23 December 2019: Ord Minnett: Atomos Limited: A resolution to grow
"We initiate coverage of innovative media device business, Atomos (AMS), with a Buy recommendation and $1.75 price target, implying a total shareholder return of 21%. Atomos has spent the past three years investing heavily in its IP with the design of a new chip to power its video and picture display and capture screens. This work culminated in the release of NinjaV, a hit product with Pro Video users. The business is now poised to leverage its significant R&D and proprietary relationships to push deeper into the Social and Entertainment markets which are worth multiples of Pro Video where Atomos has had most success to date. We expect operating leverage to drive EBITDA and NPAT growth of 49% pa and 71% pa respectively (FY20-25) from revenue growth of 21% pa. Buy."
Disclosure: Not Held.
22-May-2020: Ord Minnett: Atomos Limited: Fast forward to higher margins
OM: Spec Buy, Higher Risk, TP: $1.15 (current SP: $0.52).
It is worth keeping in mind that this is really a hardware/device company, which doesn't have a huge moat.
An example of a bear thesis - GoPro. See the atached image of the share price over the past 5 years.
GoPro developed products for a more mainstream market compared to AMS and so was always likely to attract strong competition.
Hi all, I think there are some upsides to this new ETF that has been launched (which I believe will be quite popular), and I believe that some of the smaller companies such as Atomos, Volpara Health Tech etc will benefit and increase by being part of this fund.
Due to these companies now being included in an ETF, theoretically it'll jump a little. Similar to companies jumping when they get included into the ASX200. Obviously it won't be this big but I thought it was worth a mention!
26 February 2020: Ord Minnett: Atomos Limited: Revenue growth compressed by coronavirus
Atomos produced strong 1H revenue, but at a lower than expected gross and EBITDA margin than anticipated. More importantly, AMS updated on the impact of coronavirus on the supply chain and product releases. The release of Neon, already delayed from a late-2019 release, has been delayed further into late FY20, leading us to downgrade growth forecasts for 2H20 materially. We remain encouraged by the sector thematic and Atomos’ position in the market, but these product delays and product discounting strategy likely impact perception of business quality. Following downgrades to our forecasts, our price target falls to $1.50 per share. Given the valuation upside and temporary nature of the coronavirus impact, we remain positive, but move to a Speculative Buy.
Coronavirus impacts production and product releases
AMS highlighted minimal impacts attributable to COVID-19 (Coronavirus) to the core product range to date, with built-up inventory late in 2019 helping negate supply chain troubles. However, AMS has not been completely unscathed with its new Neon product which had already been delayed from a late-2019 release to early-2020, now delayed until 4QFY20. Current production capacity is only ~30% of its prior level, but management are hopeful two additional factories will be operational by 4QFY20. We remain cautious on the 2020 outlook given the unknowns of production ramp up and product release timing.
Discounting drives gross margin lower
Discounting in the wake of an inventory rush following resolution of a component supply issue saw 1H20 revenue come on at a reduced gross margin. GM was further impacted by US/China tariffs (now 7.5%, was 15%). We now believe GM will remain around 44% in the medium-term as the business looks to stimulate demand following release and production delays.
Valuation and recommendation
While the delays to production and release of Neon are disappointing, these issues are temporary. We prefer to look long into the social and entertainment markets where Atomos is still underpenetrated. Following adjustments to our modelling, our target falls from $1.75 to $1.50.
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