A new deal with the largest wireless phone company in the United States should boost the earnings of Ottawa-based Bridgewater Systems Corp.
Friday's news that the firm had signed another contract for its subscriber data management software, along with the unveiling Monday of a new suite of products, will help support a stock that has shot up 174 per cent this year. It has already been boosted by a fight in the boardroom that brought in an activist New York hedge fund manager.
The deal
Bridgewater said Friday that it had won an additional contract from Verizon Wireless to deploy its WideSpan systems, which help phone companies manage customer information and reduce their own operating costs. Bridgewater said revenue from the deal is not expected to be booked this year.
The stock
Bridgewater shares reached a new all-time high Monday. They jumped more than 10 per cent, rising 69 cents to $7.53 on the Toronto Stock Exchange.
The new products
On Monday the company announced that it was planning to test new software with some phone companies for their next-generation networks, built on a standard known as Long Term Evolution (LTE). Most of the world's major carriers are expected to shift to LTE within the next few years, led by Verizon, which is expected to roll out the technology as early as next year. LTE networks boast impressive speeds that could be as much as 10 times faster than today's fastest offerings.
The analysis
Kris Thompson, of National Bank Financial Inc., expects the new revenue will be split between 2010 and 2011 and that the company will win similar-sized contracts from Verizon next year, as demand for wireless data continues to surge.
Mr. Thompson raised his target price on the stock to $11 from $8, on the back of anticipated stronger sales and profit. He increased his revenue target for 2010 to $81-million from $71-million and his share profit estimate to 58 cents, from 46 cents.
"We expect Bridgewater's sales momentum to continue, with a major 3G GSM win expected to be announced in the next several months and the potential for Hewlett-Packard and other channel partners to help drive indirect revenue growth," he wrote in a report published Monday.
Thanos Moschopoulos, of BMO Nesbitt Burns Inc., also raised his target, to $9 from $8.50, noting that between the Verizon deal and an earlier licensing agreement with Alcatel-Lucent, more than 50 per cent of business forecast for 2010 is already in backlog.
"The orders are not a complete surprise-management had previously indicated that Verizon was likely to deploy additional units next year-but the announcement firms up our visibility for 2010," he said.
What Bridgewater does
Bridgewater technology not only helps phone companies manage customer information, but also personalize services, such as mobile commerce, video and social networking. The company's offerings give the mobile operators a unified view of their customers' details, which includes billing profiles, usage patterns, types of handsets on the network and service entitlements. The result is that telecom companies can launch services faster and reduce some of their operating costs. Bridgewater says the phone companies that it serves have more than 150 million wireless subscribers around the world. The company employs more than 200 staff and has been growing quickly.
Clients and competitors
Customers include: Bell Canada, Clearwire, Hutchison Telecom, Leap Wireless, SmarTone-Vodafone, Sprint, Tata Teleservices, Telstra and Verizon Wireless.
Competitors include Sandvine Corp. in Waterloo, Ont., Redknee Inc. in Mississauga, Ont. and CGI Group Inc. in Montreal.
The risk
Bridgewater has a healthy growth rate but still lacks sufficient global scale to secure its place in the rapidly changing world of telecom. It posted sales of $44.2-million in 2008, up 13 per cent from the previous year. The challenge for the company is to build its product and customer bases fast enough so that it doesn't get squeezed out by bigger, better financed players. Larger competitors, such as Sweden's Telefon AB LM Ericsson, have a more widely diversified set of products and services that ensure they have the resources to keep investing their technology.
David Sharpley, senior vice-president of marketing and product management, says his company's relatively low 2008 growth rate occurred in an unusually tough environment and that 2009 results give a more accurate indication of Bridgewater's future. Revenue grew 48 per cent in the first six months of the year, compared with the comparable period in 2008.
The personalities
Bridgewater counts among its backers Sir Terry Matthews, one of Canada's top technology entrepreneurs. Mr. Matthews is chairman of the 12 year-old firm and a major shareholder, with about 7 per cent of the outstanding shares.
In April, Alcatel-Lucent sold its 15-per-cent stake in Bridgewater. A month later, Eric Rosenfeld, a manager at New York hedge fund Crescendo Partners LLP, pushed for an outright sale of the tech firm, in which Crescendo held a 12.7 per cent stake. The move led to battle with Mr. Matthews, who wants to keep building the company. Mr. Rosenfeld has, for now, settled for a presence on the board.
In the past 11 years, he has won seats on 20 public boards, including Spar Aerospace Ltd. and Cott Corp. But a few months after winning a seat at Bridgewater, Mr. Rosenfeld failed in his bid to win two seats on the board of Canada's largest sporting goods retailer, Forzani Group Ltd.
Although Mr. Rosenfeld bills himself as a long-term shareholder, many of his activist plays have culminated in takeovers or asset sales. He is one of a number of activists and funds that see opportunity in Canada at the moment.