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Audinate CEO on Livewire:
https://www.youtube.com/watch?v=DuSbMF5oO0E
Updated Valuation (17/02/2024)
1H FY24 results were very strong with revenue increasing by 47.7% to $46.6m (AUD).
Using similar assumptions as below except increasing revenue growth by 40% for this year and then 30% for the subsequent 4 years gives FY28 revenue of around $278m.
A 20% net margin would give an NPAT of around $55m.
Using the same terminal PE of 40x and discounting back 10% pa gives a valuation of $16.87.
Disc: Held IRL and on Strawman.
Valuation:
Assuming 20% CAGR for revenue for the next 5 years, and a net margin of around 20% (I think this is reasonable for a hardware/software company) gives us:
Assuming a terminal PE of 40x at FY28, and assuming SOI increases to around 90m:
Discounting this back 10% pa gives us a valuation of $9.57.
I personally think these assumptions may be on the more conservative side but given that this is already my largest position (outside of some index ETFs I own), I'd prefer to wait for some weakness before adding (probably add around $10). Conversely, future results may show that this was indeed too conservative and thus may need revising in the future.
Disc: Held IRL and on Strawman.
What does the business do
- Software for the audio-visual sector
- Dante protocol replaces the need for physical analog wires by using a single ethernet and IP to send signals
Why do I own it- Becoming a monopoly in the AV industry with over 80% market share
- Slowly monetising its market dominance
Reasons to potentially sell
- Loss of market share to a potential disruptor
- Inability for management to execute its monetisation strategy
Update of my price target / valuation is based on H1FY24 results and Investor Presentation provided to the market on 12.02.2024.
I've decided that for now, my Investment thesis remains intact.
This is based on:
I believe that there are several competitive advantages that Audinate can sustain and enhance with their strategy ,execution and growing product offerings.
Key 1H24 financial highlights:
• Revenue increased 47.7% on 1H23 to US$30.4 million (A$46.6 million)
• Gross profit (GP) of US$21.8 million, up 50.1% – gross margin of 71.8%
• EBITDA of A$10.1 million, up 137% on 1H23
• Net profit after tax of A$4.7 million, improved from A$0.4 million loss in 1H23
• Operating cash flow A$11.8 million, improved from A$1.8 million in 1H23
• Strong cash and term deposits balance of A$111.7 million
My old valuation looks laughable (i'll leave the rationale for the $6.76 valuation below)
Assuming gross margins stay the same (71.8%) and taking management's guidance at face value ("growth in US$ gross profit consistent with historical performance"), I will assume a FY24 revenue of $96m -- that'd be 38% top line growth.
Let's be bold and assume they sustain a very strong pace of growth at 25%pa for a FY29 revenue target of ~$300m. And we'll give that a net margin of 20% because I'll assume they continue to scale well and enjoy a good degree of pricing power (current net margin assuming full tax is about 8.5%).
That's $60m in Net profit in five years time.
I'll thumb suck a PE in FY29 of 50 (again, I'll be ambitious because of company quality and growth potential) and assume 85m shares on issue to get a target price of $35.
Discounted back at10%pa that's a current valuation of $21.
This is all pretty rough obviously, and I'm probably guilty of 'curve fitting' here to arrive at a price that helps make sense of how the market is currently pricing Audinate.
When I play around with other assumptions, I can sensibly arrive at anything between $15-$35 (which shows you how a few small tweaks to multiple or growth assumptions can really move the needle), but what's useful here is that you get a sense of what you need to see for AD8 to be considered good value today.
i.e. Roughly speaking, top line growth that sustains at least ~20% growth for many years, with expanding operating margins and no major dilution. And, of course, a market that is prepared to sustain a decent growth multiple.
I think they have a good shot at it, and could easily surprise on the upside.
But they did say that acquisitions were on the table too, so these forecasts could easily be way off for a number of reasons. But it gives me a general line in the sand.
Updated: January 2023
Just a thumb-suck valuation, and a few hypotheticals, to help put a line in the sand.
FY22 sales = $46.3, EBITDA $4.3m
Shares on issue = 77.2m
So a 10x P/S = $6 per share. That's equivalent to a EV/EBITDA of 100.
These aren't timid multiples. But perhaps you can even justify higher ones at present if you expect sustained and significant growth, plus attractive net margins at maturity.
As usual, when you start playing around with a variety of assumptions, you get a wide range of outcomes.
Management say they want to double revenue in the "medium term". Let's call that 3 years, just as an exercise. And let's again apply a P/S of 10 to get a FY25 share price of roughly $12. Which is about $9 when discounted back by 10% per year
Let's say after 10 years, this is a business doing $500m in sales, at a 20% margin. At that point, let's say annual growth is closer to 10%. That could justify a PE of 30 at that point.
With no extra share issuance, that equates to a net present value of $15 when discounting back at 10pa.
As with most growth-oriented valuations, most of the heavy lifting is done quite a number of years out. But what it shows, to me, is that there is indeed value IF the company sustains a high pace of growth and scales well. But in the meantime, it's going to look very expensive and will be at risk of serious pullbacks whenever there is a slight hiccup.
And, of course, if these growth expectations are not realised, investors will likely get burnt. EG the $500m in sales in the scenario above represents something like 27% in compound top-line growth for a decade. Audinate could sustain a very impressive 20%pa for a decade and only be on sales of $290m. It'll need a very chunky market multiple at that point for current investors to do well
So the asymmetry of return outcomes aren't quite where I'd like them to be.
Given the quality of the business, and the network effects it seems to enjoy, I'll go with $90m in FY25 revenue, and $10m in NPAT.
A P/S of 8 or a PE of 72 gives a market value of $720m . I'll assume a bit of share issuance and use 80m SOI, and then discount back by 10% per annum to get a valuation $6.76.
As always, the real valuation could be a good 20-30% either side of this. But i'd certainly be a lot more interested if shares were around $7
Well "the market" obviously liked the announced results (currently up ~19% so far today) - FWIW what did the brokers say today ...
