Dundee Securities has initiated coverage of Redknee Solutions Inc. with a Buy rating and $2.20 price target. Analyst Dushan Batrovic told clients that the company is well positioned as a technology leader in an emerging sweet spot around wireless data monetization.
“The explosion of wireless data traffic has forced telecom operators to look for new ways to sell data applications while simplifying their underlying cost structure. Legacy billing/policy management platforms are ill-equipped to respond, which opens the door to next gen vendors like Redknee.”
Mr. Batrovic believes the worst of the telecom spending downturn has passed, while the company's management aggressively cut operating expenses in response to the economic crisis. He noted that Redknee’s year-over-year EBITDA rose last quarter, despite sales falling nearly 20% during the same period. The analyst also said the company is lean just as pipeline activity begins to accelerate.
As a result, he anticipates strong operating leverage for the rest of 2010 as sales return to pre-recession levels. Mr. Batrovic also pointed out that Redknee has almost $24-million in cash and no debt. It is trading at an attractive valuation of 6x EBITDA, 11x earnings and with 30% of its market cap in cash.