Company Overview: Infomedia Limited (ASX: IFM) is one of the leading Software as a Service (SaaS) platform providers to the global automotive aftersales market. The company offers service, parts, data insights, and e-commerce solutions to the Automotive industry and has its operating segments in the EMEA, Asia Pacific region, and the Americas. The company was listed on ASX in August 2000.

IFM Details

A Quick Look at the Three Key Achievements of IFM: The company remains well focused on pursuing strategic acquisitions, investing in core products and Next Gen platform.

• Transition to Next-Gen Platform: In FY21, the company made notable investments and transitioned from its legacy software to the Next-Gen platform. In doing so, IFM upgraded the Microcat electronic parts catalogue (EPC) and Superservice Menus platform to a robust part selling platform. Notably, the company released its Next-Gen integrated platform to over 220,000 users across 186 countries in FY21. ~92% of the total users reported positive outcomes with the latest Microcat EPC, thus adding more value and insight to customers.
• Higher Sales from Products: In FY21, the company achieved robust sales from its Infodrive data and data insights products. During the year, IFM’s exit annual recurring revenue (ARR) in the business witnessed a rise of 41.2% in constant currency. Infodrive products collect, analyse, and detects prospects for automakers and dealerships to make additional profitable decisions in aftersales. Notably, the company signed $35 million of new, multi-year total contract value (TCV) from top the 20 contracts in FY21, out of which $13 million was related to Infodrive.
• Acquisition Spree: The company completed the acquisition of SimplePart, a 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.

The below picture depicts IFM robust cash position as at 30 June 2021 (~$66.8m) post-acquisition of SimplePart. During FY21, the company generated an operating cash inflow amounting to ~$37.35 million. Improved collections indicate sharper customer engagement and certainty across the global user base.

Cashflow Highlights; Analysis by Kalkine Group

Spotlight on FY21 Findings:  In FY21, the company’s revenue recorded a growth of 3% on pcp and came in at $97.4 million, owing to continuous investment in business development. NPAT before earnouts from acquisitions stood at $20.0 million, depicting a rise of 8% year over year. In FY21, EBITDA stood at $47.6 million, up 3% year over year. 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.

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 -25.7%. 

Profitability; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 52.67% 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 10.2%, as also highlighted in the chart below:

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: Most of the industry players in the automotive sector are witnessing higher costs of raw materials, which is expected to impact their margins in the near future. With supply chain distortions and the new variant infections rising, commodity costs are not expected to reduce any time soon. Further, stringent regulations, integration risk, stiff competition from peers, and foreign currency fluctuation risks may have a denting effect on the company’s financial performance.

Expect What?

IFM expects to deliver ~$117-~$123 million of revenues for FY22, up by over 20% on pcp. The management is confident of achieving a double-digit growth rate, owing to the core business momentum and full-year revenue contribution from SimplePart. The structural changes in the global automotive industry are expected to generate opportunities and emphasise the need for more extensive automotive data. 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.  IFM is set to 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 company's stock has been corrected by ~21.74% in the past year. Currently, the stock is trading below the average of its 52-week high and low levels of $1.9 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). Compared to its peers, the company might trade at a slight discount, considering the stringent regulations, integration risk, lower NPAT, higher development costs, data security risks, etc. For the purpose of valuation, peers such as Nitro Software Ltd (ASX: NTO), Nearmap Ltd (ASX: NEA), Iress Ltd (ASX: IRE), and others have been considered. Considering the current trading levels, higher revenue base, synergies from the buyout, deal wins, encouraging outlook, 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 $1.44, as on 28 January 2022, 2:30 PM (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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