I'm aware of three Investments Banks which cover AD8:
UBS: Buy, 12m PT $21.05
Strong growth momentum ahead of UBSe and consensus
An impressive 1H24 result, with rev and EBITDA both strongly ahead of UBSe and cons. Momentum in both audio & video is strong, with healthy design wins (+54 norm. post CV), ecosystem build and strong initial uptake from video cust. (hit FY24 target by 1H24). In our view, g/dance appears conservative given 1H mom. (1H24 GP +53% y/y vs g/dance implied 2H24 +7-18%). While mgmt prev commented on a higher portion of 1H rev vs normal 45/55% split given sales backlog, we highlight upside risk given 50/50 split implies +33% y/y growth already. While the sales backlog is normalising, we expect: 1) ongoing strength in audio; 2) video expansion; and 3) penetration of low channel count devices via software delivery, to underpin LT growth, although we recognise macro uncertainty remains a risk near-term. FY25E EV/Sales of 10.8x, looks expensive h/ line, but AD8 offers strong 5yr (FY25-30E) GP CAGR of +22%, maintain Buy
1H24 result highlights
1) Material beat at both rev & EBITDA - Rev US$30m (+48% y/y) / A$47m (+51% y/y) +13% beat vs UBSe / +11% vs Cons; EBITDA $10.1m (+137% y/y) +37% vs UBSe / +20% vs Cons. 2) GM 71.8% (72.8% 2H23 / 71.2% 1H23), impacted by lower mgn pent-up Ultimo demand (3x 1H22 vol). 3) CCM rev +46% y/y driven by Brooklyn & Ultimo, Software +56% (IP Core, DEP, retail software). 4) Very strong growth in audio ecosystem - 430 OEMs +153 developing (total 583) vs 400+138 at 2H23 (538), 4.0k products, 12x the closest comp vs 3.9k at 2H23. 5) Strong video mom., reached FY24 tgt for >30k units in-field/shipped already (6mth earlier), indicates early traction for customer uptake. 6) 2nd consecutive period of FCF +ive ($3.4m), OpCF conv. >100%. 7) Outlook: US$ GP$ growth consistent w/ historical for FY24 (UBSe 26-32%), ongoing +ive OpCF, additional h/count of up to 15%, transition to software by OEMs expected to recommence, sales order backlog reducing to reflect shorter lead times post CV, actively exploring M&A ops ($118m cash & term dep, no debt)
Changes to forecasts
We have increased our ST forecasts for FY24-25E (Net impact FY24/25/26/27E - EBITDA +8/3/3/4%, EPS +82/17/8/7%). We also upgraded MT/LT growth expectations for both audio/video given larger mkt sizing (FY30 EBITDA +20%). Our LT assumptions incorp FY34E penetration of 20% for audio, 14% for software and only 3% for video
Valuation: $21.05 PT (vs prev $13.55) – maintain Buy
We have rolled fwd vals, extended to FY34E (prev FY32E) and increased LT f/casts (FY30 EBITDA +20%). We derive our PT using a $19.03 base (blended 2yr fwd EV/Sales to sales CAGR / DCF) + $2.01 to reflect +2% share of potential digital video networking opp
Macquarie: Neutral, 12m PT $15.80
What's new
Why it matters
What now
Morgan Stanley: Overweight, PT $13.30
AD8 1H24 delivered another strong beat across the board today
Video adoption provides further conviction on medium-term growth
Guidance reiterated
We are OW AD8
DISC: Held in RL & SM
Audinate delivers record revenue and EBITDA in 1H24
Key 1H24 financial highlights:
• Revenue increased 47.7% on 1H23 to US$30.4 million (A$46.6 million)
• Gross profit (GP) of US$21.8 million, up 50.1% – gross margin of 71.8%
• EBITDA of A$10.1 million, up 137% on 1H23
• Net profit after tax of A$4.7 million, improved from A$0.4 million loss in 1H23
• Operating cash flow A$11.8 million, improved from A$1.8 million in 1H23
• Strong cash and term deposits balance of A$111.7 million
As long as Audinate can get their revenue growth (and maintain it) back to pre covid levels shares look attractive at the current price. Question is, how likely is that? 2026 Share price:$23 @ 10% discount rate => 2021 Share price: $14 Parameters to get calculation: Assume growth returns to pre-covid levels (of 40% YoY) out to 2026 => 2026 Revenue: $ 177M Assume GP% remains at 76% => 2026 GP: $135M Assume Opex grows 15% YoY => 2026 EBT: $77M Allowing for 6% share growth per year and a P/EBT of 30X (assuming more growth but slowing) => 2026 Price: $23 Updated due to being effected by chip shortage: Assume 2027 Revenue of $177M and all other growth parameters are the same but run for another year so: 2027 EBT: $67M and another year of 6% share dilution => 2027 SP: $19 Discounted at 10% => 2021 SP: $10.60 It's quite a drop from my previous valuation, but I have been deliberately more conservative. Still bullish on the stock
Revisiting:
Assuming $250m Revenue in 2028 (~30% CAGR)
GP% returns to 75%
=> GP: $187m
Opex CAGR of 15%
=> 2028 Opex:100m
=> EBT: $87m
Assuming 94 million shares and a P/EBT of 25 gives
2028 SP: $23
discounted at 10%
2024 SP: $14.40
I think the multiple may be a little conservative - however the expected growth is anything but. Audinate is in a great position to capture value from it's market , however it seems quite a bit of that growth already priced in.
I won't be selling it anytime soon, however don't think I'll be buying it either
Audinate announced that Dante AV hit a major milestone with 50 manufacturers
Audinate Group Limited (ASX:AD8), developer of the industry-leading Dante® AV-over-IP solution, announced it now has reached 50 manufacturers licensing Dante AV technology to build networked video devices. Kramer, Blustream, Magewell, Kiloview, Zenwin, Aavara, and Infobit AV are a few of the most recent partners that have joined the Dante AV ecosystem. There are now over 60 products available or soon to launch, including cameras, encoders, and decoders.
( as compared to the end of FY23 figure as following screenshot of 34 OEM brands)
A helpful update for November 2023. Only 7:22 long. Basically confirms what @Slomo covered in a previous post.
https://www.youtube.com/watch?v=oGzdDTc3u7w&ab_channel=Dante
November 28, 2023 - Featured, ProAV News, rAVe [PUBS], rAVe Europe, rAVe Europe Featured, rAVe Europe News, RTA
Audinate made it clear the company wants to be known as an AV-over-IP brand — not just an audio-over-IP brand — with a new logo, tagline, etc. Audinate will emphasize the Dante brand more in the market, given the strong connection and recognition with customers. The Dante AV-over-IP platform tagline, “One Connection. Endless Possibilities” will be used to help strengthen the Dante brand over the Audinate branding. The new Dante logo also captures this concept, taking one connection in multiple directions.
“Long the de facto standard in networked audio with more than 550 manufacturers producing over 3,800 products, adding video, control and management has transformed Dante into a complete AV-over-IP platform,” said Joshua Rush, chief Mmarketing officer at Audinate. “This new positioning crystalizes what Dante offers the ProAV industry.”
As the parent company of Dante, Audinate has always been focused on pioneering the future of AV. The new brand platform for Audinate preserves the company’s respected engineering legacy while creating a more human and approachable brand.
Alongside the new branding that will roll out in the coming months, Audinate will launch new separate websites for Audinate and Dante in early 2024, including an initial microsite launching today at https://getdante.com
I said AD8 was likely worth $15 > 2 years ago when it was trading at $7.40 (see below for ref) and they've now raised capital at $13m and revised their TAM upwards > 2x.
