Avigilon is a Buy, says Versant analyst Tom Liston

On August 8th, Avigilon (TSX:AVO) will release its Q2, 2012 results. Investors will be looking for more of the same from the Vancouver-based maker of high-definition surveillance equipment. The company’s Q1 revenue of $17.8-million was 77% higher than the previous year, before it IPO’d on the TSX.

Versant Partners analyst Tom Liston says Avigilon’s ability to provide an “end to end” solution is a key differentiator in the surveillance market. He says the company can be a top-tier player in a space that is large and growing as it undergoes a significant transition from analog to IP-based systems. In a report to clients Monday, Liston initiated coverage of Avigilon with a BUY recommendation and a one year price target of $8.75.

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Founded in 2004, Avigilon designs and sells next-generation surveillance systems. Management says the surveillance market is fragmented because to date there has been no integrated supplier of equipment, meaning the majority of end users do not have high definition systems due to compatibility issues and a lack of industry standards. Avigilon allows clients operating mission critical environments such as prisons and casinos to have install a high def system that is reliable as analog, and has the added benefit of providing video resolution that is standing up in courtrooms, which reduces legal costs. Avigilon has sold over 210,000 camera and software licenses that have been installed at more than 12,000 customer sites.

Liston echoes management’s take on the opportunity in the Video Management Software (VMS) market, pointing to a recent study by IP Video Market, where integrators were surveyed and asked to choose their favourite VMS software. Avigilon, notes Liston, already ranked fourth overall, behind Milestone, Exacq and Genetec.

Liston believes that Avigilon’s topline, which came in at $60-million in fiscal 2011, will break the $100-million mark by 2013. While revenue growth has been a focus for CEO Alex Fernandes, the Versant analyst believes that Avigilon’s profitability will improve in 2013 and 2014 as the management team scales the business and lowers operating expenses as a percentage of revenue.

At press time shares of Avigilon were up 2.8% to $7.35

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