Reckon Ltd T.RKN

TDW Update part 1

[west12]

Redknee Solutions Inc. (RKN-T) C$6.09 Q4 Misses; Focus Remains on Future Opportunities Event Revenue and EBITDA missed expectations, in part due to higher R&D spending. Shares are trading down 14-15% today. We maintain a BUY rating with a $7.50 target price (from $6.50), based on higher confidence in our FY15 estimates. IMPACT: SLIGHTLY NEGATIVE The selloff in the shares today is in our view as much a reflection of the recent run up in the shares (up 54% over last 3 months) as the slight Q4 miss. The fundamental outlook in our view is not changed. Redknee has a full plate of opportunities to leverage the existing NSN base, and early success with upgrade scenarios has driven 30-50% more contract value. Management spoke of “9-figure” opportunities in the pipeline – why would you not accelerate R&D investment if that is the profile of the potential? Layer on the nascent opportunity to attract new carrier clients and customers from alternative industries (utilities), and we still see upside. Our EBITDA forecasts are reduced for FY14 to reflect higher R&D spending, but little changed for FY15. Using the intraday price, the stock trades at 3.9x LQA recurring revenue, 17x our FY14E EBITDA and 9x on FY15E. Our target of $7.50 is now based on 11x FY15E EV/EBITDA (from 9x), comparable with the target valuation for a name like Sandvine.