Since then AD8 has become more entrenched and their prospect brighter. I'm assuming a 10yr Revenue CAGR of 27% (the average of their last 4 years and within mgmt guidance). This means AD8 would have ~30% of their total TAM (vs 2.3% today), it's also predicated on significant success in Video (25% of TAM in that segment), and owning 2/3 of the Audio Segment.
Also in 10 years NPAT Margin = 25%, and PE (Exit multiple) = 30x.
Discounting this at 10% gives an Intrinsic Value Estimate today of $25.
Disc: Held, and not topping up as it's already my largest holding.
2021 Valuation
Audinate is marginally unprofitable after increasing R&D headcount as part of its stated growth strategy. With Gross Margins expanding to 76.9% (2021, H1) and a lot more of its target market to penetrate, this seems like a wise investment. Discounted Cash Flow (DCF) valuations are not straight forward for companies that are marginally burning cash as they invests for future growth. I have assumed continued market dominance in audio can lead to revenue growth of circa 20% p.a. to $200m in 10 years or 50% market penetration (nothing yet for Video or Software). If Gross Margin stabilises at 78% (assuming no further gains from increasing the software mix), Gross Profit reaches $155m in 10 years time. I expect SG&A falls to 50% of Revenue while D&A makes up 6% and Capex just 3% of revenue in year 10 leaving NPAT of $70m at NPAT margin of 35% - very high but not unreasonable given Dante’s market dominance. Using a discount rate of 10% arrives at an intrinsic valuation of $7.40 per share which is now below where the market values Audinate at closer to $10 today. Recall this includes the Capex expected to fund the expansion into Video and Software solutions, but none of the anticipated revenue. If this investment can achieve a quarter of the market share for both Video and Software solutions in 10 years, Audinate is worth more like $15 today. Disc: Held
Valuation - Statistically Expensive (@ 14x Price to Sales), hard to value and only marginally profitable due to high reinvestment / Spending all their FCF on growth.
Strategy - Video a more fragmented (by protocol and participant) than Audio was.
Niche - Limited market with unlikely / uncertain growth opportunities beyond it.
Cash burning tech - Haven’t monetised it yet, so not sure how it will look when mature - need to guestimate future margins.
Gross Margin falling - This is primarily due to product mix as Viper board (video hardware from Silex acquisition) sales grow. Should be temporary?
License Fee based - more 'reoccurring' than recurring revenue. Will likely stay that way until Software & Services picks up, in the distant future.
Mgmt not buying at recent prices. CEO actually sold into (ahead of) the recent capital raise.
50% Revenue Growth - Great but ... hard to maintain.
M&A brings execution risk – implementations are not easy – especially when tech is at the centre of it.
Key person risk in Aidan CEO.
Something from left field - an Apple or a Google makes a competing protocol via an app to displace Dante?
What have I missed??
Disc: Held (largest position)
Key take always from the AD8 AGM for me (apart from TAM expansion per separate straw) were:
There are 2 main strategies
1) “Winning in video”, this will include M&A ($1.2bn Rev Video Mkt), this is their #1 priority.
2) “Building out the operating system of AV” ($1.4bn Rev Software & Services Mkt), this is the big Long Term prize.
So they have a long runway of reinvestment opportunities at (a high expected ROI).
Technically there's a 3rd strategy which is to dominate Audio, but I'd say this is just a matter of time and the focus of CEO Aidan's discussion is all around video. Software & Service (operating system for AV flows from that).
Execution on the Video strategy is everything, and I would say if they don't manage this, the thesis that supports the current share price is badly damaged.
If they can do in Video what they have done in Audio to dominate the Video market, S&S should be easier as they will be the de facto AV operating system and be able to build a product suite earning high margin SaaS Revenue on top of this.
The recent $70m Cap raise was to expedite their Video investment via M&A and in-house Dev (Capex), so aligned to this Video focus.
Expecting minimal growth in Opex so should start to see Operating Leverage in evidence in the next few years.
This Video strategy is de-risked in a few ways.
1) They are following the same playbook as they did in audio where they have now effectively won. Their Dante protocol has 9% of the available market (but 12x the penetration of their nearest competitor). Trajectory is also positive, as this was 6x a few years ago and will soon be > 12x as more design wins translate into OEM (product) deployments.
2) They have a very good name and relationships in the AV industry from their work in Audio. There are a lot of synergies for AV Engineers and OEM’s to have a single integrated protocol across Audio and Video combined – as they have won in Audio they can be the only integrated protocol across both.
3) The Video market is more fragmented than Audio with no clear competitor and the incumbent is inertia (See separate straw on NDI).
4) They have integrated 2 small acquisitions that have allowed them a rapid entry into the market increasing their products from 7 to 48 in FY23. It took more like 6 or 7 years to grow this part of the Audio build out.
Note: The above is not what they spelled out specifically in their presentation (not sure why - building a monopoly concerns, don't want to spook the competitors?), it's just me pulling a few things together from the AGM preso, FY23 results and ASX material and what Aidan's been saying for a while. So I could be off the mark here and reading into what I want to believe...
Disc: Held (largest position)
Agree with @jcmleng that the standout from the AD8 AGM was the expansion TAM.
I attended the AGM in person (no virtual option) and was surprised to see only a few more people than last year.
A few more analysts (brokers or buy side I presume) than usual but only retail shareholders asked any questions.
I'll add some details in separate straws.
TAM update
My reading of the preso and Aidan's speech is that the TAM has changed in a few ways.
1) More detailed work has been done (via consultants) to arrive at a more granular view of the various markets (although they only shared the 3 high level segments).
2) Fine tuned the definition of each market to only capture revenue pools they can actually capture – i.e. where they have products / solutions in market or planned. For example, this re-cut included removing revenue potential for OEM products that may never be networked.
3) Increased market for each segment but especially in Video ($1.2bn, 39% of total) and Software Services ($1.4bn, 45% of total).
Market Share small but growing nicely
AD8 now has approx. 9% of the Audio Market ($46m of $510m, 17% of total TAM) and approx. 0.5% of Video, leaving approx. 1.5% of Software & Services market by revenue.
The market as a whole is expected to grow at approx. 6% CAGR for next 5 years (grew 8% in FY23).
Given their dominance in Audio (12x their nearest competitor and growing) and their aspirations, with a strong start in Video, I see TAM as a much more relevant for valuing AD8 than for most businesses who discuss it.
Disc: Held (largest position)
Inspired by @mushroompanda's DD on NDI, I asked Aidan (CEO) about them as a competitor a the AD8 AGM last week.
He gave a pretty full answer that left me feeling like he had their number and is quite confident of out-competing NDI over the long term – you would hope he thinks this…
Here's some of his comments (paraphrased from my shorthand).
NDI is probably the tech most like AD8 from a technical POV.
NDI is stronger in stronger in broadcast / live production environments. So they are more market specific, but looking to branch out.
AD8 is stronger in commercial installed AV which is a much larger market.
