Intellegam Acquisition And Infodrive CX Rebuild Will Expand Global Opportunities

Key Takeaways

• Acquisition of Intellegam offers cross-selling opportunities and enhances existing products, promising long-term growth in revenue and earnings.
  
• Global scaling of Infodrive CX and focus on sales productivity in key regions expected to drive future growth and revenue enhancement.
  
• Customer churn, cyber incidents, and industry disruptions pose risks to revenue growth, while tax changes and reliance on external events may impact margins and earnings.

Catalysts

A technology company, develops and supplies electronic parts catalogues, service quoting software, and e-commerce solutions for the automotive industry worldwide.

• The acquisition of Intellegam, a European-based generative AI startup, offers cross-selling opportunities with existing Infomedia customers and the potential to enhance existing products, providing long-term growth in revenue and earnings.
  
• The ongoing rebuild of the Infodrive CX tech stack aims to create a globally scalable product, expected to drive future growth in revenue once the rebuild is complete and sales performance accelerates.
  
• Strengthening regional sales capabilities in EMEA and Americas with newly appointed sales leaders is predicted to improve sales productivity and drive further revenue growth in these key regions.
  
• The global rollout of the customer success program focused on customer retention, especially in the Americas with SimplePart clients, is anticipated to enhance customer relationships and reduce churn, positively impacting net margins.
  
• The strategic focus on expanding into new market segments and global expansion of existing products is expected to increase revenue by leveraging improved enterprise systems and partnerships with third parties for Infodrive Analytics.

Infomedia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Infomedia's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 19.0% in 3 years time.
• Analysts expect earnings to reach A$33.8 million (and earnings per share of A$0.09) by about April 2028, up from A$15.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.1x on those 2028 earnings, down from 30.8x today. This future PE is lower than the current PE for the AU Software industry at 61.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Infomedia Future Earnings Per Share Growth

Risks

• The SimplePart customer churn with an annual revenue impact of approximately $4 million and ongoing delays in DMS integration due to a cyber incident could affect future revenue and customer retention growth.
  
• With a stable dividend and buyback program, future capital allocation for organic investments and potential M&A might be restricted, impacting long-term revenue growth and cost management.
  
• Increased tax rates in the U.K. and decreased R&D tax credits in Australia could increase effective tax rates and reduce net margins and earnings.
  
• The automotive industry disruption, including potential changes in tariffs and taxes, might delay new contract signings and influence OEMs' IT investment priorities, impacting revenue growth potential.
  
• Continuing dependence on external events, such as delayed DMS integration, affects growth potential in the Americas, which could slow revenue growth in a key market area.

Valuation

• The analysts have a consensus price target of A$1.805 for Infomedia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.1, and the most bearish reporting a price target of just A$1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$177.7 million, earnings will come to A$33.8 million, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of A$1.3, the analyst price target of A$1.81 is 28.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.