MGI 01 Communique Laboratory Inc. (TSX:ONE): Q1/13 Results; Upcoming Trial Should Improve Visibility
Rating: Speculative Buy
Price Target: $2.20 per share
Current Price: $1.16 per share
· 01 Communique’s reported Q1/13 results, which were in line our expectations;
· With our valuation hinging on the estimated royalties from LogMeIn (LOGM:Q, not rated) and Citrix Systems (CTXS:Q, not rated), the Q1/13 results have limited impact to our outlook and valuation;
· We believe investors should continue to focus on the potential for a considerable settlement or damages award in the near term from the Company’s litigation with LogMeIn, with the trial set to begin March 18, 2013;
· We continue to value ONE based on a NPV of estimated royalties from LogMeIn and Citrix;
· Our DCF includes back damages from LogMeIn in F2013 and Citrix in F2014, as well as ongoing royalties from LogMeIn beginning in Q1/13 and from Citrix beginning in Q1/14, but does not include any value from the potential for treble damages in either case or additional potential licensees, including those through the partnership with Wi-LAN;
· We are maintaining our SPECULATIVE BUY rating and 12-month target price of $2.20 on 01 Communique Laboratory Inc. Upside potential to our DCF valuation exists from higher than expected royalty rates, the potential to be granted treble damages for wilful infringement, and additional licensees. The primary risks to our estimates include failure to reach license agreements, unfavourable court decisions, and lower than expected royalty rates.