AD8 have advantages over NDI on price, technology, market and people (NDI have lost a lot of staff).
Dr Andrew Cross (https://www.linkedin.com/in/adjc/) no longer works at NDI (he was their founder / CEO / spirit animal).
In summary, NDI is one to watch and will probably remain the biggest competitor for AD8 in Video.
This needs to be seen in a larger context though which I will discuss in a separate straw on Strategy.
Disc: Held (largest position)
Had a chance to digest the AD8 AGM Preso of 24 Oct 2023 and summarised the takeaways below.
Also read the Audinate Strategy AV Magazine link from @Valueinvestor0909 (many thanks for this!) from 2 days ago which helped sumarise and crystallise what a good and exciting position AD8 in in, both now and whats ahead.
SUMMARY FROM AGM PRESO
Discl: High conviction holding IRL
Held IRL. Quite happy continuing riding the growth story:
Quick research note updates for AD8 from both Morgan Stanley and Macquarie - basically talking about the TAM expansion ($1B -> $2B) mentioned in Audinate's AGM presentation
FY24e guidance reiteration of growth in US$ gross profit dollars consistent with historical, which we take to mean c.26-31% revenue growth (VA cons c.28-29%)
TAM materially upgraded to US$2bn, from A$1bn previously
What's new
Audinate's AGM presentation was released. It does not include a trading update. It includes an expansion of the Total Addressable Market (TAM) from ~USD1b to ~USD2b. Post the recent equity raise, additional data was provided on the rationale for M&A to accelerate AD8's growth strategy
Why it matters
TAM expansion is driven by the Video and Software segments. Underpinning this is previously unavailable data, reflecting the larger Dante product set and post-Covid trends. This estimate is based on the existing product set using current prices and excludes adjacent market opportunities. These factors reinforce key focus areas for M&A
to accelerate the existing strategy: Video & Software. The additional opportunity to address Dante software strategy is not included in the TAM expansion
AD8's outline of opportunities in Video & Software markets highlights desired capabilities for M&A. AD8 outlined the opportunities in Video as cameras, displays, projectors, signal routing and switching products. In Software, the opportunities are in management control software (Dante Domain Manager) and Dante PC/Mac software
Market growth is estimated to be higher than the long-term historical average of ~7-8%
What now
Validation and expansion of the market opportunity provides confidence in longer-term outlook, although execution risk is heightened with an M&A- centric strategy. Silex acquisition and integration provides some evidence of a disciplined approach to M&A. With the recent A$70m equity raise, Audinate has dry powder in a market that is offering more attractive multiples for M&A opportunities. We expect acquisitions in FY24 in line with management commentary
DISC: Held in RL & SM
Purely numbers based analysis, growth of sales has been impressive. Wouldn't be unreasonable to see 10%+ growth in sales going forward for a while. My growth analysis gave a best case of $14.15 and a worse case scenario of $13.15, so took the middle ground. Does not take into account a deep business analysis!
A short piece in Livewire today by Donny Buchanan from Lakehouse Capital includes some commentary on AD8
https://www.livewiremarkets.com/wires/3-small-caps-with-significant-runway-for-growth
Listed AV networking business Audinate is on a tear, and chief executive and co-founder Aidan Williams is cashing out.
He sold 51,702 shares, or 2.6 per cent of his $26 million holding, on August 28, securing $706,249.32 at $13.55 a pop. This cash, he told us, would meet “upcoming tax obligations”.
The most intriguing aspect of Williams’ sale, however, is its timing. It was disclosed on September 6 (two days late in what the company said was an “administrative oversight”). This was the day before Audinate announced a $50 million, fully underwritten capital raise at $13 a share.
Audinate CEO Aidan Williams sold shares to meet upcoming tax obligations.
As you’d expect, this has suppressed Audinate’s share price, which fell 9.7 per cent on the day the raise was announced and hasn’t reached its pre-capital-raise level since. By selling nine trading days before (rather than after) the capital raise, Williams has, at the margin, maximised his reward, to the tune of nearly $20,000 at Thursday’s $13.20 closing price.
Knowledge of an upcoming capital raise could be considered material non-public information. Williams said he was given permission to trade in accordance with company policy, and that the capital raise was decided upon by the board sometime after his trade.
https://www.afr.com/rear-window/audinate-chief-sold-shares-before-capital-raise-20230914-p5e4ma
Looks like Audinate is taking advantage of the rocketing share price to raise capital. Wonder if there will be an SPP for us mere retail investors.
Research Tactical Idea - Morgan Stanley - July 18, 2023
Please note: Morgan Stanley put out a disclaimer that this tactical idea should not be relied on. This is just an archived article.
We believe the share price will rise in absolute terms over the next 60 days.
Our conviction on results upside is driven by; 1. Revenue visibility, where we think US$22.7m 2H23e is highly achievable - implying an incremental US$2.1m HoH, with supply likely continuing to improve, further supported by elevated backlogs and overall robust industry demand, and conservative Video guide. AD8 was also tracking to market expectations May end; 2. Scope for cash flow breakeven in 2H23 or at least that AD8 comes close; and 3. Further Video execution and adoption supports the outlook. Also see "Key Ideas Result #2: AD8".
We estimate that there is about a 70% to 80% (or "very likely") probability for the scenario.
Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the scenario.
Why AD8 made the list: 1) Revenue visibility –US$22.7mn 2H23e consensus implies an incremental US$2.1mn HoH, which we think is highly achievable. (a) Supply should continue to improve over 2H (drove a 20% decline in 1H Ultimo sales). (b) Elevated backlogs provide revenue visibility. (c) A\2H23 AV demand is robust. (d) No trading update at May end, but AD8 was tracking to market expectations. (e) Video guidance could be conservative – >US$3mn FY23 guidance implies >US$1mn in 2H23, which we find conservative given 2H23 adoption announcements. 2) Scope for cash flow breakeven in 2H23 –We reiterate our maths from 1H23. Again, we think being "close" to cash breakeven is sufficient evidence of self-funding + balance sheet optionality. 3) Video execution and adoption – across OEMs, products and now revenues. We are now seeing the video story accelerate.
What's not in the price – conviction in fighting the fade at 7.6x FY25e EV/Sales: 1) 26-31% revenue growth sustainable with audio – We walked away from our Summit more confident. AD8 noted that audio penetration (<10% today) can sustain 26-31% growth alone vs. the market's base case of c. 26% growth with accelerating video contribution. 2) Dante AV-A increases serviceability of video TAM – expected to open up c. 50%. We think it's worth recapping AD8's video journey. The company did not get it right initially – it lacked key products (Dante Video in software form) and the right sales/R&D expertise. However, it recognised these gaps, made moves to bolster capabilities (Cambridge + Silex), and that adoption story is now playing out with Dante AV-H. We have similar conviction in AV-A. 3) Margins, cash flow, balance sheet optionality – Our base case is that AD8 becomes self-funding from FY24e with a more obvious earnings profile from FY25e. We think the strategic focus remains audio and video, but incrementally, we see scope for greater clarity and future reinvestment, e.g. into the (user) software opportunity/adjacencies like broadcast.
