TOP IDEAS: As a much bigger company,
Avante Logixx Inc. (TSXV: XX) shares present value as operating leverage gains
traction on its C$45 million revenue base.
Investorfile's share price accumulation
target of $0.40 (pre-consolidation) for Avante Logixx Inc. was reached on
January 7, 2014. For the record, we do not revise share price targets for our
Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to
be one of the first providers of a pragmatic perspective of a small cap company
stock's potential worth, where there may be uncovered value that has been
largely overlooked by the investment community.
Over the last 14 months, Avante Logixx has
more than doubled in size through a series of strategic acquisitions. Today,
with an annual revenue base over C$45 million, the Company’s Management says it
is well-positioned for more growth and, just as important, earnings
improvements over the coming quarters.
Based in Toronto , Avante Logixx Inc. (TSXV: XX –
C$1.16) provides best-in-class and high-end residential and commercial security
services. 2018 was a transformational year whereby Avante Logixx acquired Architronics
(the remaining interest), Watermark Security, Veridin Systems Canada and Intelligarde
As a result of the recent acquisitions, the Company
has reorganized its business into four distinct operating units.
Avante’s largest business unit is its Protective Services Division ("PSD”),
which is focused on offering physical protection to residential, commercial and
enterprise clients through services such as guarding, patrol and rapid
response, intelligent perimeter protection, secure transport, and international
security travel advisory and transport. The Company says these services are
predominately contractual and recur on a monthly basis. Today, PSD accounts for
about 57% of Avante’s revenue base.
The next largest business unit, which currently
accounts for about 21.5% of total revenues, is Avante’s Electronic Security
Division ("ESD”).This division provides a complete suite of home and
corporate security services, including system design, access control, and video
and systems installation and service. The Company says that revenues in the ESD
are largely project-driven, thus they can vary quarter to quarter depending on
the timing of project milestones being achieved.
The third business unit is Avante’s
Security Devices & Hardware Division ("SDH”), which provides locksmithing
services and hardware sales through the Company’s subsidiary, City Wide
Locksmiths Ltd. ("CWL”). SDH provides 24/7 locksmith solutions for homes,
businesses and automobiles, including high-security locks, master keys,
ironworks and gates, key cutting and lock repairs. SDH makes up about 13.5% of
the Company’s total revenues.
The Monitoring & Managed Services
division ("MMS”) is Avante’s fourth business units, which currently contributes
about 8% of total revenues and which are mostly recurring. MMS provides
monitoring services to residential, commercial and enterprise clients. These
services include alarm and video monitoring, analytics, verification, and
electronic building management utilizing Avante Control Centre in Toronto as the central
hub for monitoring, dispatch and response. The Avante Control Centre operates
24 hours a day, 365 days a year.
As described in Avante Logixx’s 2020 fiscal Q1
Management Discussion & Analysis (MD&A), each of the above four
business units are currently operating profitably (positive EBITDA). Overall in
Q1, Avante reported positive adjusted EBITDA of C$115,000 but had a net loss of
C$703,000 on revenues of C$11.5 million.
As with most growth companies which
undertake a series of acquisitions within a short period of time, they sustain
losses from the added expenses incurred during the integration period. That said,
we believe Avante Logixx’s financial results are at an inflection point when
the acquisition costs are diminishing and operating leverage is beginning to
materialize. This trend will strengthen EBITDA margins going forward and lead
to overall profitability in the future. Under this scenario we see value in
Avante Logixx’s stock price today.
Currently Avante Logixx’s shares trade at
a market valuation ratio equal to about 50% of its annual revenue base. We believe
at that ratio the stock price is significantly undervalued if, in fact, the
Company’s EBITDA margins will be trending higher in the coming quarters. That
said, we think there is value in accumulating stock in Avante Logixx today at
its current trading range of C$1.15-C$1.25 per share and over time to a high of
C$2.00 based on its current capital structure. At C$2.00 per share the
Company’s market capitalization value will nearly be equal to its current revenue base. In
our opinion, this represents fair value if the Company’s Management executes on
its plan to improve future profitability.
Strangely enough, our current C$2.00 share
price accumulation limit equates to the same accumulation target (on a post-consolidation basis) we set when
Investorfile first launched coverage on Avante Logixx (See: Avante
Logixx: Post-turnaround stock provides value for growth investors)
as one of our Top Ideas.
The Company still maintains a good balance
Of note: On Sept. 17, 2019, the company
will welcome all shareholders to an investor open house from 3 p.m. EDT to 6
p.m. EDT at its office at 1959
Leslie St., Toronto, ON. The company asks that anyone wishing
to attend to RSVPs to firstname.lastname@example.org by 5 p.m. EDT on Sept. 13, 2019.
Avante Logixx has about 20.1 million
Company website: www.avantelogixx.com
Author Ownership Disclosure: TSXV: XX - Yes
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Investorfile.com is not engaged in an investor relations agreement with Avante
Logixx Inc. nor has it received any compensation from Avante Logixx Inc. for the
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The author of this article has acquired and may trade shares of Avante Logixx
Inc. through open market transactions and for investment purposes only.