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To: ihubdetectivey who wrote (1009)	1/4/2014 12:14:55 PM
From: diddlysquatz	Respond to of 1056

My year end 2014 price target is $1.00+ Industry average PE ratio for the security industry is about 29. Here is a presentation with some of the better known industry comps. Companies with a stronger technology focus trade significantly higher, on average 55 times earnings based on the comps in this presentation. avantelogixx.com To get to $1.10 I feel they have to have at least one successful acquisition. From my analysis of available private companies for sale in this industry there are many available to buy for 3.5 times ebitda or less. So, I'm factoring in a $2 million acquisition (roughly my estimate of their current cash position). A bigger acquisition, while requiring some form of financing, would likely add even more to the bottom line. An acquisition of this size would add about $0.01 in eps. Throw in some synergies and some up-selling and you likely get about $0.015 in eps from this acquisition. Assuming 25% (down from the current 42%) top line growth rate which should easily produce a 50% bottom line growth rate you get an end of 2014 run rate of about $0.035 eps (this may turn out to be a quite conservative). Add that to the $0.015 from the acquisition and we have $0.05 eps run rate. Discounting the security industry average PE down from 29 to about 20 and you get a $1.00 share price. If they get the industry average PE of 29 you get $1.45 The biggest variables here is the organic growth rate. I think it will be in the 30% - 50% range which likely means a 50% - 100% eps growth rate. I also think that they could pull off a larger acquisition which could add more shares and leverage the balance sheet a bit but it would likely increase the eps. In my opinion this company deserves higher than industry average multiples. Their very high use of technology gives them incredible leverage. Their overall expenses will barely budge with any kind of increase in revenue. And this is now a cash machine. Almost every bit of revenue now goes straight into the bank account. There are many additional reasons as to why I like the company so much such as high insider ownership (top two individuals own 40%). CEO has a solid M&A background. It is a negative working capital business, they get paid upfront before having to deliver their service! Over 90% of EBITDA converts to free cash flow! And the bulk of their revenues are truly recurring. They have business leverage where they can incrementally add new services to existing clients with minimal cost. Many of their monitoring clients run very large companies which helps them to gain a foothold in their corporate security business including their secure travel services. The synergies are quite impressive. I absolutely love this business!

To: ihubdetectivey who wrote (1009)	1/4/2014 12:34:26 PM
From: diddlysquatz	Respond to of 1056

In answer to your other questions. 1. You'll notice that apart from ADT, AlarmForce's multiple is industry standard. I also think AlarmForce trades at a higher multiple because of stronger institutional ownership and the much higher retail investor recognition of the company. They have bombarded the media with advertising over the last few years. A major weakness with AlarmForce is their churn. I recall reading where they see close to 10% churn in monitoring clients where Avante has near 0. You'll also notice that Alarmforce is growing at about 7 - 9% which is slightly higher then industry average? Avante is growing significantly faster partly because of the additional services. 2. In my discussion with management and some minor industry checks I am very confident that they have a lot of room for growth in secure travel services. The caveat here is that this service revenue will likely be quite lumpy so it will be important to watch it over a longer period rather than sequentially. 3. I do see a 15%+ recurring monitoring growth as reasonable and it is no longer just about Toronto. They have established small footholds in other areas including the US. While I feel the greater Toronto area is likely to add 10 - 15% for some time to come the real potential is in new areas. This is where the technology advantage really comes in. Thee is no reason why they cannot monitor facilities anywhere. Outside their core area they are partnering with security companies that have the feet on the ground. Avante offers the technology and monitoring while the partner company handles the laborious handling of the client including emergency calls and servicing. They are already monitoring homes in the Hamptons, Florida and many other areas. This is where they have the ability to scale very quickly. And as far as acquisitions....any in this direct area would allow them to grow the monitoring service much quicker but an interesting angle is other services, including monitoring of people, equipment, autos or other technology like high end entrance systems, locks and so many other possible products and services that they could just layer on top and offer to existing clientele. I hope this helps.