Target Raisedby RBC although they are still very conservative in their assessment. Their upside scenario target is $4.00. GLTA
January 8, 2014
Sandvine Corporation
FQ4/13E preview – Expect a strong finish to
F2013E
Our view: We expect continued revenue growth and profitability after
steady contract momentum in FQ4 (which has continued into FQ1 with a
$10MM order announced today). If FQ4 is as expected, this would mark
the fifth consecutive quarter of profitability – a feat which has not gone
unnoticed by the market. SVC now trades at a modest premium to peers
(2.1x 2015E EV/Sales vs. peers 2.0x).
Key points:
• Growth expected in FQ4/13E, despite a tough y/y comp: SVC reports
FQ4/13E result before market open Jan. 9. We forecast revenues of
$29.9MM (+9 y/y) vs. consensus of $30.6MM. On consolidated gross
margins of 73.4%, we expect $0.04 in EPS, in line with consensus.
• Solid contract momentum in FQ4/13E and FQ1/14: Sandvine booked
several large orders totaling $9MM in FQ4/13E. These included new
initial customer orders for network analytics solutions, as well as followon
orders from existing Tier 1 operators. Further, today Sandvine
announced a $10MM follow-on order from a North American Tier 1
operator. Sandvine has been winning a steady stream of larger contracts
over the past several quarters, which have translated into positive
financial performance. FQ4/13E should mark the 5th consecutive
quarter of profitability, a duration which has been held only once before
in F06/F07.
• Positive revenue implications from record new customers: Over the
past four quarters, Sandvine has been securing a number of large followon
orders from existing customers. During FQ4, Sandvine announced
it won 25 new communications service provider customers across 22
countries. This is a record number of new quarterly additions, which
should bode well for future revenues.
• Competition seeing weakness in US cable market: Procera Networks
recently pre-announced a disappointing December quarter, reflecting
uncertainty related to the potential consolidation in the US Cable
market. For reference, Cable as a whole represents ~22% of Sandvine’s
LTM revenues. Allot Communications on the other hand, announced
two large initial and follow-on orders across APAC and EMEA. These
orders focused on value-added service/analytics and security-related
offerings.
• Cash flush and now trading at a modest premium to related
networking peers: Sandvine maintains a large net cash balance of
$91MM, more than adequate in our view to fund organic growth
initiatives and targeted acquisitions. After strong performance in 2013
(+124% vs TSX +13%), SVC shares now trade at 2.1x C2015E EV/Sales
and 16.3x C2015E P/E, a modest premium with comparable companies
which trade at 2.0x and 16.2x, respectively.
• We maintain our Sector Perform rating and raise our target to $3.00
(from $2.75).