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

Robust Product Adoption & Geographical Diversification are Key Catalysts: 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. Well-diversified geographical spread and recurring revenue base are the two key strengths of IFM’s business proposition making it an attractive opportunity for investment in the software solutions space. The company generates more than 95% of recurring revenue by providing SaaS to the global automotive manufacturers and dealers. Considering over 80% of the revenue is generated outside Australia, IFM provides an access to a broad addressable market at a time when the auto industry is undergoing significant transformation.

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. During uncertain times amidst COVID-19, the company undertook few strategic decisions to ensure that it is well equipped to sustain growth in the future. The company’s revenues increased by 12% YoY and net profit after tax also increased 15% YoY. EBITDA margin continued to expand from 45% to 49%, reflecting an improvement in delivery and efficiencies.

During July 2019 - 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 expanded via offering new products to existing partners, new partners, and new markets. The company had completed the acquisition of Nidasu, which aided IFM to support top global automotive manufacturers in Australia.

Going forward, the company stands to benefit from growing revenue in the last few years. Moreover, continued expansion and investment in R&D, consistent product upgradation, is expected to continue in FY21. Although, the current economic conditions and US tariffs may impact the near-term profitability, however, the company’s economic moat in terms of robust product adoption and geographical diversification will support long term growth.

The company also remains on track to leverage two major growth industries, namely Software as a Service (SaaS), and the rising parts and service sectors of the global automotive industry. Considering the demand of SaaS-based services is rising, IFM plans to invest in this space and develop 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.

Over a period of FY16-FY20, the company saw a CAGR of 8.6% and 15.8% in revenue and NPAT, respectively. Dividend paid in FY20 stood at 2.15 cents per share, which amounted to a total dividend of 4.3 cents per share. This depicted an increase of 10% year over year. IFM believes that it will grow by leveraging its core assets, that will aid it to come out stronger post Covid-19 period.

Past Performance (Source: Company Reports)

Increase in Top and Bottom Line: In FY20, the group’s revenue came in $94.62 million, an increase of 12% year over year. During the period, the company continued to invest in both the platform and additional functionality in its core parts and service products. Net profit after tax increased by 15% YoY in FY20. 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. EBITDA for the period increased 21% YoY, while cash EBITDA went up by 11% from the prior corresponding period. Strength in core products, robust product pipeline, and emerging trends in the SaaS Industry remain key positives across all regions. Geographically, the Americas segment reported a revenue decline of 2% in local currency terms, while Asia pacific segment’s revenue grew 27% year over year. EMEA segment’s revenue went up 2% YoY in local currency terms.

 FY20 Key Details (Source: Company Report)

IFM Maintains a Solid Cash Position: The company maintains a robust financial position, with net current assets amounting to $98.0 million as on 30 June 2020. The company exited the period with cash balance amounting to $103.9 million, which includes $83.9 million raised from an institutional placement. Notably, the company’s effort to implement capital raising program will further strengthen the balance sheet and provide flexibility to fund opportunities in the current environment. Net cash from operating activities came in at $38.7 million for the period ended 30 June 2020. 

For FY20, the company reported EBITDA margin of 47.7%, which is higher than the industry median of 23.8%. Net margin for the same period stood at 19.6%, higher than the industry median of 16.7%. The company improved on its short-term liquidity with a current ratio of 5.81x in FY20, as compared to a current ratio of 1.54x in the prior corresponding period.

Key Metrics (Source: Refinitiv, Thomson Reuters) 

Key Update: On 14^th October 2020, the company announced that Clyde McConaghy, a non-Executive Director of the IFM, will step down from his post, effective from the end of the 2020 Annual General Meeting, which will be conducted on 11^th November 2020. 

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table which together forms around 49.98% of the total shareholding. Viburnum Funds Pty Ltd held the maximum number of shares with a percentage holding of 10.91%, followed by Selector Funds Management Limited holding 7.94%.

Top Ten Shareholders (Source: Refinitiv, Thomson Reuters)

Risk Analysis: Preserving brand loyalty is critical for the long-term sustainability of the business. Further, the company is exposed to credit risk, liquidity risk and market risk, arising from financial assets and liabilities.  The company is also exposed to the risk of changes in foreign exchange rates. COVID-19 led disruptions, stiff competition, loss of any key licence agreements, and loss of key customers remains a potential headwind. 

Future Expectations: The group continues to make investments in the products and regions that have the potential for sustainable growth. Due to COVID-19 related restrictions, the company is not providing any guidance. In the coming months, the company plans to focus on strategic acquisitions, investing in core products, implementing delayed rollouts, leveraging opportunities from the emerging automotive industry, and strong execution.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: 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 15.1% in the past three months and is currently trading below the average of its 52-week low and high level of $1.20 and 2.48, respectively. The company has a market capitalisation of ~$590.96 million, with a P/E multiple of 27.9x and an annual dividend yield of 2.73%. On a technical analysis front, the stock has a support level of ~$1.528 and a resistance level of ~$1.688. The company aims to grow its business 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 $1.55, down 1.588% on 16 October 2020.

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

Disclaimer

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