Atomos Limited

Company Overview: Atomos Limited (ASX: AMS) is an Australia-based company, involved in the manufacturing and selling of hardware components (video equipment) with software enablement. It was founded in 2010 and got listed on the ASX on 28 December 2018. Operating in a single business segment, the company reports revenues from external customers attributable to the various geographic regions, i.e., North America, Europe, the Middle East and Africa (EMEA), Asia Pacific (APAC), and Others. Its products are Shinobi, Shinobi 7, Ninja V, Ninja V+, Ninja V+ Pro Kit, Shogun 7, Ninja Stream, Shogun 7, Shogun Studio 2, Sumo 19, Neon 17 and Neon 24.

AMS Details

Key Takeaway from 1HFY22:

• Increasing Top-line: Despite the impact of COVID-19 pandemic and global supply chain challenges, the company has recorded an upside of ~25% Y-o-Y in its revenue to $40.9 million, mainly driven by strong demand for new products. As per the release, two out of elven hardware products have evolved with enabled software.
• Increasing Costs: Due to higher distribution expenses, its variable OPEX (operational expenditure) increased by ~1.7% of sales ($0.7 million). Moreover, to drive scalability (engineering, product, design, sales etc.), the investment in the headcount increased. The marketing expenses also increased ($1.4 million in 1HFY22) to promote growth in new sales channel, portal, data measurement, research, platforms etc.
• Profitability: The company reported an increased pro-forma EBITDA of $3.2 million, an uptick of ~33.3% on pcp basis. However, due to an increase in its OPEX cost, NPAT declined by ~82.4% to $0.3 million in 1HFY22.

Substantial Shareholding: The company recently updated a change in the substantial shareholding of Ellerston Capital Limited (Primary Person), and its associates wherein the voting power of the shareholder was increased from 8.73% to 10.08%, effective from March 03, 2022.

Quarterly Rebalance: As per 4^th March 2022 announcement, AMS was added to the “All Ordinaries Index”, effective from 21^st March 2022.

Key Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 25.54% of the total shareholding, while the top 4 constitute the maximum holding. Ellerston Capital Limited and Regal Funds Management Pty. Ltd. are holding a maximum stake in the company at ~10.08% and ~8.18%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company’s cash balance decreased from 1HFY21 to 1HFY22 from $23.29 million to $16.77 million, respectively. On the other hand, its total debt reduced substantially during that period from $3.18 million to $1.79 million.

Liquidity Profile & Debt Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

1. COVID-19 and Omicron Variant Risks: Due to COVID-19 and the new variant, the company might get affected by the lockdown regulations and restrictions, which might affect its sales and operations.
2. Technology Risks: The business involves regular upgradation and software development, failure to which might cause operational loss and loss in revenues.
3. Currency Price Risks: Considering the market volatility, its price is dependent on the external demand and supply of the raw material and it’s sourcing etc.

Outlook: The company believe that it has a decent ecosystem where 2 out of 11 hardware products have developed with enabled software, and for the coming future, it plans all of its hardware to be software enabled. It has Series 2 Next Generation products launch in its cards with expansion to new markets in Americas and gaming sector for FY22. The software enablement will allow the company to benefit from the higher margin, whereas the expansion in other sectors will promote revenue. The company reaffirmed the FY22 guidance, with expected revenue of ~$95 million (up by ~21% on FY21) and EBITDA to be in the range of ~12%-~15%.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of AMS is trading lower than its 52-weeks’ average levels of $0.860 - $1.785. The stock gave a negative return of ~43.61% in the past six months and a negative return of ~13.13% in the past one month, proffering a decent opportunity for accumulation. The stock has been valued by using Price/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median multiple, because of the increase in operational expenses, investment in marketing and headcount. For the purpose of valuation, few peers like Breville Group Ltd (ASX: BRG) and Audeara Ltd (ASX: AUA) and others have been considered. Considering the growing revenue, progressing pro-forma EBITDA, upside potential in valuation, current trading levels, optimistic long-term outlook, and the key risks associated with the business and current market volatility due to global tensions, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.860, as of 22^nd March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

AMS Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Yellow colour line reflects the Trendline, which shows whether the direction of the scrip is upwards or downwards.

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.