Tuesday, April 8, 2014

AVID: Avid at the NAB; more on valuation ...

We thought to touch on AVID given that we attended the Company’s ACA and went to its booths at the NAB.   
Overall, we heard positive feedback and input from its current clients.  In addition, based on the number of people at its booths, it appeared there is a great deal of interest in the Company’s Avid Everywhere strategy.  We did speak with an engineer that is not using AVID products.  We asked why and that person said AVID’s support services were disappointing.  We think the Company is trying to improve that side of the business, especially now that it is using the subscription, or SaaS, model for its products.  This model is heavily dependent on providing exceptional support and maintenance services as they are part of the ‘rent’ that its clients pay.
In terms of valuation, as mentioned before, we value it at $11.18, which includes $9.23 based on our DCF model, plus NOL carryforward estimate of $1.95.   Based on our estimates, AVID is trading at 7.8x FY ’14 EBITDA, comparable to AAPL’s 7.5, but significantly below ADBE’s 26.1.  We certainly don’t think AVID deserves an EV/EBITDA multiple anywhere close to what ADBE is trading at.  However, given the margin expansion and return to breakeven or profitability expected in FY ’15, AVID is trading at only 5.6x FY ’15 EBITDA, while AAPL is at 7.1 and ADBE at 16.4.  Although we do not have the consensus EBITDA estimate for Harmonic (HLIT), we note it is trading at 22.4x TTM EBITDA, while AVID is at 8.7x during a restructuring and new strategy implementation phase; based on our estimates as the Company has not filed its annual reports since end of FY ’11.
In addition, we note that the $220MM that Belden (BDC) paid for Grass Valley (a private company and a competitor of AVID) represented a P/S of approx. 0.71, based on our assumption of Grass Valley generating $310MM in revenues during FY ’14.  Applying that multiple to our FY ’14 revenue estimates for AVID, results in a $10.54/sh valuation of AVID, an attractive 61% upside.
In summary, assuming a successful operational turnaround (which is likely based on AVID’s customer base and well-respected brand in its space), the completion of its SEC filings (likely by mid-2014), and the Company trading on NASDAQ again, we think the stock remains attractive. 

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