Audinate Sales Surge In June Quarter

This story features AUDINATE GROUP LIMITED. For more info SHARE ANALYSIS: AD8

Audinate has confirmed its technological dominance of the professional AV industry, beating prospectus forecasts and securing strong operating cash flow in the June quarter.

-Well capitalised to invest in strategic growth initiatives
-Cash receipts increased 34% in the June quarter
-Strongest sales in June quarter since inception
 

By Eva Brocklehurst

Audinate ((AD8)) has beaten prospectus forecasts after a significant June quarter and confirmed its dominance of the professional audio-visual market. Shaw and Partners welcomes the quarterly numbers as the business continues to surpass its "lofty" expectations, which were set in the wake of a robust first half and after a recent site visit.

The audiovisual addressable market is more than $450m annually, according to industry calculations. However, this number excludes post-production equipment and specialist broadcasting, part of Audinate's remit.

The company's fourth quarter is typically its strongest and this reflects OEM partner product launches in line with large industry trade shows. FY18 operating cash flow of over $1m was helped by flows of more than $1.7m in the June quarter.

Shaw and Partners notes operating cash flow was strong despite higher proportionate product manufacturing, operating and advertising costs in the fourth quarter, exceeding its forecast of $200,000.

Canaccord Genuity considers the company well capitalised to invest in a number of strategic growth initiatives, aiding its Dante product in the medium term. Dante incorporates IT into the professional AV industry.

Market Leader

Audinate leads its market with over 80% share of its segment. Canaccord Genuity suggests the company's product is quickly becoming a default standard for system integrators/installers and OEMs.

Gross profit margins are around 75% which illuminate the potential for long-term sustainable EBIT margins of over 35%, the broker asserts. Cash receipts increased 34% in the quarter, its strongest period since inception.

Assuming a fair value EV/EBIT multiple of 14x, the broker calculates the marginal investor is implying $47m in revenue, or three years forward at the company's historical growth trend of over 30% per annum. Canaccord Genuity forecasts FY18 revenue of $19.8m, up 31% on FY17 and 5% above its prior revenue estimates. The broker has a Speculative Buy rating and $4 target.

Shaw and Partners has put its target ($3.40) under review, pending the official results on August 27, and maintains a Buy rating. The main supportive factor is robust cash collection over the year of $19.7m. The broker uses this as a proxy for revenue, amid slight adjustments such as the deferral of software maintenance fees, engineering support and treatment of R&D. The company did not provide details about the operating earnings (EBITDA).

Estimated cash outflow in the first quarter of FY19 is expected in the vicinity of $6.2m as staffing and administration costs rise proportionately. This relates predominantly to the payment of staff bonuses, insurance and ASX listing fees. This is why the first quarter cost base is seasonally high versus other quarters, Shaw and Partners points out.

At the FY18 result, or soon thereafter, the broker notes 33.5m shares and 600,000 unlisted options will be released from escrow.

See also, Audinate Accelerates Digital AV on March 27, 2018.

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