Atomos Limited

AMS Details

H1FY22 Financial Update: Atmos Limited (ASX: AMS) is an Australia-based company, involved in the manufacturing and selling of hardware components (video equipment) with software enablement. It was founded in 2010 and got listed on the ASX on 28 December 2018. On 14 April 2022, AMS announced the appointment of Estelle McGechie as the Chief Executive Officer of AMS.

• Top-Line Update: AMS recorded $40.9 million in revenue, up by 25% PcP. The continued revenue momentum was driven by robust demand of AMS’ core products, particularly those launched late in FY21, accounting for 28% of H1FY22 sales.
• Bottom-Line Update: Gross profit margin stood at 47.3% against 44.9% PcP reflecting a production improvement due to new product launches, including 100% margin software applications. Pro-forma EBITDA stood at $3.2 million, representing 7.8% margin.
• Financial Position: $9.2 million were invested in inventory to insulate the impact of supply chain volatility. Cash position stood strong at $16.8 million as on 31 December 2021, supported by an undrawn $5.0 million working capital facility.

Pro-Forma Financial Results; Analysis by Kalkine Group

Key Risks and Challenges

AMS requires prudent working capital management to counter the supply chain challenges faced by the Household Durables industry. The shortage of semiconductors adds to the cost of raw materials affecting the electronic market.

Outlook

The company is expected to launch several new products in the market, with the first one being its new “Series 2” technology platform, to enable AMS to offer an array of new features including Timecode System technology. AMS expects new launches to account for over 20% of total sales in H2FY22. AMS estimates FY22 revenue of over $95 million and EBITDA margin of 12% to 15%.

Valuation Methodology: Price to 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 ~29.52% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.680 - $1.785. The stock has been valued using the Price-to-Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the potential risk from supply chain challenges and shortage of semiconductors, the company might trade at a slight discount to its peers. For valuation, few peers like Fleetwood Ltd (ASX: FWD), Breville Group Ltd (ASX: BRG), Audeara Ltd (ASX: AUA), and others have been considered. Given the decent financial performance, potential outperformance as compared to guidance, current trading levels, upside indicated by valuation, and key risks associated to the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.740, down by 5.733%, as of 20 April 2022.

AMS Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is 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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