TOP IDEAS: Acquisitions are becoming part
of Avante Logixx Inc. (TSXV: XX) growth plans.
Investorfile’s share price accumulation
target of $0.40 for Avante Logixx Inc. was reached on January 7, 2014. For the record,
we do not revise share price targets for our Investorfile Top Ideas - Small Cap
Value Stocks. We have positioned our blog to be one of the first providers of a
pragmatic perspective of a small cap company stock's potential worth, where
there may be uncovered value that has been largely overlooked by the investment
Over the past few years Avante Logixx
Inc. (TSXV: XX - $0.28) has gone through several phases to create
First, there was the turnaround phase,
where a new co-CEO and major shareholder (George Rossolatos), committed to renew Avante’s focus in
servicing the security market which had stable revenues in order to stem the
Company’s operating losses. The strategy was that with the appropriate
management attention and resources, the Company could grow profitably and pay
back all of its bank debt.
That was accomplished two years ago.
The next phase saw Avante scale up its
business organically as a full-service security firm by growing sales across
all of the Company’s product lines while improving gross margins. The Company
also steadily increased its recurring revenue stream generated from monthly
security monitoring fees, which generated a cash position to fund future
growth. At the end of fiscal 2014 (March 31), Avante’s annual sales grew to
$8.96 million, of which 35% was recurring revenue. At this point the market
took notice and the Company raised some capital too.
best-in-class residential and commercial security services including system design
and installation, rapid alarm response, alarm monitoring, video analytics and
secure transport through the use of advanced technology and a focus on client
At this time Company
management believes that there are significant opportunities for growth by
consolidating the security industry to further improve its market share and
operating efficiencies, which would result in increased profitability. With
about $7 million of cash in the bank, Avante has initiated a long-term plan - a
new phase of growth which includes acquisitions.
To this plan Avante
announced the Company’s intention to acquire INTO-ELECTRONICS to
close later this month. INTO-ELECTRONICS, based in Toronto, has developed a specialized
skill set in commercial and high-rise security integration, monitoring and
electronic building management. INTRO-ELECTRONICS generates $2.5 million in
revenues annually of which 33% is recurring. Avante will pay $2.8 million for
INTO-ELECTRONICS, $2.4 million in cash with the reminder in stock. Avante management has stated that this acquisition will be immediately accretive to
the Company’s earnings upon closing.
In addition to the above
acquisition, Avante management has indicated they have identified numerous
other acquisition targets of varying sizes. We anticipate that one or two more
companies (similar in size to INTRO-ELECTRONICS) could be acquired by Avante
within its current fiscal year, funded from existing cash resources and, if
necessary, from available debt capacity. This potentially could double the size
of the Company over the next 12 months.
Since our initial blog
post (See: Avante Logixx: Post-turnaround stock
provides value for growth investors), the shares of Avante had exceeded
our price accumulation target of $0.40 earlier this year but has retreated
since. That said, we reconfirm our $0.40 target. In our opinion the stock price
does not reflect the Company’s capacity to close on several acquisitions. We
note that Avante’s co-CEO
George Rossolatos has considerable M&A
experience from a previous position.
If Avante's long-term
growth phase shows signs of early success, the stock price could appreciate
significantly above the $0.40 level.
Avante has approximately 71.6 million
Avante Logixx website: www.avantesecurity.com
Author Ownership Disclosure: TSXV: XX - Yes
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The author of this article has
acquired and may trade shares of Avante Logixx Inc. through open market
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