Raymond James upgrades Intrinsyc Software

Nothing like some good topline resuts to get equity research analysts to sit up and take notice. That’s exactly what happened today with Wellington Financial Fund II portfolio company Intrinsyc Software (ICS:TSX) when they released their results for Q1 2008. Here is the summary from Raymond James Equity Research:

“Event

Intrinsyc reported F1Q08 results. Revenues were $5.6 mln vs. consensus of $4.8 mln helped by some scope expansion at its Symbian engineering services business. EPS at $(0.03) was in?line.

Action

We are upgrading to an OUTPERFORM rating (previously MARKET PERFORM). We reiterate our $1.00 target.

Analysis

The engineering services outperformance was nice to see although that?s the lower growth, lower margin business and is quite lumpy anyway. On the all important Soleus operating system business, we note that a recently announced design win is no longer proceeding as planned (Soleus has won 7 design wins this past year). We have tweaked our revenue expectations
modestly lower as a result. The loss notwithstanding, the underlying investment thesis remains intact in our view. We are upgrading ICS stock because: 1) the shares are down 23% since we launched coverage (April 11) which makes valuation more palatable; 2) we expect Soleus to generate its first royalties next quarter. While we expect a very modest amount, we believe it
would be positive to finally see royalty revenues start; 3) other design wins continue to make progress including the silicon vendors (Samsung LSI and another undisclosed established chipset supplier). Products from two customers are already well advanced in trials. We believe we could potentially have four customers generating royalties by the end of 2008. Intrinsyc has $35 mln net cash on hand (or $0.20/share) and burns about $4.5 mln per quarter. We expect them to be active on the M&A front.

Valuation

Intrinsyc currently trades at 1.8x C2009E revenues. Comparable mobile software companies trade at 2.2x C2009E revenues.”

MRM
(disclosure – Fund II holds warrants in ICS)