@Rick still too expensive for me but watching

@Rick

As @RobN writes this morning "Looks like a broker note from Macquarie may be responsible today with a price target of 14.40".

I heard this on Ausbiz this morning also.

When would you buy @Solvetheriddle?

@Rick had a feeling you would ask that. upfront i must admit that valuation work on this one is much more variable than other more established companies, to state the obvious. I had it in my mind around $13 to have a close look, they raised capital at this level, as i recall.

Sorry to put the pressure on you @Solvetheriddle. To be honest I have no idea what it’s worth. That’s why I asked you! Yet here I am buying it! I put it in the same basket as PNV. I think it will keep growing globally for the next decade and it has a reasonable moat so it should be worth a lot more than it is now! I just need to work out what is a reasonable weighting in our portfolio given there are always risks.

@Rick I restarted a solid 5% RL position at a cost base of $16.70 a few months ago. I'm still OK with that.

It is early days for $AD8, so it is still quite high risk about what it looks like longer term is anybodies guess - so any valuation must have a wide range around it.

I want to see what the FY report look like before considering more. Inevitably, if the result is great with the sell down into the results, it will pull away again quickly and I won't get the chance to add (although there is sometimes a chance to get a sneaky buy in before the market digests the result!).

Hoping to see the Macquarie note that's been referred to today. I pulled the summary below off the newswires.

As I suspected when others mentioned the update, its them re-evaluating the TP based on the "cyclical re-rating" argument - rather than anything specific. It would be good to see from the full note whether they can back this up with evidence from industry reports or results of comparables. Then it would have greater credence as preparing us for a softer result.

In the absence of that, not sure what to make of it.

Macquarie rates AD8 as Neutral

30 July 2024

FN Arena

Macquarie observes the current Audinate Group share price is reflecting a free cashflow compound average growth rate of around 42%, which the broker states is a "high bar to meet".

The analyst points to the cyclical nature of the company's hardware sales with an estimated 89% of revenues as non-recurring, and the discounting of AVIO adaptors, the second most important revenue generator.

Including the potential cannibalisation of revenues from new products like Dante Director and challenges around cash positions, M&A and recent management changes, the broker revises earnings forecasts for by -23% and -25%, for FY25 and FY26, respectively.

Accordingly, the target price is lowered -20% to $14.40 from $17.90 and the Neutral rating unchanged.

Sector: Technology Hardware & Equipment.

Target price is $14.40.Current Price is $15.81. Difference: ($1.41) - (brackets indicate current price is over target). If AD8 meets the Macquarie target it will return approximately -10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

BC.261070

FN Arena Ltd.

Wider Broker Views

According to Tradingview.com. across 4 analysts being track average PT is $18.80 (range $14.40 to $22.80), so Macquarie are now the bears!

Honestly, I think the analysts got a bit over-excited after the last result, and maybe Macquarie took a good cold shower yesterday and updated accordingly.

Disc: Held in RL and SM

Thanks @mikebrisy. A well thought out response as always! Our IRL weighting is currently 1.8%. I’m reaching the point where I’ll only add at lower prices. I seem to be attracted to falling knives! I only do this when I believe the business has a much brighter future beyond the short term 12 month targets bandied around by analysts. I’m not buying Audinate to sell in 12 months time for a profit. I’m hoping I can hand this one down to my family!

Ref. our recent discussion about portfolios, I think your 1.8% reflects a similar risk appetite to my ASX Portoflio 5% - maybe even a higher one!

I also want to hold this long term. My lesson from when I foolishly traded out of this last year when it first went over $17.00, was that my valuation ranges (albeit wide) didn't reflect the true uncertainty in this business. It's still early days, after all, and who knows what the next 5 years brings. For example, will a competing technology breakthrough shatter the "market dominance" narrative that many ASX talking heads seem to parrot, as if it were gospel?

On the revised Macquarie narrative, perhaps the next result might be softer for "cyclical" reasons. If so, that could be the next buying opportunity. But I think they undermined the credibility of their recommendation when they wrapped it up with reference to "management changes". Gimme a break, the CFO chose to move on with his life, is a well-signalled and managed exit.

FYI @mikebrisy @Rick FWIW this is the full text of the front summary page from the Macquarie update on AD8 (FYI the full note runs 15 pages)

Also FWIW I also considered selling part (perhaps 1/3rd) of my holding but decided not to (it forms about 8% of my "have some fun and experience investing - direct ASX stock picks slice of our portfolio" - however in reality it's just 0.8% of our IRL overall outside super portfolio) - like you @mikebrisy I want to hold for long term and don't want to just "sell down my winners" (my ave purchase price is however just $7.82 so I'm more covered)

Audinate

Is the music about to stop?

