High hopes for Telvent on smart grid growth

A new report released today from Canaccord Adams establishes high hopes for Telvent (Nasdaq:TLVT), the Spanish provider of advanced communication systems.

The report from Canaccord sustainability analyst John Quealy raises the price target for Telvent to $38, up 27 percent from the previous $30 target. Shares of Telvent were slightly down for the day in late afternoon trading at $28.82.

Quealy said the expectations were based on a price-to-earnings ratio of 15.2 off the firm's 2010 estimate. In the past 52 weeks, shares have traded in a range of $6.81 to $28.90.

Quealy attributed the expectations in part to the company's recently signed six-year smart grid contract with Finnish utility Fortum. The deal, the largest advanced-metering infrastructure project in Finland, is valued at €120 million ($175 million), of which $50 million to $60 million is likely to go to San Jose, Calif.-based Echelon (see Fortum picks Telvent for Finland's largest metering project).

The project is the second major deployment of Telvent's technology. In 2006, Telvent signed its first deal with Echelon for an 850,000-meter project in Vattenfall, Sweden.

Telvent also beat Canaccord's second-quarter estimates by $0.05, based on 3 percent year-to-date organic revenue growth and a backlog up 52 percent year-over-year.

That all happened "even as transportation revenues feel the impact of project delays," Quealy wrote. "That said, momentum is clearly accelerating in the smart grid business, with a very large smart grid project award from Fortum and another 45 potential projects being bid on in the US alone."  

In addition to being a value-added reseller of Echelon's networked energy services (NES) system, Telvent sells advanced communication systems that monitor and measure operations in real time for the energy, environment, traffic and transport sectors.

Transportation could be a significant line of business for Telvent, which is waiting to hear on bids for 58 projects in the U.S. and 46 internationally (see Canadian startup takes a GPS approach to smart metering transport). Quealy said Telvent could benefit from the U.S. government's Transportation Investment Generating Economic Recovery (TIGER) program, which earmarks $1.5 billion for transportation technology projects. Applications for that program are due next week.

According to Canaccord, 53 percent of Telvent's outstanding shares are owned by its parent company Abengoa.