Audinate Group ((AD8)) has fired up expectations for FY22, with underlying growth in its audiovisual products (AV) back at historical levels and the order backlog tracking at record highs.
Shaw and Partners notes the professional AV tide is turning in the company’s favour amid increasingly positive commentary that points to confidence in the global AV space and a recovery in 2022.
The most notable is the turnaround in live sound/events which means an earnings inflection point has likely emerged for the business. Moreover, Audinate continues to extend its lead over competing offerings. The broker cites independent research into the professional AV market, industry surveys and discussions with a major system integrator that all suggest sentiment is improving.
The company has guided for FY21 revenue of US$25m, implying fourth quarter revenue of US$6.9m which appears almost flat compared with the prior quarter. Revenue is expected to return to growth in historical percentages i.e. 26-31%.
This is consistent with market expectations in FY22, UBS observes, noting over the last year the importance of a solid digital AV offering has been strengthened.
Morgan Stanley considers Audinate a key stock heading into the August results, with the latest guidance underscoring its view and, while supply issues may be a concern, ultimately demand is the key driver of the business.
Furthermore, that demand is improving as Shaw notes the US, a key market, has been lagging, given the extent and duration of the pandemic, but the quicker-than-expected roll-out of vaccines has meant it is now on the upturn.
Obstacles
The sourcing of silicon chips remains the greatest obstacle. If original equipment manufacturers (OEMs) have shortages of other chips required within their products it will impact on Audinate’s sales.
There has been a record backlog of committed sales orders as ordering patterns from OEMs have changed since the pandemic, with increased lead times for components and chip manufacturers requesting up to 12 months visibility.
The company has indicated a global supply of chips and electronic components remains uncertain. This is the point on which Morgan Stanley would like further clarity, such as the extent to which OEMs are struggling to obtain components along the implications on underlying demand.
Shaw agrees the struggle to procure critical components could have a negative impact and constrain revenue growth, but highlights this as one reason why Audinate set up an alternative supply/manufacturing hub in Malaysia.
To date, the company has managed fulfillments and has sustained minimal, albeit not zero, impact on orders from the shortages, despite some downtime in Malaysia. Another milestone, the broker highlights, is the recent commercial release of both Bolin and Patton Dante AV-enabled video over IP cameras, encoders and decoders.
The prices are lower yet have higher specifications compared with competitive offerings that are already in the market. Recent product launches are a major positive UBS concedes but would like the product range to be broadened further.
The stock continues to be a key picks in the small cap space for Shaw. Over the longer term the broker describes the stock as a “ripper of a story” with a clear earnings trajectory and technology that is the default global standard.
The main risk is any macro downturn in the AV space, exacerbated by the prolonged pandemic. On the other hand, the company is well capitalised post the 2020 capital raising and has gross margins of 77%.
Shaw And Partners, not one of the seven stockbrokers monitored daily on the FNArena database, has a Buy rating with a $12 target. There are three Buy ratings on the database with a consensus target of $10.33 that suggests 6.0% upside to the last share price.
