Imdex Limited

IMD Details 

Change of Director’s Interest: Imdex Limited (ASX: IMD) is a leading global mining-tech company that develops drilling optimisation products and cloud-connected sensors to provide real-time rock knowledge and quality data. As on 7 December 2020, the company’s market capitalisation stood at ~$570.89 million. Recently, one of the company’s Directors, Anthony Wooles, who holds an indirect interest in the company, disposed 25,000 ordinary shares of the company at a price of $1.38 per share via on-market trade.

FY20 Results Highlights: For FY20, the company reported total revenue of $237.7 million and an EBITDA of $54.4 million. The company’s revenue was impacted during 4QFY20 by the sharp decline in activity in the majority of mining regions, driven by government-mandated restrictions in response to COVID-19 pandemic. During the year, the company was focused on streamlining its operations and accelerating its online Customer Care and IMDEX Academy training platform in response to demand. In FY20, the company acquired AusSpec to enhance real-time rock knowledge with spectral mineralogy and AI technologies. Further, the company also completed Flexidrill acquisition to support Drilling Optimisation offering. At the end of FY20, the company had a robust balance sheet with net cash of $32.2 million, up 38% on FY19.

FY20 Results (Source: Company Reports)

Focus Areas: For FY21, the company intends to maintain its focus on delivering sustainable earnings growth for shareholders by pursuing growth opportunities across the mining value chain and by focusing on the organic growth of the company’s core business. The company intends to achieve growth through strategic technology acquisitions, disciplined research and development and industry collaboration. The company is committed to deliver sustainable dividends to its shareholders while continuing to invest in new technologies. The fundamentals underpinning the company’s core business continue to remain decent, as large, and mid-cap resources companies are increasing their expenditure to replace diminishing reserves and are embracing innovation and new technologies to lower costs achieve greater productivity. 

Valuation Methodology: Price to Book Multiple Based Relative Valuation (Illustrative)

Price to Book Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company’s robust balance sheet and decent net cash position allowed it to sustain its capital management program and accelerate opportunities for future growth. From FY16 to FY20, the company’s revenue and EBITDA grew at a CAGR of 13% and 24%, respectively. Over the last one month, the stock of IMD has provided a return of 12.59%. On the technical analysis front, the stock has a support level of ~$1.293 and resistance of ~$1.667. We have valued the stock using the Price to Book Value multiple based illustrative relative valuation method and have arrived at a target price with an upside of high single-digit (in percentage terms). For the purpose, we have taken peers like NRW Holdings Ltd (ASX: NWH), Macmahon Holdings Ltd (ASX: MAH), and Monadelphous Group Ltd (ASX: MND), etc. Considering the company’s resilient core business, robust balance sheet, improving top-line, future focus areas, decent long-term fundamentals, and valuation, we are of the view that the stock might witness further upside in the coming times. Hence, we give a “Hold” recommendation on the stock at the current market price of $1.460, up by 1.388% on 7 December 2020.

IMD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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