramp in expense through the rest of the year, meaning that our EBITDA expectations through our forecast period are largely unchanged. There remains potential upside here from a more rapid deployment of Sandvine’s substantial cash balance. Per share cash is 28% of the market cap. The company has used its buyback sparingly, repurchasing 0.6mm shares in Q1. More interesting to us is the potential for M&A. Management continues to evaluate opportunities and said on the Q1 call that it “would have liked to announce an acquisition by now.” TD Investment Conclusion Sandvine is trading at 9.5x EV/forward EBITDA (12 months ending February 2016), which is below its historical median of 11x–13x. Our new C$5.00 target price (up from C$4.50) remains at the bottom end of this range (10x–11x) and we believe that it is compelling for a stock with double-digit organic growth. The increase reflects rolling forward our model and applying the current Canadian dollar/U.S. dollar conversion rates.