Key risks: 1. Cyclicality – AD8's end market is cyclical with capex projects, though reopening tailwinds, structural share, and backlogs give confidence in delivery. 2) Gross margins + cash burn – base case is trajectory towards cash breakeven, but continued depressed GM (expected to rebound) could weigh on cash.
My notes on digesting AD8's sterling results. Focused more on the operational aspects of the results rather than the financials.
Only thing that surprised me was the headcount changes. Not saying its a bad thing at all (constraining headcount is often an organisational "own goal" if it ends up constraining growth), but rather the fact that it went against what the CFO Rob Goss told us in Feb 2023 where they saw the current headcount as sufficient to support 30% growth and it caused a $5.1m cost increase. Something I noted to myself to keep an eye on in FY24.
Discl: Held IRL
GOOD
Financials
Cash Flow, Cash Position
Operations
FY24 Outlook
NOT SO GOOD
GP Margin Reduction
Headcount Increases
WATCH
RISKS
SUMMARY
Following on from @harryd's Analyst View straw...
At least three major Investment Banks cover AD8 and have published updated research reports in the past day so here's some snippets for what it's worth ...
Morgan Stanley: Overweight, Price Target: $13.30 (upgraded from $11 previously)
FY23 beat across the board, positive 2H FCF with strong outlook + FY24e guide. The stock price reflects this, so where's the opportunity + what are the debates? 1. 100% LTI vesting implies FY25e revenue 20% above cons, 2. Superior mature margins, and 3. Winning in video as AD8 has in audio
UBS: Buy, 12M Price Target: $13.55 (upgraded from $10.35 previously)
Strong result on all fronts, outlook +ive with supply overhang largely resolved
A strong result all round, delivering a 10% rev beat vs consensus and +39% at EBITDA. Supply chain impacts are largely resolved, through a combination of easing chip supply and redesigns - removing a constraint on already high rev growth (FY23 +40% vs +32% FY17-22 CAGR, exc. COVID impacted FY20). The sales backlog remains close to record levels (despite the dissipation of supply constraints), providing good rev visibility in 1H24, although the order window should narrow over time. Video is also gaining good traction, with 48 products launched (vs 20 at 1H23 / 7 in pcp) and we expect product releases to translate to units shipped in FY24E. Margins in FY24E should also be supported by COGs reduction (vol benefits from new B3 model + easing supply) and transition to software (flat GP$ but higher mgn). Design wins are at all-time highs (142 vs 126 FY22) and AD8's total product ecosystem is still much larger than the nearest competitor (12x more). FCF turned +ive in 2H23 and mgmt expects a marginally +ive outcome for FY24E. We remain positive on the structural story and video op. Trading on FY24E EV/Sales of 9.8x, offering 3yr (FY24-27E) GP CAGR of +26%, maintain Buy
Macquarie: Buy, 12M Price Target: $13.50
Key Points
We think AD8 is at an inflection point in earnings, driven by delivery on their strategy of growing the Dante-enabled network. The FY23 result is evidence of operating momentum accelerating, which should support strong double-digit FCF growth over the forecast period. We reiterate Outperform.
DISC: Held in RL & SM
Assumptions:
Revenue Growth: 25% for the next 2 years is a good guess based on the below
Gross Margin of 74% in FY25 ( current margin 72.1%, Management flagged that it will increase gradually)
allowing employee expenses to $35m to cater for a flagged 15% headcount increase
Share count of 82m in FY25
FY25 Reve of 108m, GM of 80m, and Profit of 32m
PE of 35 in FY25
21/8/23 Results Announcement
Good results today but they were not totally unexpected. Actually, the growth in costs (29% CAGR over 3 years) is higher than ideal and reduces my valuation.
I thought the share price at $10.30 was fully valued based on the expected results. Market reaction has lifted SP 16%+.
Another company priced for perfection and any stumbles will be punished.
Revenue announcement above forecast represents a 3 year CAGR of 32%.
Forecast forward 10 years (15% rev growth at 2033) revenue is $395M.
SOI growing at 5% provides EPS of $0.79. Costs growing at 10% at 2033.
Use a PE of 40. Discount rate of 15%. Fair value around $9.00.
AD8 released FY23 result this morning and it is as expected amazing result.
Revenue
Cash Reciept
Expense
Operating Cash
Audinate (AD8) is another company to release results on Monday.
During the FY22 results presentation it was forecast that revenue would double over the next 3 years. This forecast was confirmed more recently.
To achieve that result requires revenue CAGR of 30% which implies an FY23 target of A$60M. 1H23 revenue was A$30.8M so this is a solid expectation.
Management also reported that costs had increased by 30% mainly to increase salaries and retain talent.
1H23 was borderline EBITDA positive with a A$0.38M loss after tax. This should only deteriorate if costs have continued to blow out.
Things to look for in the FY23 results:
1. Rev > A$60M
2. Staff numbers of 196 to 200.
3. Video revenue of > US$3M
4. Indication of pricing power and price increases on products.
5. Improved staff retention
6. An after-tax profit!!
The current share price of $10.30 is in the fair valuation range only if the revenue continues to grow at the forecast rate and there are no other nasty surprises. I notice the share price has increased 18% over the last 4 weeks so the market is expecting a good result.
Little snippet from Capital IQ Pro on sentiment for Audinate as I don't know my restrictions on reposting content from my trial subscription. Probably doesn't mean much in the grand scheme of things although I do wonder the interpretation of being 1% on sentiment.
But transcript and the recording helps understand the product a bit more at a high level.
Thought I'd post as I see the stock price has trended up since the last on market selling by the CEO.
Audinate released a presentation today and I found this slide very encouraging ( I don't remember seeing this before)
The number of ODMs is a sign of new products coming into the market soon. workflow as per Audinate is:
and they also mention
Director transactions
CEO Aidan sells AUD $1m worth of stock on market. Not going to speculate but understand it could be for many reasons including paying the bills. Still holding millions of stock so maybe nothing.
Non exec director does a purchase.
RH Consulting creates reports every year for AV networked products. There release their report for 2023: https://rhconsulting.uk/blog/networked-audio-products-2023/
Some of the highlights:
Audio over IP
Video over IP
Sharing my notes and takeaways from the very insightful conversation with the AD8 CFO earlier this week. Likely to contain translation accuracy errors, please cross-check before relying on any information.
I walked away with much more operational and opportunity context behind the 1HFY23 preso and a much greater understanding and appreciation of the Video opportunity.
