Mission Produce Inc T.AVO

Canaccord Genuity comments on Avigilon Corporation

[shakerman640]

According to Canaccord Genuity:

https://is.gd/OKRAOp

Avigilon

RATING: BUY (unchanged)

PRICE TARGET: C$27.00 (unchanged)

Company Update

Reorganization leads to senior management departures

Investment recommendation: Avigilon announced two senior management departures as part of its plans to streamline its senior management structure. While senior management changes at Avigilon remain higher than our other coverage companies, Avigilon continues to deliver strong growth trends. In fact, we view the video surveillance market as highly fragmented and Avigilon’s unique strategies -- 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. We reiterate our BUY rating and C$27 price target.

Investment highlights

• Avigilon announced it has streamlined its senior management team to the seven departments of product development, sales, marketing, operations, finance, legal, and human resources, with all divisions reporting directly to CEO Alexander Fernandes. With the streamlined management changes, Bryan Schmode, chief operating officer, and Collis Heath, vice president of operations, are leaving Avigilon. Bryan Schmode will provide consulting services to help with the transition.

• While some investors we have spoken with this morning are concerned about the timing of these changes with the new Texas facility going live in Q4/2015, we believe this facility remains on track. In fact, we believe Manny Gill, VP of manufacturing and global supply chain, has the experience necessary to ensure a smooth transition. Further, we believe the Texas facility has already started to produce small quantities of products and remains on track for Q4/2015.

• Despite a relatively high level of senior management changes the past couple years, Avigilon continues to deliver on its growth and market share gains, and prior senior management changes have had limited if any correlation with past financial performance. We believe current business trends remain on track to reach a C$500 revenue run-rate in 2H/2016 with expanding adjusted EBITDA margins, and we are leaving our estimates unchanged. Please see our note from earlier this week titled “On track to achieve C$500M revenue run-rate target by 2H/2016” for more details.

• While these changes in senior management have impacted the share price today, we view this as a buying opportunity for longer-term investors. With Canon purchasing Axis at a valuation over 20x 2016E EV/EBITDA, combined with Avigilon’s potentially valuable IP longer-term, we believe this justifies a 15x multiple for Avigilon given Avigilon is growing faster than Axis with stronger gross margins.