Infomedia (IFM) | Gearing up
Overall: We upgrade our rating from Hold to BUY post the recent institutional capital raising. Valuation looks more appealing and the company now has an important war chest for potential acquisitions.
Equity raise: IFM is raising up to $85m in equity through an institutional placement ($70m, already completed) and a share purchase plan (SPP, up to $15m). The institutional raise was done at $1.50, a 12% discount to the previous closing price of $1.70. The company stated the capital raise is to take advantage of potential acquisition opportunities. IFM believes there may be significant disruption through the COVID-19 crisis to the global automotive industry and that acquisitions are likely to become available at attractive valuations.
Earnings progress in line with our forecasts: IFM is guiding to FY20 revenue of $93-95m and NPAT of $18-19m. This is in line with our recently revised forecasts (published 14 Apr-20). Meanwhile, the company had $15.2m cash on balance sheet at 31 Mar-20 and no debt. Thus, the company will have liquidity of around $83.7m post the institutional placement, and up to a further $15m post the SPP.
Changes to earnings: We downgrade our EPS forecasts by 3%, 13% and 13% over the next three years respectively, to take account of the institutional placement and SPP. Our operational forecasts are largely unchanged. Our valuation and price target decrease from $1.85 to $1.80.
Investment view and valuation: We believe IFM’s valuation looks appealing post the equity raising, and we upgrade our rating from Hold to BUY. On a sum-of-the-parts basis at the current share price ($1.55), we see investors as paying $1.30 for the IFM business plus $0.25 of cash in the bank. For the business, $1.30 equates to a PE ratio of $23.9x, an attractive entry point in our view. Investors should also get the benefit of value creation if the company deploys the cash on EPS-accretive acquisitions in line with its stated aim. More broadly, we continue to believe IFM is a nimble organisation with a strong value proposition to its customers. The firm’s revenue is largely comprised of recurring subscription fees paid by a large base of regular users, which places it well in the current volatile time. We expect technology adoption in the search for productivity and efficiency gains in the automotive sector will likely lead to persistent strong demand for IFM’s products.