Company Overview: A technology-based company, Infomedia Limited (ASX: IFM), develops and supplies Software as a Service (SaaS). The company provides service quoting software systems, data insights, and e-commerce solutions to the Automotive industry and has its operating segments in the EMEA, Asia Pacific region, and the Americas.

IFM Details

IFM Rides on Acquisition Synergies & Growth Strategies: 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, development in the Americas and the implementation and roll-out of data prospects are likely to contribute potential upside in its FY22 financial performance.

Key Findings from FY21 Results:

• Rise in Revenues: In FY21, the company’s revenue soared 3% on pcp and came in at $97.4 million. On a constant currency basis, revenues increased 7% on pcp. The growth was aided by robust continuous investment in business development. Notably, more than 95% of IFM’s revenue is recurring in nature.
• Decrease in Net Profit After Tax: NPAT stood at $15.96 million, representing a decline of 13.9% year over year, due to the disruption of COVID-19 and the impact of fluctuation in foreign currency. NPAT before earnouts from acquisitions went up by 8% year over year and came in at $20.0 million.
• EBITDA Highlights: In FY21, EBITDA stood at $47.6 million, depicting an increase of 3% year over year. However, cash EBITDA stood at $20.4 million, down by 4% year over year, due to expenditures incurred to deliver the NextGen platform and acquisition costs.
• Enhancing Shareholder’s Value: The company has a decent track record of rewarding shareholders through dividends. IFM declared a final dividend of 2.3 cents per share, bringing the full-year dividend to 4.45 cents, up 3% year over year.
• Balance Sheet and Liquidity Position: The company exited FY21 with a cash balance of $66.8 million. Total debt at the end of the period stood at $8.6 million. During FY21, the company generated an operating cash inflow amounting to $37.35 million, compared to an operating cash inflow of $38.71 million reported in the year-ago period.

The below picture depicts a continuous growth trajectory in IFM’s top line.

Revenue Highlights; Analysis by Kalkine Group

Other Key Developments:

• In FY21, the company successfully unveiled its Next Gen, and completed the transition from legacy software to Next Gen integrated core parts and service platform, to over 220,000 users across 186 countries.
• The company won new deals with Ford & Mazda (EMEA), Audi (AU), & BMW (APAC & SE Asia), in FY21. During the year, the company inked $35 million in new multi-year TCV from top 20 contracts. TCV incorporates ~$13m from Infodrive and offers an opportunity for future revenue growth.
• The company completed the acquisition of SimplePart, an US-based e-commerce platform. This strategic move of acquiring SimplePart enhances IFM’s SaaS platform and aids the company to offer aftersales e-commerce solutions to its worldwide customers and accessing a broader addressable market.

Key Metrics: For FY21, the company reported an EBITDA margin of 48.2%, higher than the year-ago figure of 47.7%. In FY21, the company recorded a net margin of +16.4% compared to the industry median figure of -10%.

Profitability; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 51.33% 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 7.92%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis: The company faces the risk of technological changes, delays in project installations due to COVID-19. IFM operates in a highly competitive environment, subject to significant ongoing changes, including business consolidations, new strategic alliances, market pressures, and regulatory and legislative pressures. 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.

Outlook: The company remains well focused on pursuing strategic acquisitions, investing in core products, and implementing Next Gen rollouts. IFM continues its current growth trajectory and leverages growth opportunities from the emerging automotive industry through its strong execution. IFM forecasts revenue guidance of ~$117-~$123 million for FY22, up by over 20% on pcp with no negative impact of foreign exchange activities assumed and neglecting consequences of COVID-19. The double-digit growth rate in FY22 is primarily due to continuous impetus and full-year revenues contribution of SimplePart buyout. The company invests in its products and services to enhance functionality and data productivity and meet changing customer requirements. IFM will report its 1HFY22 results on 25 February 2022.

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 been corrected by ~9.90% in the past three months. Currently, the stock is trading below the average of its 52-week high and low levels of $2.0 and $1.255, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount, compared to its peers, considering lower NPAT, a slight increase in the debt-to-equity ratio, higher development costs, integration risk, data security risks, etc. For the purpose of valuation, peers such as Praemium Limited (ASX: PPS), Nearmap Ltd (ASX: NEA), Iress Ltd (ASX: IRE) have been considered. Considering higher revenue base, positive outlook, synergies from the buyout, newly signed deals in FY21, current trading levels, indicative upside in the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.425, as on 10 December 2021, 11:30 AM (GMT+10), Sydney, Eastern Australia.

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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