Infomedia Ltd

Company Overview: Infomedia Ltd (ASX: IFM) is a technology-based company, engaged in the development and supply of Software as a Service (SaaS) offerings. The company's operating segments are in the Asia Pacific region, EMEA and the Americas. The Company offers numerous solutions, such as Parts and Service, Data Management and Future Motors, to name few.

IFM Details

IFM Rides on Geographical Expansion & Higher Investment: Infomedia Limited (ASX: IFM) is engaged in the development and supply of Software-as-a-Service and provision of data analytics solutions to the parts and service sector of the automotive industry. The company entered FY20, with an outstanding year by delivering its objectives to drive growth and innovation at its workplace. The year was marked by the company’s enhanced performance, increased innovation, and service to leverage global opportunities and higher investments to take advantage of key trends disrupting the global automotive industry.

In 2020, the company delivered robust growth with improved margins. It remained committed to invest in people, products, processes, and new technology, which aided the company to achieve its growth strategies. In the period between July 2019 to January 2020, the company completed the roll-out of Nissan global electronic parts contract and extended its tie-ups with automotive manufacturers globally. It also introduced new products to existing partners, to new partners and new markets. The company had completed the acquisition of Nidasu, which aided IFM to support top global automotive manufacturers in Australia. The company remains on track to leverage the Australian and APAC experience and strengthen its foothold in the wider portion of the market and drive growth in this area.

FY20 marks the company’s sustained performance and continued investment in the future by building the next generation of its core parts and service technology solutions, investing in data, and accomplishing a successful $83.9 million capital raise. In February, the world began to change with the spread of COVID-19. However, the strategic decisions made by the company in FY20 have aided the company to ensure that it is well placed to sustain growth in the future. The strong start to the year underpinned encouraging results despite delayed revenue opportunities in the 2H of the year. The company’s revenues and earnings increased 12% and 10% year over year, respectively in FY20. Net profit after tax for the year also increased 15% over the year, while EBITDA margin continued to expand from 45% to 49%, reflecting an improvement in delivery and efficiencies resulting from scale across the business.

The company has a track record of consistent growth in revenue, profitability and returns to shareholders. It reported a CAGR of 8.6% and 15.8% in revenue and NPAT, respectively, over FY16-FY20. It paid a final dividend of 2.15 cents per share in FY20, which amounted to a total dividend of 4.3 cents per share, a rise of 10% year over year, increasing 26% on pcp.

Key Numbers of Past Performance (Source: Company Reports)

The group continues to make investments in the products and regions that have the potential for sustainable growth in the near future. The group’s core areas include SaaS business model. This growth potential foreseen in the group’s business is enabling it to invest in infrastructure and resources to build a larger and more resilient organization. Due to COVID-19 related restrictions, the company is not providing guidance, however, is well placed to sustain growth in the medium-term. In the coming months, the company remains well focused to pursue strategic acquisitions, invest  in core products, implement delayed rollouts, and continue its current growth trajectory and leverage on growth opportunities from the emerging automotive industry, through its strong execution.

Robust FY20 Results: In FY20, Infomedia’s net profit after tax (NPAT) surged 15% year on year to $18.56 million. The group’s revenue rose 12% year over year to $94.62 million. During the period, the company continued to invest in both the platform and additional functionality in its core parts and service products. In F20, more than 95% of revenues were recurring in nature. EBITDA for the period increased 21% year over year and came in at $46.05 million, while cash EBITDA went up by 11% from the prior corresponding period. Earnings per share for the period came in at 5.69 per share, up 10% year over year. On the back of continuous investment in business development, IFM has built a strong top-line growth.     

FY20 Key Financial Highlights (Source: Company Reports)

Product & Geography Highlights (Source: Company Reports)

Balance Sheet & Cash Flow Highlights: The group has also built a decent balance sheet position with net current assets reaching $98 million as at 30 June 2020. IFM has a cash and cash equivalents of $103.9 million, up from $15.5 million reported at the end of June 2019, reflecting the cash generative nature of IFM’s business. Net cash from operating activities came in at $38.7 million for the period ended 30 June 2020.

Cash Position (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table which together form around 49.01% of the total shareholding. Viburnum Funds Pty Ltd held the maximum number of shares with a percentage holding of 10.93%, followed by Selector Funds Management Limited holding 7.95%.

Top Ten Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: For FY20, the company reported EBITDA margin of 47.7%, which is higher than the industry median of 25.9%. Net margin for the same period stood at 19.6%, higher than the industry median of 16.3%. The company improved on its short-term liquidity with a current ratio of 5.81x in FY20, as compared to a current ratio of 1.97x in the prior corresponding half.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Key Risks: On the flip side, keeping brand loyalty from one purchase to another is a major task for the automotive manufacturer as they rely on a consistent service experience across many franchised dealerships. Further, loss of any key licence agreements, loss of key customers. COVID-19 led disruptions and stiff competition in the market remains a potential headwind.

What to Expect: The group is well-positioned to leverage two major growth industries - Software as a Service, or SaaS, and the rising parts and service sectors of the global automotive industry. Being one of the top SaaS providers, the company has eminence opportunity to tap on ongoing opportunities to support the growth of the customers and the brands. The group is focusing on developing a high performing and customer-centric culture. The company is one of the few worldwide software providers in parts, service, and data insights to the global auto industry. Notably, more than 80% of revenues are generated from outside Australia. Given that the automotive original equipment parts and services market worldwide, the company’s future looks promising.

The company remains on track to gain synergies from acquisition and will continue to invest in people and technology in order to raise sales and provide more value to the current customers. The company further opines that it will grow by leveraging its core assets, and exploring acquisitions, that, in turn, will aid the company’s ability to stay ahead of the competition and compete globally.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodologly: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company corrected by 1.55% in the past three months and is currently trading below the average of its 52-week low and high level of $1.2 and 2.48, respectively. The company has a market capitalisation of ~$593.52 million, with a P/E multiple of 27.86x and an annual dividend yield of 2.71%. On a technical analysis front, the stock has a support level of ~$1.554 and a resistance level of ~$1.946. Management believes that the contracted global sales momentum would drive the firm’s potential revenue growth. The group is targeting growth in all markets and products. We have valued the stock using EV/Sales multiple based illustrative relative valuation method. For the said purpose, we have considered peers like Audinate Group Ltd (ASX: AD8), Citadel Group Ltd (ASX: CGL), Hansen Technologies Ltd (ASX: HSN) to name a few. As a result, we have arrived at a target price of an upside of lower double-digit (in percentage terms). Considering the above-mentioned factors, we give a “Buy” recommendation on the stock at the current market price of $1.575, down 0.631% on 18 September 2020.

IFM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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