Shares in self-styled “technology provider for modern TV experiences” Amino Technologies (AMO) were above 200p as recently as early October, when they were then hit by a warning of “an intensification of external macroeconomic headwinds”, including “higher than expected component price increases”. However, consumers wanting to enjoy content at the time and location of their choice has remained a clear trend and there has since also been a “transformation programme”. This is actually a stock we tipped in 2014, on which we banked big gains at 141p in 2015. Now back comfortably below this, we ride again…
Operations: The company emphasises “we have a powerful portfolio of products to deliver our smart and cost-effective solutions”;
Management Incentive: The CEO remains Donald McGarva – who, with a variety of senior management experience from Fujitsu, BG Group, Celestica and DHL, joined the company as a non-executive director in April 2010, becoming COO in September of that year and CEO in December 2011. His remuneration last year totalled $515,565, including $399,069 salary and $69,744 bonus, and he has 544,698 shares in the company. COO & CFO Mark Carlisle has significant experience, including prior to joining Amino in 2016 being CFO at Crossrider plc. His remuneration last year totalled $346,240, including $286,692 salary and $27,898 bonus and he has 8,751 shares in the company.
Recent Financials: July 9th-announced results for the company’s half year ended 31st May 2019 showed a 16% revenue decline on the corresponding prior year period, to $34.6 million. The company noted “lower AminoTV professional services for our largest customer as part of the natural cycle of a shift to project maintenance after implementation” and particularly “device revenue declined as expected as a result of the focus on higher margin accounts”. That with the transformation programme focused on increasing focus on higher margin opportunities and reducing costs. This delivered underlying gross margin up from 42% to 45%, adjusted pre-tax profit of $4.7 million and adjusted earnings per share up 16% to $0.0603. After particularly $5.3 million of dividends paid, cash (net) was $1 million lower – though still $19.3 million, with total net current assets also $1 million lower to $18.6 million and non-current liabilities $0.2 million better at $2.3 million. The announcement added “in line with the group's stated dividend policy of maintaining the dividend for at least this and the next financial year, the board has recommended an interim dividend of 1.68 sterling pence per share, in line with the prior year… This will be payable on 2 September… ex-dividend date is 8 August”. Subsequently the company has also announced an up to €21.4 million and initial €19.3 million (including €3.3 million in shares) acquisition – this of 87% of “24i Media, an online video specialist, providing Apps as well as user experience solutions and services”. It was founded in 2009 and is an Amsterdam-headquartered, currently privately held, company with 140 employees and it’s emphasised it “has an award-winning technology framework and portfolio of products and services that power the digital experiences of leading entertainment brands around the world… is highly complementary to Amino's three long-term growth drivers - IP / Cloud TV Everywhere, Operator Ready Android TV and Upcycling legacy devices to next generation TV experiences”. Whilst actually slightly loss-making in 2018, continuing double-digit revenue growth is expected and it is expected to be earnings accretive in the first full year of ownership.
Risks: There were risks here made clear by the noted October profit warning and the recent half-year results noted, for example, components “dependent on external market forces… Huawei… discussions between the US and China… may disrupt discrete elements of our supply chain… we continue to seek complementary acquisition opportunities to improve our product portfolio”. However, also “we are starting to see pricing and supply constraint pressures on key components easing” and, on the Huawei situation, “whilst we do not expect this to have a material impact on our performance, we have taken mitigating steps by dual-sourcing key components to offer our customers alternative solutions. Feedback from customers on our alternative solutions has been positive”.
Valuation: The half-year results statement included on outlook; “a strong order book, backlog and pipeline coverage alongside a clear set of propositions for our strategic markets. Whilst we expect challenging market conditions to continue into the second half of the year, Amino's strategic and operational progress supports the board's confidence of delivering full year performance in line with its previous expectations”. House broker finnCap continues to look for a full-year pre-tax profit in excess of $10 million, generating earnings per share of $0.128 and seeing a maintained dividend per share of 7.3p, rising to $11 million and $0.137 on higher revenue and with the dividend maintained next year. With a current 128p offer price (equating to circa $1.61), that suggests a price/earnings multiple of 12.6x, falling to sub 12x and a dividend yield of 5.7%. We consider the outlook means a 4% dividend yield seems reasonable – and a 180p share price would mean a p/e for a year now only a few months away of circa 16.5x. That too looks reasonable and thus at up to 138p the shares are a Recovery Buy.
Filed under: Amino Technologies, Jim Mellon, Woodford, i-nexus, Hammerson, Jonathan Price
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