Disclosure: Currently hold AD8 IRL
General
Margins
Video Opportunity
Supply Chain Update
Scalability and Financials
Industry Dynamics/Demand
Immediate Focus
Key Bugbears that Market Does Not Quite Get About AD8
Reported H1FY23 EBITDA a mere AUD 70 k short of the EBITDA reported for the Full Year FY2022. 87% up on that achieved in the prior 6 month period H2 FY22. Consider the record backlog of orders and an improving situation on Chip supply and fair to say FY 2024 is going to be a cracker.
Love the reminder of Audinate's position as leader in the market. 12x that of it's nearest competitor.
Considering the results vs the run-rate established 6 months ago ie H2 FY22, we see that..
- Sales Revenue up 18.3%
- Gross Profit up 13.7% ( impaired by the lower margin Viper inclusion, but they have a plan for this)
- Operating Expenses up 3.8%
- Cash Receipts up 29.9%
- Receivables up 20.4%
In summary, the Company have weathered a particularly difficult time with the universal chip shortages. Development work has gone a long way to minimise the impact on customers so no reputational damage of any consequence. Healthy discussion on the call re future acquisitions and some clear excitement surrounding the new DanteAVH Software. With Bonuses paid in H1, stage set for a strong set of Financials in the second half and a 'standout' performance likely in FY 2024 (and Beyond).
Remains a STRONG HOLD for me.
RobW
Network effects are a beautiful thing:
I thought the result was quite solid -- you can read all the detail here
Pro-rata, Audinate is on almost 10x sales. I mean, it's growing like the clappers, has a lot of market to win, and we're seeing some good operating leverage emerge -- so you don't want to be too clever with valuations.
Looking at consensus analysts estimates (for whatever they are worth) it seems the market is expecting 10c in per share earnings in FY25. So shares are presently on almost 80x that now.
Not too concerned with the cash burn -- they have a rock-solid balance sheet. And they are conservative with capitalising costs.
But, probably a tad expensive for my tastes at this stage. Will be keen to see what CFO Rob Goss says to us next week -- i could well be missing something.
10 year DCF
rev cagr of 22% over that period
peak ebitda margins of 34% vs FY22 of 5%
capex $8m p.a
WACC 11%
Terminal g/rate 3%
I really struggle to reach consensus vals of $11....
on a side note, management LTIs are based on rev growth and share price growth... no real incentive to be profitable
Capital Raise History - Raised $85m current market cap $600.2m at closing price $7.75
· July 2020 Raises $40m, $28m Institutional, $12m Retail SPP at $5.12 per share
· June 2019 Raises $24m, $20m Institutional, $4m Retail SPP at $7.00 per share
· IPO July 2017 raising $21m at $1.22 per share
Acquisitions
· December 2021 – Silex Insight video business - US$6.5m upfront cash payment plus revenue earn out of up to US$1.5m may be payable based on the uplift in revenue for the twelve month period from acquisition date. The Silex video business produces video networking products for manufacturers of AV equipment.
Insider Ownership Ordinary Shares Percentage Net Worth ($7.75)
Yamaha Corporation 6,289,308 8.12% $48.7m
CEO Aidan Williams (Founder) 2,077,305 2.68% $16.1m
Varuni Witana CTO 913,369 1.18% $7.1m
David Krall (Chairman Board) 500,000 0.64% $3.87m
John Dyson (Board, Founder Starfish Ventures) 190,289 0.25% $1.5m
Roger Price (Board) 77,856 0.1% $0.6m
Alison Ledger (Board) 6,443 0.00% $0.05m
Tim Finlayson (Board) 130,954 0.16% $1.01m
Total Inside Ownership minus Yamaha 3,896,216 5.03% $30.2m
Today, I reluctantly exited my full position in $AD8 (IRL and SM). I sold off one-third ahead of results at $10.08 and the balance today around $8.50, a weighted price of $9. I’ve held this since mid-2018 … another Matt Joass MF Pro recommendation. So, it done OK, although not what I’d hoped for.
Why did I exit today? This Straw is my investment decision diary entry. I make a number of assertions and assumptions about audio, video and software enablement. I’m not an expert in these areas. Having watched the investment thesis unfold over 4 years, in the absence of support from favourable economics, I am uncomfortable holding a sizeable position going forward. That said, should SP fall significantly below my target price, I’d consider buying again.
What was the initial thesis? As shown in the figure below, which is faithfully updated each year, $AD8 has world-leading tech in audio networking. (Note: I’ve written audio and not broader digital media.) Sure enough, ever since following AD8, whenever I am at a conference venue or a lecture theatre (part time day job), you find evidence of “Audinate Inside”. It is truly dominant in digital networking of audio equipment.
Tracking the evolution of cashflows since 2016, it appeared that operating leverage (dashed grey line) was developing, albeit slowly.
Then four things happened:
1. COVID19 – driving a market slow down in the use of venues using networked audio equipment
2. CVOID19 Part 2 – supply chain constraints, chip constraints, inflation
3. Acquisition of Video capability (Cambridge, UK and Belgium)
4. Shift in focus from hardware to hardware and software; audio to media and cloud-enablement
Now 1 & 2 are simply a temporary set-back, 3. is an adjacency with a logic that has been articulated clearly by management and 4. Is logical, being a strategy followed in many other industries.
So as a narrative that’s all good. I’m onboard. But investing needs more than a narrative.
A few things dawned on me during the presentation yesterday. Aidan and Rob explained that the large step up in staff costs/headcount over the last year is driven in part by the acquired workforce and getting the bench in place to double the business over the next three years. However, as part of this discussion, it was clear that more staff would be required albeit a slower rate of growth. However, no indications were provided as to the likely trajectory.
Second, strategically, $AD8 has stepped from a niche where it has clear industry leadership (digital audio networking) to a more contested space: video, video-networking and software enablement via cloud-solutions.
My concern is that this broadening of the development front is going to bring with it increased costs. While Aidan and Rob and the team are experts in audio, I don’t think they can claim to be so in video, and the acquired teams from Cambridge and Belgium – while having unique IP – also don’t have experience in scaling their technology across global markets. (We have seen just in the last year how at $AMS, slight changes in go-to-market approach can quickly have dramatic, adverse impacts on sales growth.)
In short, I am uncomfortable seeing this widening of focus, particularly when we haven't even been able to see if the current business model can scale. That's a big red flag.
So, I did some what-if analysis around cost and investment uncertainty, around reasonable growth scenarios. The base case is set out in today's Valuation Report, and yields a valuation of $8.50, which by coincidence is in the ball park of today's price.
(Note: the broker consensus (yet to be fully updated) is about $10.50.But the more I read, the more I wonder if they are cuaght up in the story, driven off revenue growth and not analysing the economics. We shall see.)
