In Brief: Audinate, BlueScope & Nuix For Gen.Ai

This story features AUDINATE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AD8

Weekly Broker Wrap: The results season continues to throw up the hits, misses and misunderstood. Focus on Audinate, BlueScope Steel and Nuix.

-FY25 a consolidation year for Audinate
-Bottom of the earnings cycle for BlueScope Steel
-Nuix, the best Ai play on the ASX?

By Danielle Ecuyer

Quote of the week from John Authers from Bloomberg, a great read if you haven’t caught up with John’s work.

“Friday, Powell can tie the recent employment and inflation data to the concerns expressed in these minutes. He will be self-congratulatory, note the risks ahead, and assure everyone the Fed will follow the data. No pushback to the market pricing in 100 basis points of ease between now and year-end says that, like a duck on the pond, there is more going on than what they are portraying on the surface.” 

[Steven Blitz of TS Lombard]

Setting the stage for a return to growth

Audinate Group ((AD8)) shocked the market with its August 6 FY25 guidance downgrade, only to pull what looks to be an earnings rabbit out of the hat at the scheduled release of FY24 results.

The 20% rally in the share price might reflect a short squeeze, but on balance the brokers came away from the announcement with an upbeat tune on the audio/video software company.

Ultimately, the FY24 results presented no surprises, with expected flat FY25 guidance outlook discounted in the share price.

The company is cycling a challenging year-on-year comparison in the 1H25 compared to 51% growth a year earlier, because of normalised supply chains.

Canaccord Genuity raises an important question: are the issues which resulted in the FY25 guidance downgrade “structural or cyclical?”

The broker believes it’s the latter, pointing to ongoing strengthening of Audinate’s market positioning and increasing network effects.

UBS concurs, highlighting the underlying business has sustained momentum with its Dante-enabled products, including growth in the cloud-based Dante Director. This is believed to offer additional revenues of $120m-$140m p.a. or 5% of group revenue in FY28, Canaccord believes.

Some “choppiness” in FY25 sales might be recorded for Dante products as customers transition through inventory, Macquarie highlights, with new AVIO adapters boosting growth in 2Q & 3Q25.

Management stated earnings growth will return to a “more predictable pattern in FY26” as the company unwinds inventories. Importantly, Audinate expects it can grow at 2-4x market growth in FY26 and beyond which equates to 12%-24% at the gross profit level, UBS notes.

The transition to software is expected to boost the gross margin to 80% with a longer term 85% target remaining in place.

Having overlooked M&A opportunities in the past, the appointment of a new Chief Strategy Officer, who is ex Pro Medicus, is guiding opportunities with $110m available.

In upgrading earnings forecasts, UBS stresses the momentum in video products, 18 added in the 2H24; ongoing audio ecosystem leadership at 4,176 products, which is 12x more than the nearest competitor.

Other positive metrics include 22% growth in trained professionals and 15% growth in OEM (original equipment manufacturers) shipping of developing Dante products.

Canaccord sees the 1H25 as a trough in earnings for one of the ASX’s top quality small cap companies with Audinate setting the stage for growth re-emerging in the 2H25 and accelerating into FY26. (Buy rated, $12 target price).

Daily monitored broker UBS queries the valuation and downgrades the stock to Neutral from Buy. (Target price $12.20).

Of the other daily monitored brokers, Macquarie has an Outperform ($14.60 target price) and Morgan Stanley an Overweight rating ($10 target price).

Best in class manages the cyclical

BlueScope Steel’s ((BSL)) FY24 results presented a mixed reaction from brokers with Macquarie claiming the company announced better than expected results. Morgan Stanley, on the other end of the spectrum viewed results as a miss on forecasts from both itself and consensus.

The brokers do concur on the lower than anticipated 1H25 guidance from BlueScope with much of the miss emanating from North America, because of an expected -50% decline in the results on 2H24. North Star might come in at around one-third of 2H24 and building & coated products around two-thirds of 2H24.

US spreads remain -14% below late July and -32% below the April highs. Demand is relatively subdued with uncertainty in the lead up to the US election.

The brokers highlight the debottlenecking project at North Star to 300ktpa from 500ktpa at a cost of -US$130m.

Domestically, volumes into the dwelling segment are down -11% year-on-year with management guiding to flat volumes in 1H24 on 2H24. Notably, dwelling approvals have declined -30% from the peak.

On balance, the FNArena daily monitored brokers are looking through the cycle on BlueScope. Dwelling activity has bottomed out in Australia and while a recovery might be slow, there has already been a “meaningful pullback”, Macquarie notes.

In North America, capital expenditure has been rejigged, allowing for a more phased approach. Some 275ktpa at an -US$800m cost are being added instead of around 550ktpa at a cost of -US$1.3bn.

Management surprised with a higher than expected 2H24 dividend and a full year payout of 60c from 50c, alongside an $270m buyback extension over the next year.

Net debt has moved to $400m-$800m due to what Macquarie points to as “increased scale and resilience of the portfolio”.

The FNArena average target price has come down -$1.16 from the FY24 results announcement to $21.10, including Macquarie (Outperform $24); Citi (Buy, $23), UBS (Buy, $23.50) and Morgan Stanley (Underweight $18.50).

Goldman Sachs reiterates its Buy rating and $25.30 target price, stressing BlueScope is one “one of the highest value add steel businesses in the world” because of its strengths in metal coating and painted steel.

At current levels, the valuation is seen as “compelling”. The company retains a strong balance sheet.

Nuix rises from the ashes

The FY24 earnings report will have some investors questioning whether Nuix ((NXL)) has left its travails in the rear vision mirror.

The company reported better than expected annualised contract values of 12% growth against 10% guidance with revenues up 18%. 

Petra Capital sees the beat as a combination of lower churn, upselling and higher Neo sales.

Gross free cashflow of $22.5m was better than forecast for Shaw and Partners, resulting from lower R&D, higher margins and improved working capital.

The Nuix Neo, a “solution-based data intelligence platform” powered by Nuix, came up as the growth lever for the business.

Neo added some 46% of the incremental growth in annualised contract volumes or $12.1m from a FY24 start, generating $4.1m in 1H24. Interestingly, a Neo sale is worth around two to three times a non-Neo sale, Petra points out.

Some 23 out of a total 1000 Nuix customers have adopted Neo, which means it is in the very early adopter phase. Management highlighted the product is particularly attractive to government and enterprise customers.

Shaw and Partners believe with its global reach there is potential to scale it rapidly, possibly turning Nuix into one of the best exposures on the ASX to the Gen.Ai thematic.

The company has an Investor Day in Sydney on September 4 and might be attracting some more interest post these results. 

Shaw and Partners is Buy rated (reiterated, High risk) with an upgraded target price of $5.20 from $3. Petra is not monitored daily, and is Buy rated with a $4.75 target.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms