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SeeThruEquity Initiates Coverage on FTE Networks, Inc. (OTCQX: FTNW) with a Price Target of $1.20
Thursday, November 3, 2016 9:08 AM
NEW YORK, NY / ACCESSWIRE / November 3, 2016 / SeeThruEquity, the leading independent equity research firm focused on smallcap and microcap public companies, today announced it has initiated coverage on FTE Networks, Inc. (OTCQX: FTNW) with a 12 month price target of $1.20.
The report is available here: FTNW Initiation Report.
We initiate coverage on FTE Networks Inc. (OTCQX: FTNW, "FTE Networks") with a price target of $1.20. FTE Networks is an established company in the communications industry, with nearly a decade of experience providing end-to-end network infrastructure solutions for Tier 1 and Tier 2 communications service providers, government agencies, OEMs, and network infrastructure providers. The company's solutions are focused on helping customers build smarter networks, which are more capable of handling the increasing complexity and bandwidth requirements of services provided via wireless and wired data. Based in Naples, FL, FTE is led by a seasoned leadership team with deep experience at telecom and technology leaders such as Zayo, Level3, Qwest and Nexius, among others. The company appears to be experiencing strong demand in its core fiber infrastructure business, and is also evolving up-market with an innovative platform of Managed Network Services, which are designed to take a data center computing methodology and push it to the network's edge.
In our view, FTE Networks represents an attractively valued small capitalization growth opportunity in technology sector. Indeed, shares trade at a steep discount to CommTech industry peers, despite improving visibility on revenues and EBITDA following several new large fiber infrastructure contract awards. At the recent closing price of $0.46, FTE Networks traded at an EV/ Revenue multiple of just 0.9x our 2017E estimates – and the company's enterprise value is just 29% of the value of its three-year contracted backlog. We see several catalysts ahead for FTE Networks, as revenues begin to ramp in 2H16E and 2017E from approximately $170mn in new contracts awards, positioning the company to benefit from operating leverage with guidance for positive EBITDA going forward. On the corporate development front, the company has stated its intention to uplist shares to a national exchange, likely the Nasdaq CM, which would serve to increase the company's prestige in the industry and likely grant access to institutional investors who are restricted from investing in OTCQX-listed shares.
Highlights from the report include:
Experienced player poised to benefit from industry technology shift
FTE Networks is an established fiber infrastructure solutions provider, having provided end-to-end solutions for numerous Tier-1 and Tier-2 customers in the communications service provider space, including more than 25,000 rack and stack integrations and the construction of more than 7,000 miles of fiber. The company is positioned to benefit from the robust growth in demand for internet bandwidth over wired and wireless connections, driven by the increasing proliferation of internet-enabled devices, growing penetration of cloud computing and virtualization, and rising popularity of bandwidth-hungry applications such as mobile video. Indeed, according to Cisco's Visual Networking Index for 2015 – 2020, global IP traffic will surpass the zettabyte level in 2016, and will increase by approximately 3x over the next five years, growing at a CAGR of 22% from 2015 to 2020E. This growth has strained networks in bandwidth and performance, creating an opportunity for FTE to benefit from what could be a multi-year upgrade cycle.
Recent news shows growth accelerating; positive EBITDA to follow
We have been impressed by the size and pace of the new contract announcements coming out of FTE in 2016. On October 28, 2016, while announcing a new win at a competitive local exchange carrier (CLEC), FTE management announced that the cumulative backlog for deals over the next three years had reached $170mn. The backlog level suggests a sharp jump in revenues beginning in 2017E, as management stated that the company should reach $55mn in annualized revenues by year-end – implying more than 200% growth over the company's 2016E outlook of $16-$18mn. Important, too, considering the company's relatively weak balance sheet, is management's outlook for EBITDA to turn positive in 2H16, and expand in 2017E as revenues grow, and gross profit dollars from new business flow through to EBITDA.
Initiate coverage with a price target of $1.20
We see FTE Networks as undervalued when considering its $170mn deal pipeline relative to its market capitalization of $37.3mn – particularly given management's guidance that the company would begin to generate EBITDA in 2H16E. Moreover, FTE Networks should have strong visibility in its core business, lowering risk, as these deals represent 3-year contracts. The target of $1.20 represents potential upside of 160.9% from the recent price of $0.46.
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About FTE Networks, Inc.
FTE Networks is on the leading edge of network transformation helping communications service providers, government and enterprise customers evolve their networks to meet advancing technology requirements via network infrastructure, and edge computing solutions to quickly enhance service innovation and deliver new revenue streams. With a focus on smart design, open architectures and consistent standards, along with expertise in building, operating, and maintaining networks, FTE solves complex network and system challenges that reduce costs and deployment time to accelerate delivery and optimize performance of network infrastructure. Operating five (5) industry segments; Data Center Infrastructure, Fiber Optics, Wireless Integration, Network Engineering, and Compute to the Edge, FTE Networks is headquartered in Naples, Florida, with offices throughout the United States and Europe. For more information, please visit: www.ftenet.com.
Since its founding in 2011, SeeThruEquity has been committed to its core mission: providing impactful, high quality research on underfollowed smallcap and microcap equities. SeeThruEquity has pioneered an innovative business model for equity research that is not paid for and is unbiased. SeeThruEquity is the host of acclaimed investor conferences that are the ultimate event for publicly traded companies with market capitalizations less than $1 billion.
SeeThruEquity is approved to contribute its research reports and estimates to Thomson One Analytics (First Call), the leading estimates platform on Wall Street, as well as Capital IQ and FactSet. SeeThruEquity maintains one of the industry's most extensive databases of opt-in institutional and high net worth investors. The firm is headquartered in Midtown Manhattan in New York City.
For more information visit www.seethruequity.com.