TOP IDEAS: Re-engineered Radiant Communications Corp. (TSXV: RCN) on track and delivering profits. Has the momentum just begun?

With annual sales of $32 million, Radiant Communications Corp. (TSXV: RCN -$0.51) has been one sleepy stock, but that may be about to change.

After a year of restructuring its business processes, Radiant Communications delivered strong Q2 results for 2012: $711 thousand of EBITDA and $0.02 in earnings per share. This Company was never broke; nevertheless, credit goes to the recently appointed CEO for executing on a turnaround plan that management claims can deliver sustainable profitability and growth.

Radiant Communications is an Information Technology (IT) infrastructure service provider that operates a national network from its centres in Vancouver and Toronto. With a team of 83 employees the Company provides 24/7 customer IT support and network operations to many major retail chains and brands including Burger King, Walmart, 7-ELEVEN, Sony, Sun Life Financial and Edward Jones.

Radiant Communications has a well-established national service footprint evidenced by revenue growth primarily attributable to large national accounts. Management says that new client wins are as a result of its flexible and customer service-centric delivery proposition.

The Company's growth plan is to utilize new developments in cloud computing and to increase its IT service revenues obtained from both new and existing customers. This will be accomplished by offering outsourced application hosting on virtual server grids with reliable and cost-effective offsite storage, archiving and processing. Radiant Communications just launched a cloud-based Network Monitoring service for business networks in Canada and the United States.

We like the IT industry in which Radiant Communications operates. Better yet, we like the Company's financial outlook. Why?

Radiant Communications' revenues are primarily recurring in nature from a multiple of long-term IT service customer contracts. Also, the Company's management claims it has rejuvenated its sales channels and brand awareness and has a new sales approach which is more focused on higher margin and higher value business to secure future growth and profitability. Radiant Communications' gross margins are 42% and have been trending upward for several quarters.

We also like the Company's liquidity position: Cash of $5.4 million (equates to $0.35/per share) and no debt. Radiant Communications has established a consistent record of positive cash flow from operating activities to fund its business. That's good news, as the Company does not require raising money to fund its operations which would dilute current shareholders. Radiant Communications has only 15.1 million shares outstanding.

The highlight of our latest addition to our Top Ideas is the undeniable value of this Company's stock. Annualizing Q2 results, Radiant Communications shares currently trade at Enterprise Value (EV) / EBITDA ratio of about 1, a market capitalization 24% of sales and an earnings per share multiple under 7 times. This is a very cheap stock.

Our recommendation for value-driven small cap investors is to accumulate stock of Radiant Communications to a price up to $1.10 per share, which is equivalent to 4 x EV/EBITDA 2012 Q2 results, if annualized. Not factored in our target for Radiant Communications stock price is further growth or the possibility of a shareholder-value enhancing event, by going private or even a takeover, which could value the Company's shares even higher.

We note in a recent Company filing that two institutional investors - Maxam Opportunities Fund and Pender Growth Fund - own a combined 63.4% of Radiant Communications shares and have representation on this Company's board of directors.

Radiant Communications website: www.radiant.net

Author Disclosure: TSXV: RCN - Long

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