Mission Produce Inc T.AVO

Canaccord Genuity: Buy rating and $27.00 target for Avigilon

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According to Canaccord Genuity:

https://is.gd/062s3V

Avigilon

RATING: BUY (unchanged)

PRICE TARGET: C$27.00 (unchanged)

Estimates Revised

On track to achieve C$500M revenue run-rate target by 2H/2016

Investment recommendation: We believe Avigilon is positioned to grow faster than the overall video surveillance 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 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 U.S. 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, increasing mix of software in systems sales, 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 will impact 2015 adjusted EBITDA margins, we anticipate improving margins and leverage in 2016 resulting in roughly 40% adjusted EBITDA growth. We reiterate our BUY rating and C$27 price target.

Investment highlights

• We believe Avigilon is on track to achieve its targeted C$500M revenue run rate during 2H/2016. We believe Avigilon is ramping investments during 2015 to support the infrastructure necessary to capture market share with a goal of exceeding 5% long-term. We note if Avigilon achieves 4% share by 2018 that it should achieve a C$18 run rate. Given our expectations for ongoing market share gains, we have modeled 35% revenue growth in 2015 and 30% growth in 2016 versus the industry anticipated to grow at a 12% CAGR according to IHS research.

• We believe the process of unlocking value from Avigilon's significant IP investments is in the early stages of implementation. During our Canaccord Genuity Growth Conference, management highlighted its strong and, we believe, industry-leading intellectual property portfolio. We believe the shares do not currently value the longer-term growth opportunity, as Avigilon's strong IP portfolio in analytics is growing in importance for video surveillance systems. In fact, we believe the strong analytics IP portfolio should create a long-term competitive advantage that could protect margins despite potential for increased hardware price competition longer term.

• Over the next few years, 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 Avigilon to gain market share in the fragmented but growing video surveillance security and access control markets.

• While we maintain our revenue and adjusted EBITDA estimates, we have slightly lowered our adjusted EPS estimates due to higher adjusted tax rate assumptions.