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

IFM Details

IFM Rides on Digital Transformation & Buyout Synergies: Infomedia Limited (ASX: IFM) is involved in developing, designing, and supplying Software-as-a-Service & provision of data analytics solutions to the parts and service sector of the automotive industry. The company remains well focused on pursuing strategic acquisitions, investing in core products, and implementing delayed rollouts. IFM continues its current growth trajectory and leverage on growth opportunities from the emerging automotive industry through its strong execution.

In 1HFY21, the company delivered robust growth with improved margins. The company remains on track to invest in people, products, processes, and new technology to achieve its growth strategies. During the period, IFM’s net profit after tax stood at $9.33 million, up 3% from the prior corresponding period. The group’s revenue was almost flat year over year to $47.69 million. On the back of continuous investment in business development, IFM remains on growth impetus.  Apart from this, Service revenue in 1HFY21 increased 9% pcp, post the rollout of numerous new contracts win in each region. This, in turn, positions the company to take advantage of its existing assets through new and existing customers, and entry into new markets. The company remains focused on its core growth strategy, both organically and through mergers and acquisitions. Markedly, it has a track record of consistent growth in revenue, profitability and returns to shareholders. During the period, the company declared an interim dividend of 2.15 cents. Asia Pacific (APAC) region in 1HFY21 also reported strong growth, depicting an increase of 8% year over year, following numerous authorised Superservice contract wins and new Parts contracts in the region.

The company recently completed the acquisition of SimplePart, an US-based e-commerce platform, for an upfront consideration of US$24.5 million, plus an earn-out of up to US$20.5 million over a period of three years. The buyout was implemented on 4 May 2021. This strategic move of acquiring SimplePart enhances IFM’s SaaS platform and aids the company to offer aftersales e-commerce solutions to its world-wide customers and access a wider addressable market. The addition of SimplePart expands IFM’s core global offering and bolster its position to aid customers with an expanded range of market-leading service and data insights solutions. The company remains on track to leverage the US, Australian and APAC experience, strengthen its foothold in the key markets, and drive growth in these areas.

Past Performance; Analysis by Kalkine Group

Key Metrics, Healthy Balance Sheet and Decent Liquidity: The company has a strong financial position with a cash balance amounting to $97.3 million, reflecting the robust cash generative nature of the business. A healthy balance sheet will help the company to attain its long-term objectives and will aid the company to enhance its shareholder’s value and pursue future strategic acquisition. Net cash from operating activities came in at $17.03 million in 1HFY21, up by 19% year over year, owing to improved collections and customer loyalty across global.

In 1HFY21, the company’s EBITDA margins stood at 44.3% in 1HFY21, higher than the industry median of 20.8%. Net Margins stood at 19.6% in the same time span, higher than the industry median figure of 12%. In 1HFY21, current ratio of the company stood at 6.93x, higher than the industry median figure of 2.05x. Debt to equity for the same time span stood at 0.03x, lower than the industry median of 0.07x. In 1HFY21, the company recorded cash cycle days of 40.3 compared to the industry median of -44.5 days.

Leverage and Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 52.59% of the total shareholdings, while the top 4 constitutes the maximum holding. Viburnum Funds Pty Ltd held the maximum number of shares with a percentage holding of 13.64%, followed by Selector Funds Management Limited holding 7.94%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: IFM operates in a highly competitive environment, subject to ongoing significant changes, including business consolidations, new strategic alliances, market pressures, and regulatory and legislative pressures.  The company is also exposed to risk associated with general global economic and market conditions, particularly those impacting the healthcare industry. Also, higher expenditure and adverse currency translations add to the woes. Further, stringent regulations, integration risk and foreign currency fluctuation risks may have a denting effect on the company’s agility, innovativeness, and ability to compete efficiently.

Changes in Managerial Position: On 10 May 2021, the company appointed Mr Jim Hassell as Non-Executive Director. With his vast knowledge in the Information Technology and Telecoms industries, Mr Jim is expected to take the company to newer heights and achieve IFM’s growth plan. On 24 May 2021, the company informed the market that CFO, Richard Leon, will be stepping down from his post after being connected to the company for a period of 5 years, post 24 August 2021.

What to Expect: Going forward, the company’s growth strategies, expansion of product suite, acquisition synergies and other investments are expected to boost the top-line growth of the business.

Further, expansion in the Americas and the implementation and roll-out of data prospects are likely to contribute potential upside in its FY21 financial performance. For FY21, the company expects total revenue to be in the range of $95-$96 million and Cash EBITDA to be in the ambit of $19-$20 million for FY21. Further, an increase in organic monthly recurring revenue, and integration of SimplePart offers a robust impetus to the company’s financial position in FY22.

Valuation Methodology: EV/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: The stock of the company has corrected by ~27.48% in the past six months. Currently, the stock is trading below the average of its 52-week’s high and low level of $2.02 and $1.255, respectively, proffering an opportunity for share accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight discount as compared to its peer average, considering its supply chain disruption risk, increased costs and integration risk, foreign currency risk and strict regulatory approval, etc. For that purpose, we have considered peers such as Nearmap Ltd (ASX: ELO), ELMO Software Ltd (ASX: ELO), to name a few. Considering the increase in profits in 1HFY21, decent liquidity position, encouraging outlook, current trading levels, acquisition synergies and valuation, we recommend a ‘Buy’ rating on the stock at the current market price of $1.43, up by ~2.142% on 4 June 2021.

IFM Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

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