Infomedia Confident Turnaround Is Happening

Small Caps | 11:56 AM

The loss of a major customer, technology delays and macro and forex headwinds have led Infomedia to downgrade guidance, but does this ruin the turnaround story?

-Infomedia has downgraded FY25 guidance
-Loss of major SimplePart contract
-Dealer management system rollout delays, forex and macro headwinds
-Analysts for the most part remain confident

By Greg Peel

Infomedia ((IFM)) is a technology company developing and supplying electronic parts catalogues, service quoting software, and e-commerce solutions for the automotive industry worldwide.

The company has a long history of profitability from its core businesses and has delivered moderate growth, noted Moelis when initiating coverage of the stock a week ago.

Heightened auto market competition (driven by new brands, particularly from China) and a growing fleet of "connected vehicles" should be growth opportunities for Infomedia. Unification of databases and integration of systems will unlock the strategic value of its portfolio, allowing innovation of new products and services.

Infomedia has a strong incumbency supplying electronic parts catalogues (Microcat) and service workflow software (Superservice) globally, noted Moelis. It has long established and broad relationships with car manufacturers (OEMs) and dealerships which earn recurring revenues. From this base, the company is launching into new business opportunities in data analytics and insights (Infodrive) and e-commerce (SimplePart).

Moelis initiated coverage with a Buy rating and $1.88 price target.

Beware the Churn

Infomedia's share price recently peaked over $1.80 in late August post the company's FY24 result. Five years earlier, the stock was trading over $2.00. Analysts agreed, in responding to the FY24 result and FY25 guidance, Infomedia's turnaround story was on track.

Management did nevertheless warn at the FY24 result release it was at risk of losing a major contract for its SimplePart business, but did not include a loss in its FY25 guidance.

This week Infomedia announced it had lost the contract, affecting a -$4m cut in annual recurring revenue (ARR). SimplePart generated $19m in revenue in FY24. Management also revealed the rollout of the integration of the company's dealer management system (DMS) has been delayed due to a cybersecurity incident that prompted Infomedia's partner to embark on a technology upgrade. This effectively pushes out ARR growth as the delay impacts Infomedia's ability to roll out products to dealerships which use that particular DMS, RBC Capital notes.

And management flagged headwinds from foreign exchange and macroeconomic risk.

As a result, FY25 revenue guidance has been downgraded to $142-149m from $144-154m provided in August.

The -$5m reduction of the upper end of the guidance range ($149m from $154m) indicated "fresh news" for Moelis; the company faces a weaker revenue environment than previously guided. Management commentary highlighted "changing macro-economic conditions have contributed to a more conservative view around the ability to mitigate the impact of a customer churn event".

Moelis estimates the outlook for Infodrive accounts for this more conservative guidance, while Infomedia's parts and service subscription revenues are less sensitive to macro-economic conditions.