TD Maintains Hold and $3.00 Target but a SIB possibleApril 7, 2017 Daniel Chan, CFA Justin Kew, CFA, (Associate) Sandvine Corp. (SVC-T) C$2.95 Q1/F17 Results: Capital Spending Environment Still Weak Event Sandvine reported Q1/F17 results this morning and management held a conference call. We have made adjustments to our model, but our target price remains at C$3.00. Impact: MIXED Weak carrier spending environment may persist throughout 2017. Despite the top line beat, revenue was still down by 2.4% y/y. We believe this is a result of the challenging carrier spending environment. Management referenced an industry report that suggests telco capex in C2017 could be down 6%. The U.S. cable market continues to be challenging; however, we maintain our view that there could be near-term opportunities for Sandvine as integration plans are finalized and executed. Longer term, we continue to believe that overall capex levels from the cable segment will decline and that there may be pricing pressure. We continue to believe 5G could bring near-term headwinds, but long-term opportunities. With the imminent rollout of 5G spectrum and equipment, we believe carriers may pause spending on Sandvine's solutions. However, because 5G will make use of virtualized network functions, carriers will no longer need to install Sandvine's equipment in the traffic path, thereby simplifying Sandvine deployments and potentially increasing adoption. Could a SIB be possible later this year? We think so. Considering the current NCIB was approved in November and will likely be completed in Q2, Sandvine has been repurchasing shares at an aggressive pace. We believe the pace of repurchases signals a lack of M&A opportunities. Coupled with management's view that shares are currently undervalued, we believe that a SIB may be possible once the NCIB is completed. If cash flow improves and management has visibility to an improving U.S. cable landscape in H2, we believe a SIB would make a lot of sense. TD Investment Conclusion We are maintaining our C$3.00 target price and HOLD rating given the volatility and uncertain carrier spending environment. However, we believe there could be a trade to take advantage of after Q2 as the NCIB is completed and U.S. cable operators start executing on their integration plans.