MITEL NETWORKS $11.35 (Toronto symbol MNW; TSINetwork Rating: Extra Risk) (613-592-2122; www.mitel.ca; Shares outstanding: 99.9 million; Market cap: $1.1 billion; No dividends paid) has reported its third quarter of results that include Aastra Technologies, a Stock Pickers Digest recommendation that Mitel acquired in a friendly takeover on January 31, 2014.
In the latest quarter, Mitel’s revenue jumped 101.2%, to $272.4 million from $135.0 million a year ago (all figures except share price in U.S. dollars). Most of the increase came from Aastra.
Without one-time items, earnings gained 134.6%, to $19.0 million from $8.1 million. However, earnings per share rose just 28.6%, to $0.18 from $0.14, as the company issued new shares to pay for Aastra.
Mitel is increasingly moving from selling programs that are installed at its customers’ offices to a cloud model, where it keeps its software on its own servers and sells it by subscription. That provides steadier recurring revenue.
To that end, Mitel recently offered to buy ShoreTel Inc. (Nasdaq symbol SHOR) for $540 million in cash. ShoreTel, a maker of phone and call centre systems, has lots of experience selling cloud subscriptions. But ShoreTel rejected the bid, even after Mitel raised it to $574 million. Mitel has now withdrawn its offer.
Even so, Mitel added 107,000 new cloud subscriptions in the latest quarter. It now has 861,624 cloud users, up 73.2% from 497,489 a year ago.
The company’s outlook is positive, and it was careful not to overpay for ShoreTel, which bodes well for its future acquisition success. The stock trades at just 10.5 times Mitel’s forecast 2015 earnings of $1.08 a share.
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