ALARMFORCE INDUSTRIES $9.19 - Toronto symbol AF

ALARMFORCE INDUSTRIES $9.19 (Toronto symbol AF; TSINetwork Rating: Speculative) (1-800-267-2001; www.alarmforce.com; Shares outstanding: 12.2 million; Market cap: $112.1 million; Dividend yield: 1.1%) sells two-way voice alarm systems and monitoring services in Canada and increasingly in the U.S. It’s also adding to its prospects with its VideoRelay system, which it launched in October 2011.

In the three months ended April 30, 2012, AlarmForce’s sales rose 10.2%, to a record $11.1 million from $10.1 million a year earlier. Even so, the company lost $0.02 a share, compared to a profit of $0.07 a share. Earnings fell because it increased its advertising spending as it expanded into Florida.

AlarmForce also invested more in VideoRelay, which lets subscribers watch their homes through computers and smartphones. Users can either view live video or receive alerts when the system detects motion. VideoRelay also lets you establish two-way voice communication through the camera, which could scare off burglars.

The company currently serves major U.S. cities in North Carolina, Ohio, Georgia, Minnesota and now Florida. AlarmForce’s U.S. expansion adds risk, but it’s taking a steady, disciplined approach.

In the latest quarter, the company’s U.S. customer base jumped 28.3%, to 25,400 from 19,800. AlarmForce now has 104,600 subscribers in Canada, up 4.8% from 99,800 a year earlier. Of those clients, 1,200 in Canada and 300 in the U.S. have added VideoRelay.

VideoRelay has a lot of potential for keeping an eye on kids and aging parents, in addition to deterring burglars. What’s more, we think the U.S. dollar seems likely to keep rising. That would boost the amount that AlarmForce’s U.S. operations contribute to its earnings.

AlarmForce is a buy.

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