Bear Case:
In this case, revenue growth slows sooner, because the combined audio and video and cloud solutions are playing into a more contested space, and costs scale less favourably. I ended up with a valuation of c. $4.50. But you could get anything from $2.50 upwards. What was instructive, was that it didn’t take much to seriously impair the economics. This kind of scenario would result if, in years 1 to 3, they incur higher development costs, then followed by increased competition in the market due to others contesting the space leading to an earlier maturing. There is, after all, little evidence they can replicate their dominance in networked audio to networked media. I’m not saying the can’t or won’t. They might well be successful. I just don’t have any basis of confidence so that’s my bear case.
Bull Case:
In this case, 30% revenue growth is sustained for a further three years beyond 2025, with favourable economics for operations and investment, with the business maturing but still growing by 2029. This yields a value/share of c. $11.50. Again, you can easily get anything from $11-14 depending on your assumptions.
My Conclusion:
Going for video, software and hardware and cloud-enablement on the back of a major industry setback and ongoing headwinds in chip supply and staff costs has muddied the waters around what I had expected would be solid emergent operating economics by this time. There are too many uncertainties and I don’t know enough about the industry or the competition. On balance, I feel scenarios towards the bear case are more likely than the bull.
I am selling. (Have now sold.) I like this company and the management, and I am going to continue to follow them. I am confident that I will be presented with future opportunities to get back onboard well below $8.50, should evidence indicate that we are more towards the Bull Case. At this early stage in its life - absent compelling economics - history tells me that the SP will be volatile.
(Note: This is not investment advice. It is a record of my own decision process.)
Disc: Not held IRL and SM
Updated DCF for $AD8.
Central case provided here. Hi and low addressed in accompanying straw, to follow.
Revenue (cash receipts) grow at 30% FY23-25,25% FY26-29
Cost base grows at 15% pa. (Costs as a % of receipts fall from 98% today to 56% in 2029)
Investment as % of receipts: declines from 27% in FY23 to 16% in FY29 (determined as growing for 3 years at 25% p.a., then 15% p.a.)
Effective tax rate rises from 0 in 2023 to 23% of FCF (before tax)
Discount Rate 10%
Continuing value: FCF grows as 5% p.a.
No financing
10% discount of to allow for further increase in shares issues.
Audinate has posted another year of impressive growth.
It really does seem to be on the path to world domination.
With a $1b addressable market, it should be possible to sustain a high pace of growth for many year. And with 14x the market penetration of its nearest rival, network effects should only continue to compound in the company's favour. Management have said they are hoping to double revenue in the medium term, and with the investments they are making, the traction they already have, and the fact the industry itself is expanding, that certainly seems doable.
The business is, however, loss making and free cash flow negative. Added depreciation costs, increased inventory, higher headcount and added investment all contribute here. Although the business has $44 in cash and term deposits, with zero debt.
I think the business is probably right in pressing its advantage, and spending up for growth. Provided, of course, they spend the money wisely.
I really like the company. Just not the price. It may well be justified in the fullness of time, but the current valuation just leaves little room for error.
The current share price of $8.72 gives a market capitalisation of $673m. Which is 14x sales.
The EV/EBITDA is 146.
I think there's a danger in being too value oriented towards high quality, fast growing companies that have attractive economics (at scale) and a long runway for growth. But, for better or worse, it's just a bit too expensive for me at present.
ASX announcement here
Key FY22 unaudited results
• Unaudited revenue of US$33.4 million, up 33.4% (A$46.3 million)
• Gross profit margin of 74.7% (compared to 76% in FY21)
• Expected EBITDA A$3.8 – A$4.3 million (compared to A$3.0 million in FY21)
$AD8 report improvements in chip supply and that they are managing inflationary pressures with expectations.
Positive news from the leading audio platform player.
Disc: Held on SM and IRL
Audinate slipped an announcement to market last night after close. Just a general trading update where management providing some commentary around current trading conditions, and i guess trying to provide clarity on why revenues are down. Its been 2 consecutive quarters of revenue decline. Q1 $7.6m usd, Q2 $7.2m usd and Q3 $6.5m usd.
In an article in todays AFR on Inflation hedges
https://www.afr.com/wealth/personal-finance/how-to-stop-inflation-getting-away-with-your-wealth-20220410-p5acdf
Nathan Bell from Intelligent Investor takes a slightly contrarian view on the traditional hedges (large cap commodities & defensives)
"familiar inflationary champions are now mostly priced for low returns, if not losses”. These include companies with pricing power, cyclical stocks and resource shares
“Beating inflation and higher interest rates means buying value, and there’s a lot more value in small caps after recent share-price falls than there is among the big names, which are generally very expensive,” says Bell
He nominates RPMGlobal, a mining-software company, as an example of small-cap value. “RPM trades at a fraction of typical software companies,” says Bell. Another preference is 360 Capital, a listed property group. “It trades on a 6 per cent fully franked yield and at around its net tangible assets, which means you get its funds-management business for free”
Audinate, a digital audio company, is another preferred small-cap. “Audinate should produce very high margins as the business matures over the next decade,” says Bell
DISC: RUL & AD8 held in SM & RL
Assumed Revenue 100M in FY26
Share Count 87.5M in FY26
EPS 0.40 in FY26
PE 40 = $16
Discounted 10% giving Valuation $9.93
HRL
Moving average down price range:
Buy at $9
Sell at $10
AD8 full year results analysis below and some note from the earnings call. Note it is stock of the day on The Call (Ausbiz) today with Gaurav Sodhi who is a bull on it providing comment. See announcement from jwrostagno27’s straw earlier today plus a good graph.
FY21 Results Analysis
· Orange Flag: The results were solid given Covid and was driven by growth in software as expected/hopped but margins were flat YoY which concerned me. Given all the growth YoY was from software which has no COS and it went from 20-27% of sales, you would expect margins to improve. Margins dropped from 76.9% in H1 to 76.0% in H2, I note that software sales were flat HoH while Chips, Cards & Modules grew 27% so that explains H2 Vs H1 but not the YoY. From listening to the results call it seems that the reason is the switch to a new annual subscription model rather than upfront access fee in H2. This provides a more attractive entry point for OEM producers but means that software revenue was lighter in H2. On margins management said that they are expected to grow as software becomes a more dominant part of the business. I will be watching this, but back management at this point.
· Sales: Up 10% in A$ to A$33.4m but +22.5% in US$ to US$25.0m, which sales are based. A solid result given how hard Covid hit the industry. Software sales were up 61.9% from US$4.2m to US$6.8m or from 20% to 27% of total sales was great to see.
· Margins: GM% flat at 76.4%, management talked to margin $ growth as the key indicator for growth on the call, rising from 15.6m to 19.2m YoY, suggesting that unit shipped was becoming less meaningful with an increasing software approach.
· EBITDA: A$3.0m, 50% better than last year but FX headwinds were a big factor, impacting EBITDA by -A$2.4m and the addition of the Cambridge video development team added A$1.1m in costs. The CEO was keen to point out the video opportunity doubles the TAM for AD8 and they will continue to invest in people to support growth across the business targeting a headcount of 170 up from the current 135.
