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The Infomedia share price has materially fallen since the release of the 1HFY21 result about a week-and-a-half ago and in our view this has been driven by: 1. A slightly weaker-than-expected result and outlook for the second half; and 2. The lack of any acquisition and the unlikelihood of one occurring in the near term. We believe the share price reaction is overdone, however, as: 1. The 1HFY21 result showed the company is performing well despite the challenging operating environment and is well positioned with its Next Gen SaaS platform; and 2. There is a reasonable likelihood of one or more acquisitions in the next six to twelve months. We also note the Balance Sheet is very strong with a net cash position of c.$93m at 31 December though admittedly the raising of around ten months ago which contributed to this strong financial position is also having a dilution impact on the forecast EPS.

No change in forecasts

There is no change in our forecasts which we only updated recently with the release of the 1HFY21 late last month. We continue to forecast a similar though slightly better 2HFY21 result relative to 1HFY21 and we assume no acquisitions this half. We then forecast strong double digit EPS growth in both FY22 and FY23 and this is driven by a mix of organic growth and one or more acquisitions in each period. Our forecasts assume acquisitions totalling $25m in each of FY22 and FY23 which contribute several million dollars revenue each year and are EPS accretive.

Investment view: $1.75 PT unchanged, Upgrade to BUY

While there is no change in our forecasts we have updated each valuation used in the determination of our price target for recent market movements. There is no change in the 25% discount we apply in the relative valuations but we have reduced the WACC we apply in the DCF from 10.2% to 9.9% given the strong operational performance in 1HFY21 and also the likely discipline being applied to potential acquisitions. The net result, however, is no change in our PT of $1.75 which is a 30% premium to the share price so we upgrade our recommendation from HOLD to BUY.

Chart of Infomedia Earnings Forecast

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Authored by Chris Savage –Joint Head of Research / Industrials Analyst – at Bell Potter Securities, 8 March 2021
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.
Lafitani Sotiriou, authoring analyst, holds long positions in APT.
Disclosure: Bell Potter Securities acted as a participant in the July 2020 $650m placement and ~$250m sell down and received fees for that service.