Atomos Limited

AMS Details

This report is the full version of the report published on 19 May 2022 at 3:55 PM GMT.

Latest Changes: Atomos Limited (ASX: AMS) develops and markets video monitors/ recorders for the growing video content creation market.

• On 6 May 2022, Wilson Asset Management Group ceased to be a substantial shareholder whereas Regal Funds Management Pty Ltd increased its shareholding from ~8.33% to ~9.85% in AMS on the mentioned date.

Business Update:

• In April 2022, AMS introduced two new network-connected devices and a branded Atomos Cloud Studio (a set of video production tools and services) at the NAB (National Association of Broadcasters) trade show in Las Vegas. At NAB, it received positive feedback from camera companies, Silicon Valley software partners, end-users, distribution channels, etc.
• The company improved its marketing approach and carried out promotions in mid-April 2022 upon experiencing slower than anticipated sales in the first four months of

Revenue Growth Trend; (Analysis by Kalkine Group)

Key Risks:  The company faces the risk of accelerated product and marketing investments, impact on profit margins, technological changes, and supply chain bottlenecks.

Outlook:

• AMS now expects revenue between ~$80-$90 million versus ~$95 million plus for FY22 as stated previously, and EBITDA margin within ~6%-8% versus ~12%-15% given earlier. Given the renewed focus on promotional activities, AMS may surpass new guidance.
• AMS plans to introduce multiple new products in 2HFY22 and expects sales growth.
• It expects to rapidly grow the installed capacity of cloud-enabled products to further maximise uptake of the new cloud services in Q4FY22, which may impact the short-term EBITDA.

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 AMS gave a negative return of ~70.10% in the past three months and a negative return of ~77.51% in the past six months. The stock is currently trading lower than the 52-weeks’ average high-low price band of $0.255-$1.785. The stock has been valued using an EV/Revenue 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 than its peers’ median EV/Sales multiple, considering its increased marketing investments, and lowered revenue guidance for FY22. For this purpose of valuation, a few peers like Breville Group Ltd (ASX: BRG), Shriro Holdings Ltd (ASX: SHM), Audeara Ltd (ASX: AUA), and others have been considered. Considering the current trading levels, expected growth in sales, promotional activities, robust demand for cloud-enabled products driving medium-term outlook, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.290, as of 19 May 2022, 10:58 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

AMS 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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