Mission Produce Inc T.AVO

Canaccord: Buy rating and $27.00 target for Avigilon Corp.

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According to Canaccord Genuity:

https://personal.crocodoc.com/Hwf3uCj

Avigilon

RATING: BUY

PRICE TARGET: C$27.00

Initiation of Coverage

End-to-end video surveillance provider positioned to grow faster than fragmented market; initiate with BUY and C$27 target

Investment recommendation: We believe Avigilon is positioned to grow faster than the overall video surveillance market and access control markets, and we anticipate both markets should grow at a 12% CAGR from 2014 to 2018. In fact, we view the video surveillance market as highly fragmented, and believe Avigilon’s unique strategies – of providing end-to-end solutions, pricing through bundling hardware and software without requiring customers to pay recurring licensing fees, manufacturing products in the US and Canada, exceptional service and support for integrator partners, differentiated video analytics capabilities, and strong technology offering across its end-to-end solution – should enable the company to continue to gain market share in the video surveillance and access control markets. We also believe Avigilon can maintain strong mid-50% gross margin levels despite competitive hardware pricing through its strong video analytics IP portfolio and our expectations for increased licensing revenue longer term. While high near-term investments to bolster its IP licensing business and grow its market share to reach its C$500M annual revenue target will pressure 2015 adjusted EBITDA margins, we anticipate improving margins and leverage in 2016 resulting in roughly 50% adjusted EBITDA growth. We initiate coverage with a BUY rating and C$27 price target.

Investment highlights

• We believe Avigilon’s leading end-to-end video surveillance solutions, strong integrator support and service, strong technology offering with leading analytics software, unique pricing model, and North America manufacturing are all competitive advantages that should enable the company to gain market share in the fragmented but growing video surveillance security and access control markets.

• Somewhat similar to Apple’s iPhones versus Android smartphones, we believe Avigilon’s end-to-end solutions offering has several advantages versus competing point products. Feedback from the integration channel suggests Avigilon wins deals not only due to its strong technology offering but also due to the ease of use in both the installation process and from the end customer user interface and experience.

• We also believe Avigilon’s strong patent portfolio, particularly in analytics, creates a long-term competitive advantage that could protect margins despite potential for increased hardware price competition.

• Given our expectations for ongoing market share gains, we have modeled 34% revenue growth in 2015 and 31% growth in 2016 versus the industry anticipated to grow at a 12% CAGR according to IHS research.

• We are introducing our 2015 estimates for revenue of C$365M and adjusted EBITDA of C$54.7M and 2016 for revenue of C$476M and adjusted EBITDA of C$81.9M.

Valuation: Our C$27 price target is based on shares trading at a multiple of roughly 15x EV/adjusted EBITDA based on our 2016 estimates.