24/5/21 - CFO leaving after FY21 results announcement 

• Infomedia (IFM) closed at $1.30 (down 5.8%) after the company announced that after 5 years in the role its Chief Financial Officer, Richard Leon, will be leaving the company following the release of the FY21 results
•  The Board is now focussed on appointing a high-quality successor

4/5/21 - Simple Part Aquisition 

• IFM to acquire SimplePart for a purchase price comprising upfront consideration of USD $24.5 million, plus an earn-out of up to USD $20.5 million over three years
• SimplePart is a market leader in digital aftersales providing online parts, accessories and service e-commerce solutions that enable automakers and dealers to sell directly to consumers
• The addition of SimplePart complements Infomedia’s SaaS platform; the acquisition enables Infomedia to offer aftersales e-commerce solutions to its global customers and access a broader addressable market.
• SimplePart achieved approximately USD $10 million of revenue in the 12 months to 31 March 2021 and is expected to achieve low double digit growth rates in calendar years 2021 and 2022 before synergies.
• Expected to be EPS accretive from the first full year of acquisition on a pro forma basis
• Completion of the transaction is expected on or before 30 June 2021.

What I like about IFM

• ROCE between 23% and 30% for 8 years leading up to 2020 when it dropped to 12% (good given  COVID impacts)
• Forecast Annual Earnings Growth of 21.4% for next 3 years. Good margins (see attached)
• Forecast ROE 20% next 3 years 
• Low risk - debt free
• Simple Part acquisition fully paid from cash reserves. Payback in 3 years.
• Well cashed up, good future cash flow, in good position for further strategic acquisitions 
•  Very low Risk of future capital raisings and share dilution
• Dividend 3.1% fully franked, 81% payout well covered by earnings.
• Consensus Stong Buy from 6 analysts on Commsec

Longer Term Risks

With a transition to electric vehicles fewer spare parts will be required. Will this impact IFMs future earnings?

Fair Value

V(2022) = PE x E (2022) = 26 x 6c = $1.60

V (2023) = PE x E (2023) = 26 x 7.6c = $1.98

V (2024) = PE x E (2024) = 26 x 11.2c = $2.92.

I have increased my valuation to $1.90.

(Based on Simply Wall Street forecast earnings data, consensus of 5 analysts and using current PE of 26)

Disc: Hold shares

What does IFM do?

IFM is a technology services developer and supplier of electronic parts catalogues and service quoting software systems (Saas), data analytics and business insights for the aftersales parts and service sector of the global automotive industry. The group operates within Asia Pacific, Europe, Middle East and Africa (EMEA), and Americas, representing the combined North, Central and South America.

Why has the share price plummeted?

IFM was trading at around $1.85 before it took a dive of nearly 10% when it announced a flat 1H21 result on 25 Feb 21:

• Revenue $47.7 million for the 6 months to 31 Dec 20
• NPAT increased 3% to $9.3 million
• Cash Balance $97.3 million at 31 Dec 20
• EPS 2.49c down from 2.86c
• Cash EBITD decreased 16% to $9.5M pcp due to significant investment in the integrated Next Gen SaaS platform.

CEO, Mr Jonathan Rubinsztein said: “The result is in line with our expectations having anticipated the impact of delayed negotiations and installations.

IFM said  travel restrictions and lockdowns continued to have an impact through to the end of the calendar year and into the first few months of 2021, particularly in the Americas and Europe, affecting the timing of sales converting to revenue.

IFM dropped further to $1.40 when it went ex dividend on 3 March and today IFM closed at $1.335. 

IFM has plumetted around 30% in just a few weeks.

A combination of a flat result, going ex div, and the tech armageddon has left Infomedia’s share price in tatters!

What is the outlook?

During 1H21 IFM won the Ford Europe parts contract. IFM says the win was a significant endorsement of the Next Gen platform.

In the medium term, IFM anticipates a return to consistent, sustained growth buoyed by recent strategic wins across all regions and remain committed to an aspirational target of doubling revenue to $200 million by 2025.

This sounds like a tall order to me, but assuming a 50% increase in revenue to $150M would be a huge win for investors.

A consensus of 5 analysts on Simply Wall St estimate over 20% annual earnings growth over the next 3 years, and a DCF value of $2.90. This assumes a revenue of $140M in 2023 - 2024.

Bell Potter has a ‘buy’ on IFM expecting double-digit earnings growth from 2021 to 2023, and has a target price of $1.75.

I value IFM at around $1.80 which means it is trading at a 30% discount to today's share price.