Avigilon Best IPO on HD Security Camera Surge: Corporate

Avigilon Corp.’s (AVO) 91 percent rise since its trading debut has made it the best performing Canadian initial public offering in the past 12 months. The chief executive officer of the video surveillance company said the era of high-tech monitoring has barely begun.

Alexander Fernandes forecasts annual revenue for the Vancouver-based manufacturer of high-definition surveillance systems to reach C$500 million ($510 million) by the end of 2016, up from C$60 million last year.

“It’s a land grab,” Fernandes, 44, said in a telephone interview. “Most digital systems out there are still low- resolution like analog but the HD is what’s going to take over that industry and we’re leading that transition.”

Avigilon is seeing demand from retailers, banks, airports and governments, which want to overhaul their analog security systems to catch thieves and foil terrorists. It’s a market that’s projected to generate $20.5 billion in sales by 2015, up from $10.6 billion in 2011, according to Austin, Texas-based IMS Research.

Since debuting on the Toronto Stock Exchange on Nov. 8 at C$4.50, Avigilon’s stock rose 91 percent to trade at C$8.60 at the close today, giving it market value of C$310 million. That’s the biggest gain in the past year for companies that began trading in Canada with an offering of C$20 million or more, according to data compiled by Bloomberg. Morguard North American Residential REIT was second with a 17 percent rise since its April debut.

Fragmented Market

Fernandes saw the need for better quality video monitoring in 2004 while struggling to decipher security footage from research and manufacturing sites his company was reviewing in his previous job. He quickly realized poor surveillance video was an industry-wide problem.

“Our mission is to become the world’s largest video surveillance provider,” Fernandes said in the interview last week.

The security market is still relatively fragmented because there are few companies that sell both the hardware and software for video-security systems, said Kris Thompson, a technology analyst at National Bank Financial in Toronto.

Its camera-making rivals include Lund, Sweden-based Axis Communications AB (AXIS), while companies like Genetec Inc., Milestone Systems and Exacq Technologies Inc. compete in the software market.

High Valuation

The lack of a single standard for Internet-based surveillance also has held back the growth of the industry. The fact Avigilon makes both hardware and software and its gear is open and adaptable to different systems gives it a competitive advantage, Thompson said. By the end of 2014, its sales should be C$191 million, he estimates.

“The market is so big and growing so rapidly,” Thompson said. “There’s room for Avigilon and several other competitors to prosper.”

Of the seven analysts with recommendations on the stock, six rate it a buy and one a hold.

While Thanos Moschopoulos, an analyst at BMO Capital Markets, said he likes the company’s strategy and growth prospects, he said the stock may be expensive relative to current profit. Its price-to earnings ratio, a measure of a stock’s affordability, is 57 compared with 17 for the Nasdaq composite index of tech stocks, which has climbed 17 percent this year.

“We’ve struggled with the stock’s valuation, as our focus has been on earnings-based metrics,” rather than price-sales multiples, Moschopoulos said in a Sept. 20 note. He has the equivalent of a hold rating on the stock.

Airports, Casinos

Avigilon’s cameras and software are installed at airports in Dallas and the Saudi Arabian capital Riyadh, as well as a number of large casinos in Las Vegas that Fernandes declined to name. The company uses data-compressing technology to transmit high-definition video more cheaply, giving it an edge over competitors, he said.

The company is counting on more innovation to keep ahead. That means trying to be more like Apple Inc. (AAPL), and less like fellow Canadian company Research In Motion Ltd. (RIMM), which makes the struggling BlackBerry device.

RIM pioneered the smartphone market, only to see Apple’s iPhone and devices built on Google Inc. (GOOG)’s Android operating system steal its market share. Avigilon isn’t making the same mistakes as RIM, Thompson said.

“They didn’t innovate -- Avigilon is the leading innovator in this space,” he said.

International Expansion

In the past year, Avigilon has added offices in Russia, Poland and Croatia as part of a push into Eastern Europe. It’s also established outposts in Singapore and Dubai to expand in Southeast Asia and the Middle East.

Andrew Martz, Avigilon’s chief operating officer, is leaving the company as his role is split into two positions, the company said after the close of regular trading yesterday. Martz will stay on until the middle of 2013 to help with the transition as Avigilon hires new executive vice-presidents for product development and global operations, Angela St. Amour, a company spokeswoman said in an e-mail. Avigilon’s shares were little changed today.

“This type of management reshuffling isn’t uncommon for a high-growth company scaling up its operations,” Moschopoulos said yesterday. “We wouldn’t read into Mr. Martz’s departure.”

Asked whether he worries Avigilon’s security systems could be used by governments to spy on their people, Fernandes said it doesn’t decide where its technology ends up. The company doesn’t sell to governments or businesses directly, relying instead on system integrators such as Siemens AG, Honeywell International Inc. (HON) and Johnson Controls Inc. (JCI)

“A video-surveillance system is just a tool -- it’s not good nor bad,” Fernandes said. “The CCTV debate is more about putting in proper procedures and proper usage as a society, not whether the technology is good or bad.”

Avigilon raised C$27 million in a second share sale last month, letting it hire more salespeople, develop new technologies and buy more ads. That will help propel the company toward its half-billion-dollar sales goal, Fernandes said.

“We’ve got the finances in place, the team in place and the innovation to actually achieve that goal,” he said.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.