Avigilon's Projected Market Cap and IPO Plans

By John Honovich, Published Nov 01, 2011, 08:00pm EDT

In September 2011, Avigilon announced plans to IPO. At that time, we analyzed the prospectus looking at their massive growth and comparatively weak profit margins. Now, Avigilon has ammended their prospectus filling to detail how much they are going to raise, what they are going to be valued at and what they are doing to do with the proceeds. In this note, we examine all of these points and compare it to industry metrics to understand Avigilon's competitive positioning.

From the updated Prospectus, a number of important new points stand out:

  • Net proceeds from the IPO for Avigilon's internal corporate use is projected at $17.9 Million CAD. 
  • Total proceeds are just under $25 Million CAD but that includes stock being sold for Avigilon's prinicpals as well as transaction costs for the deal.
  • The share price offered will be $4.50.
  • 26.4 Million shares are existing and 4.5 new shares will be sold
  • The market capitalization before new funding is raised will be ~$120 Million CAD ($4.50 x 26.4 Million).
  • $7.1 Million of proceeds is planned for expanding sales and marketing 'including opening branch sales offices in Brazil, China, India, Eastern Europe and South Africa within the next 12 to 18 months'
  • $5.4 Million of proceeds is planned for expanding product development.

Analyzing Market Valuation

With a projected market valuation of ~$120 Million and 2011 revenue expected to be in the ~$50 Million range, prices to sales ratio is a strong but not unreasonable 2 to 3x. For instance, Axis's stock trades at a similar range. More typically, moderate growth surveillance companies trade at 1x to 2x. Struggling companies trade at less than 1x (e.g. IndigoVision). Surveillance companies in the irrational Chinese stock market, like Hikvision trade a 10x. All in all, Avigilon's valuation looks to be fair.

Analyzing Use of Proceeds

The main source of the proceeds will go to sales expansion. We think international expansion could work quite well for Avigilon as they offer a low cost, easy to use offering that meets core concerns in less economically developed countries.

On the other hand, a little over $5 Million for product development is not a huge amount of money. While it is a solid boost over their historical expenditures of about $2 Million per year, as a point of comparison, Axis spends $5 Million on R&D every month. However, we suspect that Avigilon can and will dedicate increased funding to R&D based on their growing cash flow. That noted, their product development should be carefully watched to determine how strong their long term growth prospects and product competitiveness remains.

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