Avante Logixx stock has 44 per cent upside, Beacon Securities says

Three minute read on Avante Logixx stock

Following the company’s first strategic acquisition, Beacon Securities analyst Gabriel Leung has raised his one-year price target on Avante Logixx (Avante Logixx Stock Quote, Chart TSXV:XX).

On Tuesday, Avante Logixx announced the acquisition of Mississauga-based systems integrator Veridin Systems Canada for cash and stock.

“I am thrilled to welcome Veridin, its CEO Colin Doe and his team to the Avante platform,” Avante CEO Craig Campbell said. “Veridin represents our first true strategic transaction as we leverage our platform to provide exceptional solutions to commercial and national accounts. “Veridin has a very strong reputation and excellent long-term customer relationships and has realized significant revenue growth as a leading provider to the cannabis sector. We are confident that Veridin will be a great addition to the Avante platform as we continue to execute on our strategic plan to become a national leader in technology-enabled security solutions.”

Leung says this deal appears to make real economic sense for Avante Logixx.

“(We) believe the acquisition was completed at the lower end of the company’s 6–8x EBITDA target range, which would suggest a purchase price of ~$3M (of which it was publicly disclosed that $500k was satisfied with 1,190,476 shares),” the analyst explains. “The transaction is expected to be immediately accretive. Assuming our $3M acquisition cost ($2.5M cash and $0.5M stock) is correct, then we estimate that Avante will still have ~$9M for potential acquisitions. Recall that the company is also in discussions with a Tier 1 bank to setup an acquisition line of credit.”

New price target on Avante Logixx stock

In a research update clients today, Leung maintained his “Buy” rating on Avante Logixx, but raised his one-year price target from $0.60 to $0.65, implying a return of 44 per cent at the time of publication.

The Beacon analyst thinks Avante Logixx will generate EBITDA of $2.4-million on revenue of $24.7-million in fiscal 2019. He expects those numbers will improve to EBITDA of $3.8-million on a topline of $26.1-million the following year.

“Overall, we view this transaction, which represents the company’s first true strategic acquisition, as being a very positive one for several reasons, ” Leung adds. “It adds a platform for addressing commercial customers on a nationwide basis; (it) brings a strong group of entrepreneurs to Avante’s management team; (and it) represents an immediately accretive transaction at a very compelling valuation.”