Avigilon Corp. (AVO on Toronto; www.avigilon.com) designs, makes and sells high-definition surveillance systems. Users can view the images from this equipment on computers, tablets and smartphones. In the three months ended March 31, 2015, Avigilon’s revenue jumped 35.3%, to $75.4 million from $55.8 million a year earlier. However, earnings before one-time items fell 6.0%, to $7.9 million from $8.4 million. In April 2014, the company raised $100 million by issuing 3.4 million shares at $29 each. The extra shares reduced its per-share earnings by 10.5% in the latest quarter, to $0.17 from $0.19. Avigilon is investing heavily in its operations, including hiring more salespeople and building a new plant in Texas. It’s also spending more on product development: its research costs jumped 47.1% in the latest quarter, to $7.3 million (or 9.7% of revenue) from $5.0 million (or 9.0%) a year earlier.
Chinese manufacturers making similar cameras 30% to 40% cheaper
This spending is helping Avigilon develop new technology like its LightCatcher system, which can see colour detail in dimly lit areas, such as bars, restaurants and parking lots. The company thinks LightCatcher can play a big role in criminal investigations. Avigilon holds cash of $50.1 million, or $1.07 a share, and has no debt. It will probably use some of its cash to keep expanding and making acquisitions, such as last year’s $17-million purchase of surveillance system firm RedCloud Security. The stock is down from its high of $34.40 in January 2014, but it still trades at 21.5 times Avigilon’s forecast 2015 earnings of $0.84 a share. That’s a high multiple for a junior firm in a narrow niche where many big companies are conducting a lot of research. As well, Chinese manufacturers, such as Hikvision, Vivotek and Uniview, are now making cameras similar to Avigilon’s but 30% to 40% cheaper. TSI Network recommendation: SELL.
