Currency swing working in Sandvine's favour
For all the doom and gloom in the world, not every tech company is looking to enter the witness protection program.
Take Waterloo’s Sandvine (SVC:TSX), for example. Key customer orders appear to be coming back in certain areas. Huge revenue concentration, mind you, with Comcast generating 41% of sales, and two channel partners doing another 43%. But, I’m not going to complain about customers wanting a huge chunk of someone’s product. The currency swing won’t have hurt the revenue line, either; assuming they haven’t used a currency hedging program.
In fact, in Snadvine’s case, year/year growth may well be mostly due to the currency moves. Not that this is anyone’s fault, but a key thing to think about when you look at companies with C$ costs and unhedged non-Canadian revenue.
One US$ was worth C$1.237 on November 30, 2008, which was the last day of the quarter (the USD averaged C$1.218 for the month). In 2007, that same U.S. dollar was worth just C$1.0008 (averaging C$0.967 for the month.)
Just think what the impact on the top line is if 41% (C$7.6 million) of their revenue for the quarter came from Comcast in the form of U.S. dollar purchase orders. That would work out to be something like US$6.2 million of Comcast orders, which would have been worth C$5.995 in November 2007 (using the monthyl avg.), when the Company’s revenue for the quarter came in at C$17.1 million.
The currency swing meant that $1.27 million of Q4’s revenue growth was solely due to the currency swing on the Comcast order. A full 7% of the reported 9% year-over-year growth in revenue.
In Waterloo, MKS, RIM, Open Text and Descartes all report their financials in USD. Dalsa and Arise report in Canadian.
This report is from GMP’s Research Analyst:
“SVC C$0.85 Target: C$0.95
Q4/F08 Small Loss on Good Sales Strength
. Results Improved: Sandvine’s revenue was stronger than expected at C$18.6mm, +9% YoY, and the company approached breakeven with an EPS loss of $0.01. We had forecast a loss of $0.02 on revenue of $15.2mm.
. Segments: Revenue grew sequentially in Cable, DSL and Wireless, which is good. Comcast returned as a single dominant customer at about 41% of sales. Channel partners Huawei and Mitsubishi generated 43% of sales.
. Spending to Rise: Sandvine expects to continue to boost spending to fuel growth, which will likely delay profitability, unless sales growth exceeds our forecast.
. Valuation: Our target of $0.95 is based on 1.0x EV/sales.
. Rating: As fundamental investors, we are attracted by recently improved sales at Sandvine and low valuation. But due to our forecast of futher losses, we will patiently await a return to sustained profitability or more compelling valuation. We maintain our HOLD rating.”
MRM
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