This past August, AlarmForce (TSX:AF) announced it had hired Imperial Capital as advisor on a strategic review of its business and opportunities, including a possible sale of the company.
Industrial Alliance analyst Steve Li spoke with management recently, who confirmed to him that the review is still active.
Li says in the meantime, transactions in the space have provided a backdrop that bodes well for AlarmForce’s valuation. In September, he notes, New York-based asset management giant Blackstone Group acquired America’s fourth largest residential alarm provider Vivint for (US) $2-billion. Then, in October, the third largest provider made a deal with Pinnacle Security to purchase more than 93,000 accounts for (US) $131-million. The cost per subscriber on these deals, $2000 and $1400 respectively, is far above AlarmForce’s trailing twelve-month multiple of $855 per subscriber, notes Li.
Li says the alarm industry is in the middle of an Industry shift towards interactive services and “smart home” systems. He says this plays into AlarmForce’s strengths because its system is entirely designed and manufactured in-house, which enables the company to go to market at approximately one-third the price of its competitors. In a research update to clients Li reiterated his SPECULATIVE BUY rating and target price of $13.75 on AlarmForce.
Founded in 1988 by current CEO Joel Matlin, home security systems manufacturer AlarmForce has grown to more than a quarter-million subscribers in Canada and the US. In October of last year the company launched VideoRelay, a video surveillance system with live two-way voice.
Li points out that AlarmForce shares have pulled back 13.5% since its 52 week high of $11.90 in September. He believes this represents an attractive buying opportunity for investors. Li says AlarmForce could be worth $12 a share, based on a based on a blended 12x EV/EBITDA, 1400x EV per subscriber and 42x EV/recurring monthly revenue multiple.
Shares of AlarmForce closed today up 1.5% to $10.65.