· NPAT: -A$3.4m, better than last years -A$4.1m loss but the improvement was mostly due to having to write off tax losses LY, with tax expense 2.1m better than LY. Higher depreciation (+2.1m) was a factor and driven by growing amortisation of capitalised development spend. Of the $10.7m in R&D spend for the year (Vs 9.1m LY), $7.4m was capitalised (Vs 5.9m LY), management said to expect to see this trajectory of spend continue.
· Cash & FCF: $65.4m cash thanks to a capital raise during the year provides more than enough for funding growth (organic and acquisition), which is good because FCF continues to be negative at -A$1.3m. Management talked to acquisitions but made it clear that price and fit were very important, and they had said no to several on this basis, nice to hear.
· Outlook: Supply chain issues around chips are expected to persist and management raised the issue of factory shutdowns due to Covid as a wild card on predicting the next 12 months. They remain focused on the long-term objectives, improving design, reducing adoption friction and improving accessibility to non-English speakers for scalable growth. Note also that management has been focusing on the “Design Win” part of the sales cycle where the customer commits to using Dante, it’s then 18-24 months to product release, so increased head count flagged will take time to convert into growth.
AD8 is a significant position for me, up 160% and fast approaching my Feb21 valuation, I will have to update my valuation this week. The sales growth and margin growth were below what I was looking for but it was a tough year with Covid and given the industry lead AD8 has (19x nearest competitor) plus the opportunity in AV, I am in no way concerned that the results indicate any long term issues and that the investment thesis remains intact.
Rivalry among Competitors (Extremely Low) - Non-existent from existing players (some OEM’s have internal solutions). Dante (Audinate’s product) has 17 times the adoption of its closest rival (3,008 vs 173 products)
Supplier Power (Med-Low) – 1) Software / Developers: Inhouse expertise built from scratch, close to 3 of the big Sydney Universities, Glassdoor reviews positive. 2) Hardware sourced from China and now Malaysian providing some diversification.
Customer Power (Low) – More Original Equipment Manufacturers (OEM’s) use Dante than any other protocol and this trend is increasing. (Note Yamaha were an early adopter and owns 8.25% of shares, but this doesn’t seem to have hurt)
Threat of Substitutes (Low) – legacy analogue (cabling) which is currently the default but is being slowly digitised / phased out. Some OEM’s have their own proprietary system but this is becoming less tenable as it does not allow for the interoperability between other Pro AV brands which tend to be specialised.
Barriers to entry (High) – Too small a market for big players to attack given how entrenched Dante already is.
Disc: Held
A brief update (attached) from AD8 today and the heading on it says it all: “Audinate recovers from COVID to generate 23% revenue growth in FY21”
This is US$ growth, due to FX the A$ growth was only 10% but the most impressive note was that for Q4 sales were up 74% QoQ in US$. This is cycling against the depths of Covid for AD8 but goes to show how hard AD8 was hit.
Global supply issue for chips and electronic components remain an issue and no specific guidance was given for FY22, other than “Audinate is well placed to return to US$ revenue growth in the historical range and consistent with current market expectations in FY22”
The quarter also heralded the first OEM Dante Video products being launched, it is good to see this new product offering get off the mark.
I am impressed with the company and product fortitude, it looks to have finished FY21 close to forecasts in my valuation but I would like to see a break out of revenue by segments and see software growth at very high levels which will help margins grow. No change to IV of $11.92 at this stage.
Audinate returns to pre-COVID revenue levels
Key 1H21 highlights:
Audinate Trading Update for first half of FY21
Audinate Group Limited (ASX:AD8), developer of the professional AV-industry leading Dante® media networking solutions, is pleased to provide the following trading update. Audinate has generated unaudited US dollar revenue of US$11.1 million for the six-month period ended 31 December 2020 (H1FY21), up from H2FY20 (US$9.3 million) and in line with H1FY20 (US$11.1 million). The strengthening AUD / USD exchange rate has adversely impacted unaudited revenue in AUD which amounts to approximately A$15.4 million.
On 21-Aug-2020, Livewiremarkets.com recorded a "Buy Hold Sell" segment with Ben Clark of TMS Capital and Victor Gomes of Eiger Capital. This week they discussed small-cap stocks that are marching to the beat of their own drum.
The stocks discussed include 1) A technology company that trades at a forward PE of 73x and pays a small dividend (Appen), 2) An essential service which is paying a reasonable dividend (CWY), and 3) A company flying under the radar (HUB). As usual, the guests brought along two stocks that fit the recession-resistant thematic. Ben's company was AD8. Here's the link:
https://www.livewiremarkets.com/wires/buy-hold-sell-5-pandemic-proof-small-caps
Ben discusses Audinate (AD8) from around the 4:20 mark, and presents a short but pretty compelling bull case for them.
Interestingly, on the same day, Livewiremarkets.com also published this article:
Audinate: It's not cheap, and it's not growing
There are clearly a few fundies who don't agree with Ben's assesment that AD8 are growing 8 times faster than their nearest competitor.
Personally I like AD8, and I wished I'd bought some in March when they were sub-$3. I think they look reasonable at around $5 to $5.50, but I don't currently own any. I think they might get cheaper from here due to COVID. At least I hope they do. They are on my Strawman.com Scorecard - added at lower price levels than where they are today. When I think of Audinate, I always go back to that analogy with Bluetooth - i.e. if Bluetooth was a traded company, or was owned by a traded company, what would it be worth. Answer: A LOT!! AD8's Dante platform is very likely to be as dominant as Bluetooth is - in their own respective niche area of digital AV/media networking in a few years time (every major AV - audio visual or audio/video - brand will have incorporated Dante into their own products), so if you look at it that way, they are still cheap at current levels. If I had unlimited funds, I would certainly hold AD8 personally, but I don't. I reckon I'll be buying them at some point in the next 18 to 24 months however.
Not ideal for a company priced for growth.
Revenue essentially flat at US$20.4m, though the gross margin improved slightly to 77%.
unaudited EBITDA is expected to be around $2m, compared with $2.765m last year.
Sales in the 4th quarter were pretty week due to customer exposure to lock down (venues, theatre, live sound), although Audinate said things had picked up in June -- albeit not to previous levels.
The company may also have to writedown the carrying value of previous tax losses, which would take around $2.5m off the balance sheet.
Shares are presenty priced at approx 12x sales, or on an EV/EBITDA multiple of >150 or so.
Really a question of whether this is a one-off hiccup, or a lasting slowdown in sales growth. I tend towards the former view and note that the value always relied mostly on expected cash flows several years down the line.
Still, i'd like to see it drop further before I bought in.
Read ASX announcement here
I have a mate that uses this company and rates them highly for quality of sound, visual and customer service. I have a very small holding but am tempted to add. My fear is the price could be too lofty based on expectations? Thoughts please.