Company Overview: Infomedia Ltd is a technology company. The principal activities of the Company are development and supply of Software as a Service (SaaS) offerings, including electronic parts catalogues and service quoting software systems, for the parts and service sectors of the global automotive industry, and information management, analysis and data creation for the domestic automotive and oil industries. The Company's segments are Asia Pacific; Europe, Middle East and Africa (EMEA); and Americas, which represents the combined North America and Latin & South America segments. The Company offers various solutions, such as Parts and Service, Data Management and Future Motors. The Company's Parts and Service solutions include Microcat, Superservice Menus, Superservice Triage, Superservice Insight, Superservice Connect, Superservice Register, Auto PartsBridge and Microcat MARKET. Its Data Management solutions include Lubricants Recommendation, Lubrication and Tune-up Guide and Data Consulting.
 

IFM Details

Infomedia Limited (ASX: IFM) has defined its FY18 outlook under two distinct halves with second half stronger than the first, which is expected to be impacted by the roll off of the Jaguar Land Rover EPC contract, while revenues from the Nissan EPC contract are expected to offset this impact over the full year. Overall, the medium-term outlook for the stock still looks positive. Further, IFM’s mature product, Microcat, used by many customers and generating a significant portion of revenue, along with the immature product, Superservice, used in a fragmented market, are gaining traction.
 
Solid bottom line for FY17: Infomedia had reported that its Net profit after tax (NPAT) surged 16% year on year (yoy) to $12.0 million in the financial year ended 30 June 2017. The bottom line performance was on track with the forecasts. The group’s revenue rose 4% yoy to $70.5 million for the 12 months ended to 30 June 2017 while underlying revenue enhanced at 7% on a constant currency basis. The group’s operating costs fell 1% yoy to $54.8 million during the year. The group has also built a decent balance sheet position with net current assets reaching $12.5 million as at 30 June 2017. IFM has a cash and cash equivalents of $13.3 million. The dividend for the 2017 financial year reached 2.9 cents per share fully franked, which is still at the lower end of the dividend payout ratio policy of 75-85% of NPAT. As per the regional performance, Americas segment delivered a revenue growth of 8% on reported currency terms while Asia pacific segment’s revenue enhanced 8%. But EMEA segment’s revenue fell 2% on reported currency terms while enhanced 3% yoy on local currency basis.
 

Revenue by Geography (Source: Company reports)
 
Ongoing focus on core areas: The group’s core areas include SaaS business model as well as a resilient automotive parts and service industry for the business. The group continues to focus on its core business, via three major products in the three regions in which the group operates. The group continues to make investments in the products and regions that have the potential to generate near term growth and sustainable growth into the future. 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.
 
Target market opportunities: 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 a leading SaaS provider, there is an ongoing opportunity to support the growth of the customers and the brands. The group however, believes that investing in SaaS might impact short term results and have signaled this clearly to the market. On the other hand, management is expecting to maintain the underlying growth momentum for year on year revenue and profitability growth. The group is focusing on developing a high performing and customer centric culture. It has positioned itself at the intersection where parts and services meet which is a huge market. Given that the automotive original equipment parts and services market worldwide exceeded half a trillion dollars (USD), a major target opportunity for the group lies with the global parts and services market which is already fragmented. Reliance of Automotive manufacturers on high margin original parts sales and brand loyalty is rising via good customer service. But, retaining brand loyalty from one purchase to another is a major challenge for the automotive manufacturer as they rely on a consistent service experience across many franchised dealerships.
 
Won major contracts: The group won a major global contract with Nissan Motors to deliver an electronic parts catalogue, or EPC, for Nissan dealerships around the world. This global contract with Nissan is a major milestone to the group given the size of the contract and the global reach of the deal. The contract also signifies the competitiveness of the products globally. This deal is the driver for renewed investment in the electronic parts catalogue, which had been underinvested for many years. The contract also proves the need of an efficient EPC solution by major manufacturers running multiple systems in multiple markets worldwide. The group also won many small Superservice contracts across the Asia pacific region. In EMEA region, Nissan Europe and Mitsubishi extended Superservice in new markets in Europe while the initial Nissan Superservice contract is on track.
 

Sales momentum through FY17 contract wins (Source: Company reports)
 
Strong recurring revenue: The group derived 90% of total revenue as recurring revenue as of FY17 while more than 80% of the revenue comes from outside of Australia. Going forward in 2018 fiscal year, the group intends to continue to support growth in the core products and pursue opportunities in adjacent markets. The recent acquisition of CRM software for parts wholesalers, rebranded MicroCat CRM™, shows the types of targets the group would pursue. The Australian developed CRM software enhanced the group’s value proposition in its parts software portfolio for the customers. The acquisition is a part of the investing in order to raise sales and provide more value to the current customers. Based on the initial customer response in Australia, the group is positive over the growth potential that would enable flow from MicroCat CRM™.
 
Outlook: For fiscal year of 2018, the group has mixed views for the first and the second halves. The group expects a weaker first half of 2018 but forecasts a stronger second half. The remainder of the 2017 calendar year would identify the finishing of a major contract due to roll-off by the end of December 2017. The global Nissan EPC contract is on track to start generating revenue in the first three months of the 2018 calendar year with the full rollout due to be finished by the end of October 2018. The group aims to maintain its underlying growth momentum for FY18 revenue and NPAT.
 
Stock performance: The shares of IFM have been consolidating this year with the stock rising about 5% this year to date (as of November 27, 2017). Management believes that the contracted global sales momentum would drive the firm’s potential revenue growth. The group is targeting a growth in all markets and in all products. Nissan EPC mandated supply to global dealer network with revenues starting from the third quarter of FY18. Mitsubishi and Nissan Europe growth in Superservice in new markets and a rise in current automakers in new geographies (China, Japan and Mexico) will be beneficial. The group’s new business systems and sales & marketing would leverage current relationships while it has appointed senior executives in Development, Sales, Operations and Legal for supporting the path forward. IFM is also rebranding the Australian developed CRM software acquisition to Microcat CRM. The sales momentum is being increased and the group is targeting a high revenue growth which was up from 3% in FY16 to 7% in FY17. The group’s multiple contract wins would continue to deliver a new recurring revenue in FY18. Moreover, FY18 underlying revenue growth is expected to be more than the impact of a contract roll-off. We believe that the group has a good potential and accordingly the stock would continue to rise in the coming months. Based on the foregoing, we give a “Speculative Buy” recommendation at the current price of $0.775


IFM Daily Chart (Source: Thomson Reuters)

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