Ascendiant Sees 60% Upside In Elephant Talk

Elephant Talk Communications Corp ETAK reported weak and disappointing 3Q results, with revenue and adjusted EBITDA of $3 million and ($4.6) million, respectively. Ascendiant Capital’s Edward Woo maintained a Buy rating for the company, while reducing the price target from $0.75 to $0.50.

The loss resulting from the termination of a five-year agreement by lusacell, SA after the company got acquired, is adversely impacting Elephant Talk’s performance, Woo noted. He added that the loss of the contract also resulted in debt problems for the company.

Elephant Talk expects to achieve breakeven EBITDA by 2Q. The revenue and EPS estimates for 2016 have been reduced from $33 million to $14 million and from -$0.2 to -$0.4, respectively.

Positives Of The Elephant Talk Story

While Elephant Talk’s financial losses, tight liquidity, new management and long sales cycles present challenges, the relative improvement in its results and new contract wins given its technology and key mobile telecom relationships represent positives.

Woo pointed out that Elephant Talk has recently taken steps to right size its business and expects the same to stabilize in 2016 and grow thereafter. He added that the recent contract wins by the company, including a deal with a wholesale division of a leading US mobile operator, could drive revenue growth in 2016.

“We acknowledge that ET faces significant risks, uneven execution, and negative momentum, but we also believe that its current valuation has already factored this in,” Woo wrote. He further said that the company’s long-term growth prospects remain relatively positive.