Sphere 3D Corp (ANY)

[ariadndndough]

Jacob's report. I just got permission to post some of it
Damien wonderful guy


Event:
? Sphere 3D announced the acquisition of its channel/hardware partner, Overland Storage, in an all-stock transaction expected to close in the third quarter of 2014, concurrent with an equity financing of C$10M.
Implications:
? Assembling an integrated solution. The combination of Sphere 3D and Overland parallels that of EMC and VMware ten years ago. While standalone data management vendors continue to experience demand deterioration, integrated vendors, such as EMC and now Sphere 3D-Overland, are well positioned to capitalize on the transition to software defined networking environments. While the acquisition of VMware revitalized EMC’s storage revenues, VMware grew at a five-year CAGR of over 50%
? Tape decline hides healthy disk-based storage business. Overland’s key revenue segment decline has occurred in the tape- based product segment. The company’s Snap line of products, however, have exhibited a stable revenue trend, suggesting that the company’s disk-based segment is one of the better performing product lines in the market (given overall decline in the external storage hardware industry).
? Pre-close, we expect continued Sphere 3D traction. We estimate Q2/2014 and Q3/2014 revenue of $1.5M and $2.1M, respectively, for Sphere 3D. Having turned EBITDA positive in Q1/2014, we expect EBITDA to expand to $0.6M in the quarter before the closing of the merger.
Recommendation:
? Maintain BUY rating, raise target to C$16. Our DCF-based target represents 3.1x 2015E EV/Sales, in line with data management peer average. We believe that, should Sphere 3D continue to book above industry average growth as per our 2014-15 estimates, the shares would gain a premium valuation over peers in the range of 4.5x to 8.0x EV/Sales, providing runway for the shares to trade above $24.

Jacob Securities Inc. (“Jacob Securities”) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.