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Growth comes from selling into defence and non-defence government establishments, along with selling into private enterprise accounts

Route1 is planning to build its business by focusing on the following key customers in the next few quarters:

1. The U.S. Customs and Border Protection, an agency within the Department of Homeland Security

2. The U.S. Navy Reserve

3. The Government of the Netherlands Ministry of Foreign Affairs

4. A large European bank (name withheld for reasons of confidentiality)

According to the IDC’s Worldwide Remote Access Services Software: 2009–2013 Forecast and 2008 Vendor Shares report, it expects the worldwide VPN market will grow to $36 billion in 2012 from $24.4 billion in 2007; the U.S. VPN market is expected to grow to $7.8 billion in 2012 from $5.1 billion in 2007.

Exhibit 9: Comparables

NameTickerPriceMarket Cap (millions)2012 FWD EV/Sales2012 EV/EBITDAEstimated Revenue GrowthCitrix Systems, Inc.NASDAQGS:CTXS$68.2$12,801.25.818.414%Salesforce.comNYSE:CRM$127.4$16,740.48.448.725%VMware, Inc.NYSE:VMW$81.5$34, CorporationNASDAQGS:SYMC$17.4$13,304.32.36.52%Average6.424.916%Median7.122.118%Route1 Inc.TSXV:ROI0.23591.32.25.4184%

Source: Company Reports

Exhibit 9 lists Route1’s comparables and their trading multiples based on 2012 estimates. Route1 can easily be valued at
.74 or
.96 based on EV/sales and EV/EBITDA peer multiples, respectively.

We have taken a much more conservative approach and valued the company based on its long-term growth potential below.

Exhibit 10: Financial Estimates

Dec-2010EDec-2011EDec - 2012ERevenue (MM)$5.3$9.8$42.0EBITDA (MM)($1.3)($1.3)$17.5Net Income (MM)($2.6)($1.7)$15.4EPS(
.03Source: Byron Capital Markets

As shown in Exhibit 10, we expect Route1 to grow its revenue to $9.8 million in 2011 and $42 million by the end of 2012. We expect the company to grow its earnings at a rate of 20%–30% beyond 2012. While it is appropriate to put a 25x multiple on 2012 estimated earnings of
.03 per share based on Route1’s peer group , we opt to apply a 20x multiple to be on the conservative side. By applying a 20x multiple to our estimated 2012 EPS, we arrive at a valuation of
.60 per share. We discount that by a further 25%, to account for the fact that 2012 earnings were used, which reduces our valuation to
.48 per share. Furthermore, while we expect Route1 to have potentially

up to 300,000 subscribers for its services by the end of 2013, we have used only 180,000 subscribers by the end of December 2012 paying an average annual subscription fee of $300 per user for valuing the company.

As Route1 demonstrates its growth and earnings in the next few quarters, we will be able to eliminate the risk discounts and the shares should rise to full valuation.


Route1’s global potential is not fully understood and recognized in the market. With its unique products and solutions, Route1 is well positioned to grow in the global markets for a number of years.

We initiate coverage of Route1 with a Speculative Buy Recommendation and a
.48 risk-adjusted price target based on our expected 2012 earnings