Canaccord Today On RKN Redknee
RKN : TSX : C$1.38
SPECULATIVE BUY
Target: C$1.50
Eyal Ofir, CFA 1.416.869.7215
eofir@canaccordgenuity.com
Honghua Chen 1.416.869.7364
hchen@canaccordgenuity.com
COMPANY STATISTICS:
52-week Range: C$0.84 - 1.48
Market Cap (M): C$89.8
Shares Out (M) basic: 64.1
Shares Out (M) diluted: 65.1
EARNINGS SUMMARY:
FYE Sep 2010A 2011A 2012E 2013E
Revenue
(M): US$48.9 US$57.8 US$57.8 US$64.0
EV/Sales
(x): 1.5 1.3 1.3 1.2
EPS adj.: US$0.04 US$(0.00) US$0.09 US$0.10
P/E (x): 31.1 NM 15.6 14.3
SHARE PRICE PERFORMANCE:
Source: Interactive Data Corporation
COMPANY DESCRIPTION:
Founded in 1999, Redknee is a provider of infrastructure
software and solutions to telecommunications operators
globally. Redknee offers converged, real-time rating and
charging solutions as well as software solutions that
facilitate a quick turnaround of additional value-added
services to subscribers including location and privacy
services, mobile commerce, and mobile personalization.
All amounts in C$ unless otherwise noted.
Technology -- Communications -- Communications Technology
POST-DEAL UPDATE
Investment recommendation
We are maintaining our SPECULATIVE BUY recommendation
following the recently announced equity and debt financings by
Redknee. Over the last few months Redknee has been gaining
traction in winning new accounts in the MVNO market with its
cloud-based solutions. While this revenue probably will take
some time to ramp, we believe this is important for investors as
it allows the company to further raise its recurring revenue
profile, which should attract higher valuations over time. In
addition, the recent financings significantly strengthen the
company’s balance sheet, providing the flexibility to make
acquisitions. Depending on the size of the target, any transaction
will likely allow the company to gain added scale and potentially
open the door to both revenue and cost synergies.
Investment highlights
• On October 23rd, Redknee closed its equity financing, for total
proceeds of $17.55 million. The over-allotment option allows
for another $2.63 million to be issued within 30 days.
• On October 2nd, Redknee announced it has secured a US$20
million credit facility through Wells Fargo.
• The equity financing has the impacting of diluting our F2013
adjusted EPS estimate by two pennies.
Valuation
Our C$1.50 target is based on 15x our F2013 adj EPS estimate.