Bridgewater Systems has been an active issuer of press releases this month, demonstrating progress in customer wins and service development. It also seems to have retained some good IR support. Based on current screening models, BWC would be considered a Top 30 tech stock on the TSX.
BWC was possibly the last technology IPO (December 2007) before the market began to collapse throughout 2008. It suffered along with most other small-cap issuers as the liquidity crisis took hold. However, since the beginning of 2008, the stock has been a star, with the share price increasing in value by approximately 72%. Brave tech investors who bought the stock at its lows in early December, are experiencing a 111% return. Not bad for these market. As of its last reported quarter, the Company had about $39 million in cash on its balance sheet and no long-term debt. It had a large receivables line item of just over $14 million, and a significant deferred revenue liability of over $17 million. However, the net cash position was approximately $22 million, and the Company is likely to show strong earnings and cashflow momentum for 2009. Essentially, the Company has a strong balance sheet and the string of recent press releases appears to reflect momentum, and clearly, the market appears to like what it sees.
Bridgewater Systems helps mobile carriers ensure that mobile subscribers receive the applications and content that they subscribe to, and that the data that they exchange is relevant, private, and secure. Recently, the Company has announced a policy engine that is designed to help carriers optimize traffic to manage traffic congestion and improve data channel efficiencies. Unlike the Internet, mobile licenses give carriers better opportunities to tier data services - which subscribers should expect to see more often over the coming quarters. BWC is designing solutions to benefit from this opportunity.
The mobile data channel is where revenue growth is expected to occur for mobile carriers for the foreseeable future. Despite the worldwide economic recession, demand for mobile data is up and new applications are being developed at a torrid pace with thousands of new apps developed over the past few months. Matching subscribers to data services should become increasingly challenging for carriers over time. There are 3.5 billion mobile subscriptions worldwide, and because a mobile phone is considered a "necessity", there is expected to be very little drop off in subscriptions. Essentially, the data channel, and associated mobile applications should continue to experience significant growth with probable acceleration exiting the recession. With recent customer wins, BWC is poised to benefit. Yes, there is a decline in mobile device sales, but the application layer remains robust.
It appears that BWC could be trading at a TTM EV/EBITDA multiple somewhere around 30x, however, the forward EV/EBITDA multiple may be less than half that. Some investors may find the stock relatively expensive right now. However, those that are fundamentalists, and tend to hold long, BWC seems to have all of the hallmarks of a new Canadian technology success story as long as future executional bumps are not significant. It should report a solid outlook.
The Company will host a conference call on Thursday, February 26, 2009 at 8:30 a.m. ET to discuss its fiscal 2008 fourth quarter and year-end financial results. The call-in numbers are 416-644-3426 or 1-800-590-1817.
I do not own shares in Bridgewater Systems.