Company Report
Last edited 7 months ago
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Performance (45m)
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#ASX Announcements
stale
Added 7 months ago

Rob Goss has resigned as CFO, having been with the company for 7 years. The market didn't take this news too well with shares off 4.5% on a day when you might have expected them to be up 1 or 2 percent with the market. But $AD8 is highly valued, so any news likely generates an outsized reaction.

ASX Announcement

However, I dont read this as an area of concern given that he is staying through the next reporting season and will prepare the Annual Report. That's not the kind of departure to get the jitters over. (You do, when they leave the building with a cardboard box)

I've recently re-initiated a position in $AD8 in RL and SM and, when I get around to it, I must write a straw about "Audinate - why I changed my mind". But that's for another day.

Mulling over whether to top up a little more, as I am only at 3.8% in RL, and starting to like the value from here.

Disc: Held in RL and SM

#AGM Presentation & Update
stale
Added 2 years ago

https://newswire.iguana2.com/af5f4d73c1a54a33/ad8.asx/2A1408226/AD8_AGM_Chair_CEO_Presentations

AGM - Chairs address and CEO Presentation.

Separate to this, while there is ample evidence that supply constraints are easing for the chip manufacturers, to the point of potential oversupply, clearly $AD8 are still seeing constraints in integrated circuits that goes into their systems. This is the next steps along the chain and therefore likely to see a lag in pressures easing. Several references to unmet demand as a result of continuing constraints.

We know that slowing economies are resulting in slow downs for PCs and smartphones, but how will $AD8's market of pro audio-visual be impacted? Will pent up demand due to re-opening and constraints be offset by macro impacts and restraint by customers on spending in the light of inflation and a negative outlook?

Also, $AD8 confirming (as I expected in previous straw) that the big build up in headcout from FY22 is continuing albeit more modestly into FY23, with another 10% to be added.

$AD8 not really giving much guidance to help here, beyond a good start for video sales.

SP was headed back into the buy zone for me, but this isn't as positive a view as I was hoping, so I will continue to watch.

Interested to hear from other StrawPeople if anyone can attend the AGM today. (I can't).

Disc: Not held in RL and SM

#Divestment decision
stale
Added 2 years ago

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.

6c10291219b927da0d45578e786a3c86a20d56.png

Tracking the evolution of cashflows since 2016, it appeared that operating leverage (dashed grey line) was developing, albeit slowly.

44278a9b78ac311eb865cc75d630262aead38b.png


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

#Fundie/Analyst Views
stale
Added 2 years ago

Rudi just tweeted:

"UBS found Audinate's $AD8 FY22 result yet again "impressive": "AD8 continues to deepen its competitive moat through strengthening of the Dante enabled ecosystem and expand out higher margin software sales." Buy. Target $9.85"

... which is unchanged based on today's results.

Cranking away on my numbers tonite. In the absence of compelling economics, it appears to be less about "one number" and more about risk/reward and range of assumptions about top and bottom line growths over time. (Isn't it always so, pre-breakeven?)

Interestingly SM average intrinsic value at $9.42. SP close $8.80. @Strawman at $6.76 (quick calc)

#FY22 Results Preliminary
stale
Added 2 years ago

https://newswire.iguana2.com/af5f4d73c1a54a33/ad8.asx/2A1387252/AD8_FY22_Preliminary_Unaudited_Results

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