National Bank Reiterates Sector Perform Rating on Sandvine (SVC)

National Bank Financial is out with a research note this morning, where it reiterates its Sector Perform rating on shares of Sandvine Corporation

; it has a Cdn$1.75 price target on the stock. The NBF analysts said, “Q2 revenue of $22.4 mln was in line with consensus and above our $21.5 mln estimate. Stronger than expected DSL and Wireless segment results (each accounting for 40% of revenues and setting records) offset lower than expected Cable results. Revenues were strong across most geographical regions, with emphasis on the U.S., EMEA and Asia-Pac. Adjusted EPS of $0.03/sh (ex. stock-based comp, FX and intangible impairment) was a penny better than our estimate. While results are showing some promise, the company benefited from $3.2 mln Government of Ontario funding. Book-to-bill was below 1x (exact figure not disclosed), which could be a headwind for next quarter.” They added, “Sandvine is seeing plenty of RFP activity, especially in the EMEA region and concentrated in the Wireless vertical. The company responded to a record number of RFPs in Q2. RFP’s are mostly from new customers, as the installed base generally does not issue new RFPs (just purchase orders). Sales to existing customers make up the “vast majority” of the company’s revenue. Sandvine won nine new customers in Q2 compared with six last quarter.” They also said, “We continue to expect the bulk of DPI demand will be satisfied by edge routers from the large network equipment vendors. In our opinion, Sandvine needs to reduce its opex to be profitable at a lower level of sustainable revenue, operating in what we expect to be a niche market for non-integrated DPI solutions. Based on our thesis, ~35% of Sandvine’s revenues are at risk as partners such as Huawei and NSN evolve their in-house DPI solutions. Our $1.75/sh DCF-based target price equates to 15.3x EV/EBITDA on our F2011 estimates.” Learn how to find the best

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