Infomedia surges on back of result and guidance

By Trevor Hoey. Published at Aug 15, 2018, in Special Reports

Name: Infomedia Ltd (ASX:IFM)

Market Capitalisation: $308 million

Opening Share Price: $1.05

Shares in Infomedia rallied 15% on Wednesday morning after the company informed the market that it had achieved a net profit of $12.9 million from revenues of $72.9 million.

Earnings per share of 4.16 cents were broadly in line with consensus forecasts.

The company declared a final dividend of 1.7 cents, bringing the full year dividend to 3.1 cents, also in line with projections.

Infomedia is a leader in providing parts and service software to the global automotive industry.

The company is a technology services developer and supplier of electronic parts catalogues and service systems.

Infomedia also provides information management and analysis for the Australian automotive and oil industries.

Presence in 186 countries

The company has led innovation in service infrastructure within global automotive distribution networks for more than 25 years and continues to expand its reach within the three regions in which it operates - Asia-Pacific, the Americas and EMEA (Europe, the Middle East and Africa).

These incorporate 186 countries where it services best of breed automotive manufacturers such as Bentley, Aston Martin, Audi, BMW, Ferrari and Chevrolet.

The company’s clients also include traditional manufacturers such as Ford, General Motors, Chrysler and Fiat.

This diversification by geography and client base, along with the long-term contracts and associated recurring revenues provide the company with earnings visibility.

Although, as with all stocks, it does remain speculative, so seek professional financial advice if considering this stock for your portfolio.

Substantial increase in 2019 earnings

With the fiscal 2018 result broadly in line with expectations, it would appear that management’s fiscal 2019 guidance has largely contributed to the strong share price rally.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Infomedia continues to report cash EBITDA as a key performance measure to identify the cash impact of investing in development costs that are capitalised in reported net profit after tax.

Consequently, in crunching the numbers for both this year and fiscal 2019 this should be the key area of focus.

As previously flagged by management, investing for long term growth impacted cash EBITDA in fiscal 2018 with the company reporting $10.5 million compared to $11.7 million in the prior year.

Investment uplift related to the pre-revenue development for parts and service contracts secured in the previous financial year.

Infomedia anticipates a substantial increase in cash EBITDA in fiscal 2019 through strong top-line growth and disciplined cost management.

Strong balance sheet accommodates further investment

Infomedia’s financial position remains robust as it is debt free with cash and cash equivalents closing at $13.3 million, reflecting the strong cash generation that is characteristic of the business.

Confidence in fiscal 2019 is underpinned by an increase in recurring revenue from contracts won in prior periods and disciplined cost management.

The company is exploring acquisitions that are close to its core business and value adding.

It intends to pursue opportunities that provide an entry into new markets, access to new customers or provide innovation to its existing parts and service software solutions.

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