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2
It is time to accumulate stock in Avante Logixx again
Posted by: Gerry Wimmer
9/2/2019
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TOP IDEAS: As a much bigger company, Avante Logixx Inc. (TSXV: XX) shares present value as operating leverage gains traction on its C$45 million revenue base.




Investorfile's share price accumulation target of $0.40 (pre-consolidation) 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 community.


Over the last 14 months, Avante Logixx has more than doubled in size through a series of strategic acquisitions. Today, with an annual revenue base over C$45 million, the Company’s Management says it is well-positioned for more growth and, just as important, earnings improvements over the coming quarters.

Based in Toronto , Avante Logixx Inc. (TSXV: XX – C$1.16) provides best-in-class and high-end residential and commercial security services. 2018 was a transformational year whereby Avante Logixx acquired Architronics (the remaining interest), Watermark Security, Veridin Systems Canada and Intelligarde International.

As a result of the recent acquisitions, the Company has reorganized its business into four distinct operating units.

Avante’s largest business unit is its Protective Services Division ("PSD”), which is focused on offering physical protection to residential, commercial and enterprise clients through services such as guarding, patrol and rapid response, intelligent perimeter protection, secure transport, and international security travel advisory and transport. The Company says these services are predominately contractual and recur on a monthly basis. Today, PSD accounts for about 57% of Avante’s revenue base.

The next largest business unit, which currently accounts for about 21.5% of total revenues, is Avante’s Electronic Security Division ("ESD”).This division provides a complete suite of home and corporate security services, including system design, access control, and video and systems installation and service. The Company says that revenues in the ESD are largely project-driven, thus they can vary quarter to quarter depending on the timing of project milestones being achieved.

The third business unit is Avante’s Security Devices & Hardware Division ("SDH”), which provides locksmithing services and hardware sales through the Company’s subsidiary, City Wide Locksmiths Ltd. ("CWL”). SDH provides 24/7 locksmith solutions for homes, businesses and automobiles, including high-security locks, master keys, ironworks and gates, key cutting and lock repairs. SDH makes up about 13.5% of the Company’s total revenues.

The Monitoring & Managed Services division ("MMS”) is Avante’s fourth business units, which currently contributes about 8% of total revenues and which are mostly recurring. MMS provides monitoring services to residential, commercial and enterprise clients. These services include alarm and video monitoring, analytics, verification, and electronic building management utilizing Avante Control Centre in Toronto as the central hub for monitoring, dispatch and response. The Avante Control Centre operates 24 hours a day, 365 days a year.

As described in Avante Logixx’s 2020 fiscal Q1 Management Discussion & Analysis (MD&A), each of the above four business units are currently operating profitably (positive EBITDA). Overall in Q1, Avante reported positive adjusted EBITDA of C$115,000 but had a net loss of C$703,000 on revenues of C$11.5 million.

As with most growth companies which undertake a series of acquisitions within a short period of time, they sustain losses from the added expenses incurred during the integration period. That said, we believe Avante Logixx’s financial results are at an inflection point when the acquisition costs are diminishing and operating leverage is beginning to materialize. This trend will strengthen EBITDA margins going forward and lead to overall profitability in the future. Under this scenario we see value in Avante Logixx’s stock price today.

Currently Avante Logixx’s shares trade at a market valuation ratio equal to about 50% of its annual revenue base. We believe at that ratio the stock price is significantly undervalued if, in fact, the Company’s EBITDA margins will be trending higher in the coming quarters. That said, we think there is value in accumulating stock in Avante Logixx today at its current trading range of C$1.15-C$1.25 per share and over time to a high of C$2.00 based on its current capital structure. At C$2.00 per share the Company’s market capitalization value will nearly be equal to its current revenue base. In our opinion, this represents fair value if the Company’s Management executes on its plan to improve future profitability.

Strangely enough, our current C$2.00 share price accumulation limit equates to the same accumulation target (on a post-consolidation basis) we set when Investorfile first launched coverage on Avante Logixx (See: Avante Logixx: Post-turnaround stock provides value for growth investors) as one of our Top Ideas.

The Company still maintains a good balance sheet.

Of note: On Sept. 17, 2019, the company will welcome all shareholders to an investor open house from 3 p.m. EDT to 6 p.m. EDT at its office at 1959 Leslie St., Toronto, ON. The company asks that anyone wishing to attend to RSVPs to investors@avantelogixx.com by 5 p.m. EDT on Sept. 13, 2019.

Avante Logixx has about 20.1 million shares outstanding.

Company website: www.avantelogixx.com

Author Ownership Disclosure: TSXV: XX - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Avante Logixx Inc. nor has it received any compensation from Avante Logixx Inc. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Avante Logixx Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.