With the recent proposed acquisition of FiberNet Telecom (FTGX), a long-term investment of ours, we’ve been searching for other attractively priced enterprise hosting and colo operations, that remain under the radar of most investors.

One company that seems to offer an interesting investment opportunity is NaviSite (NAVI). While NAVI remains very highly leveraged, we believe that potential strategic divestitures at the company in the coming year, could create substantial value by reducing debt and focusing investors on what, despite past troubles, remains a very attractive business. As the capital structure is enhanced, it’s possible that NAVI could become an acquisition candidate.

Notably, recent financial results at the company, show a business with solid recurring revenues, and improving free cash-flow metrics. EBITDA on annual basis is currently running at about $34 million and we believe the company’s EV/EBITDA multiple, which we estimate at about 5, can expand as debt is paid off and operations continue to show stability and ultimately renewed growth.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in NAVI. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.