Security systems company Avante Logixx Inc. (TSXV:XX) is building up its M&A war chest, says analyst Gabriel Leung of Beacon Securities, who in a Tuesday update reiterated his “Buy” recommendation with a lowered price target of $0.60.
On Tuesday, Avante Logixx announced the closing of a bought deal financing round with gross proceeds of $8.6 million, co-led by underwriters Cormark Securities and Canaccord Genuity. The company says that it plans to use the proceeds to fund organic growth and acquisitions within its core business strategy.
Leung estimates that Avante now sits on $11.5 million in cash with no debt and notes that CEO Craig Campbell’s stated five-year plan involves deploying ~$200 million for acquisitions targeting ~$30 million in EBITDA run-rate.
But the analyst also emphasizes the company’s efforts to optimize its existing security platform, including further integration of previously acquired businesses.
“We believe these organic initiatives could help augment Avante’s EBITDA margins from the current ~10 per cent range to mid-10 per cent over the near-to-mid-term,” he says.
“We also believe the company is prioritizing marketing/branding initiatives, along with expansion of existing security/monitoring services into other high-end geographic areas,” he says.
Leung has adjusted his estimates and target price to reflect the financing round, which effectively amounts to a 26 per cent share dilution). The analyst sees XX producing revenue and EBITDA in 2018 of $23.0 million and $2.5 million, respectively, and revenue and EBITDA in 2019 of $24.3 million and $3.0 million, respectively.
His $0.60 target (was $0.65) is based on a 13x FY20 EV/EBITDA valuation and represents a projected return of 43 per cent at the time of publication.