Following soft Q1, Paradigm maintains buy rating on Avante Logixx

Avante Logixx’s (TSX:XX) Q1 revenue decline is disappointing, but the company’s acquisition strategy shows promise, says Paradigm Capital analyst Spencer Churchill.

On Monday, Avante Logixx reported its Q1, 2015 results. The company earned $208,055 on revenue of $2,026,260, down 12.8% from the Q1, 2014’s topline. Avante co-CEO George Rossolatos characterized the quarter.

“While we are disappointed in the volume of non-recurring revenue this quarter, we are pleased with the organic growth in our key recurring revenue categories. We will focus on building both positively in future quarters,” he said.

Churchill says that for him, Avante Logixx’s Q1 was a “mixed bag”. While he is underwhelmed by the overall revenue number, he points out that the drop was due to non-recurring revenue, which was down 25% year-over-year. On the plus side, he notes that recurring revenue was up 12% and now represents 42% of the company’s total topline.

Churchill says he is encouraged by Avanta Logixx’s recent acquisition of residential security and automation services integrator, Into-Electronics, which generates more than $2.5-million in annual revenue. He says Into-Electronics, whom Avante has worked with in the past, will add expertise in the commercial security vertical. He says the acquisition of the profitable company should be immediately accretive to earnings and will leave Avante with more than $4.5-million to pursue further M&A, as the price tag for the pickup is just $3.6-million, or 1.44x sales.

In a research update to clients this morning, Churchill maintained his “Buy” rating and $0.65 one-year target on Avante Logixx, implying a 97% return at the time of publication.