Avante Logixx gets price target raise at Paradigm

Paradigm Capital analyst Spencer Churchill likes Avante Logixx’s (Avante Logixx Stock Quote, Chart, News: TSX:XX) latest acquisition.

On Friday, Avante Logixx announced it had acquired 70 per cent of Toronto-based City Wide Locksmiths Ltd. for about $2.6-million. City Wide, a provider of residential and commercial locksmith services, generated more than $5-million in profitable revenue in its most recent fiscal year.

“Avante anticipates numerous cross-selling opportunities with City Wide Locks that are expected to significantly enhance our own product offerings,” said Avante CEO George Rossolatos. “City Wide Locks hold the keyways to many thousands of Toronto homes and businesses that can only be duplicated and serviced by their locksmiths, and, furthermore, the majority of these clients are purchasers of security services. We think this combination is a tremendous fit. In addition, City Wide Locks’ decorative hardware business is recognized as the highest value-added provider in the GTA. Our clients all have secure lock and hardware requirements that we will now be able to address. This is consistent with our strategy of making acquisitions that are a logical extension of our own core business in the security space. This investment was made at under five times adjusted [earnings before interest, taxes, depreciation and amortization], which we believe is a prudent deployment of Avante’s capital.”

Churchill says he expects the synergies with the City Wide acquisition will be mostly on the revenue side. He notes that on a revenue basis, Avante Logixx paid about 0.75x for the asset, which he thinks is fair given the non-recurring nature of the revenue. All in all, the analyst thinks this was a solid move.

“This is another great strategic acquisition for Avante, adding a proven business and expanding its product line at an inexpensive valuation with immediate earnings accretion,” he says. “Management is executing and delivering on its M&A strategy, and we believe the market will react positively to the news.”

In a research update to clients today, Churchill maintained his “Buy” recommendation, but raised his one-year target price on the stock from $0.40 to $0.50, implying a return of 67 per cent at the time of publication, including dividend.