Key Points

• Current share price implies a 42.1% FCF CAGR over the forecast period. Regardless of market position and operating leverage, this is a high bar

• Recent strength may be cyclical. Signalled by discounting on AVIO adaptors (second-largest sales line) and inventory days back to pre- COVID averages

• Current share price implied terminal TAM penetration is 8.3%. Within this, we estimate AD8's core Audio Hardware market is 12.2% of terminal TAM

Recent strength may be cyclical. Audinate (AD8) is predominantly a hardware business. We estimate ~89% of revenues are non-recurring, and therefore prone to cyclicality. Leading growth indicators have slowed, which in the context of inventory days normalising to pre-COVID levels, suggests a period of cyclical strength. This is reinforced by recent discounting on AVIO adaptors, which are AD8's second-largest revenue line

Consensus earnings assume growth is structural, but not all revenue opportunities are incremental to group sales. Dante Director cannibalises the recently discontinued DDM Silver (and potentially other DDM licence tiers). Similarly, ~60% of software revenues is embedded (a software implementation of a hardware product). This dynamic is continued in Video, where to replace the A$3m of FY23 sales, ~133k AV-A & AV-H or ~30k AV- Ultra units need to be sold

Upside is in the current share price. Implied FCF growth of 42.1% over the forecast period leaves little room for error, nor reinvestment for growth. AD8's competitive advantage is in Audio Hardware, which is only ~12.2% of our terminal TAM

Management change and M&A. ~10% of our equity value is cash, which has been flagged for M&A. This presents elevated risk relative to the core business, particularly with recent management change. We think AD8's financial criteria for M&A may preclude acquisitions in the cloud and networking space

Earnings changes: We revise our FY24E/25E/26E/27E EPS by 0%/-23%/-25%/-26%, respectively. Changes detailed in the earnings section below

Valuation: We cut our DCF-based TP by 20% to A$14.40, from A$17.90, to reflect the above earnings changes and minor updates to our DCF inputs

Catalysts: FY24 results (19-Aug-2024), new product releases, M&A. Investment Thesis and Recommendation

We think AD8 is a quality business, but see this as in the price. With recent management change, well-flagged M&A on the horizon and associated execution and reinvestment risks, we maintain Neutral 

DISC: Held in RL & SM

What are fundies saying?

They seem to be united with their price targets. Not sure if that is a good or bad thing haha.

I'm fairly sure some of those guys piggy back off the research reports of one or two of the others, so, for instance, UBS and MS could (for example only) be relying on the analysis by Macquarie and have just plugged in slightly more bullish or bearish assumptions into their valuations/price targets. I guess the go would be to get the full reports from all of them and compare - see which one is the most comprehensive - and which ones are released first. I tend to think if all of the brokers are bullish on something, be careful, and if they're all bearish, there might be an opportunity. I'm not contrarian just for the sake of it, but I tend to find my best opportunities to profit by starting with a contrarian mindset. That said, I hold AD8 both here and in my SMSF. Very happy with recent price action. Even happier with their report. I did add Audinate to my portfolios when the market was fairly negative on them, so there's that contrarian mindset again.

The exception to the "brokers are often wrong" rule is when they're playing catch-up, so the price has got away from them and they're scrambling to change their recomendations to reflect the new reality, and that involves dragging up their PTs as well. When AD8 hits $18, the brokers will probably raise their PTs again - to $19.50. Doesn't mean much really.

@Bear77 I have access to the full reports (and their flashnote/firsttake/etc update reports which they put out quickly before they release their "real" updates later on (either later the same day or the next)). I can see the order they were released - e.g. MS was the first to release (11PM on the 20th), followed by UBS and then Macquarie (both on the 21st). Then MS released their final report ~8PM on 21st, then Macquarie and then UBS (both on 22nd)

As you say I'm not sure it tells you anything meaningful - but it's yet another interesting datapoint I guess

Based on that sequence of events @Remorhaz we could guess that MS are the lead brokers covering AD8, perhaps they covered them first, before the others jumped onboard - back in the day - and perhaps while also doing some further research themselves, UBS and Macquarie do read what MS have to say when preparing their own reports and price targets?