Just an incredibly poor/left-field FY25 outlook provided by Audinate yesterday, and while FY24 was good, and slightly above expectations, that means very little for a company trading on a growth multiple that is going backwards in FY25. Casting our minds back to the 1H24 results, they reported revenue up 48% and earnings a whopping ~70% ahead of expectations driven by strong sales and better-than-expected margins. They delivered one of the best 1H results of stocks we owned at the time, which propelled shares to new all-time highs ~$23, underpinned by a raft of analyst upgrades – all was going swingingly well, which led us to the following conclusion…We are not planning on taking profit on AD8, even though a 160% paper gain is eye-catching – clearly an error.
- Yesterday, AD8 provided preliminary (unaudited) FY24 results, with earnings before interest, tax, depreciation and amortization (EBITDA) of $A19.5-20.5m, mildly above the $A19.8m expected, but the FY25 outlook was materially below, expecting lower sales and gross profit marginally down YoY as costs increase 7-9%. That implies EBITDA of around ~A$16m in FY25 vs. consensus of A$27.7m, a ~40% downgrade.
While we thought this result could be a tough one given the exit of CFO Rob Goss and some discounting of products in recent months and we had planned to reduce our position ahead of their numbers scheduled for the 19th August, unfortunately, they beat us to it, with the early downgrade far worse than our most bearish thesis.
While we have taken profits on two occasions during our holding period, we entered yesterday’s sell-off with a ~6% portfolio weight, the -36% move detracted a significant ~2% from the Emerging Companies Portfolio overall. Hindsight tells us, the sell-off in the stock post Robs announced departure late in May should have seen us act sooner to reduce our weighting – lesson learnt.
- The damage is now done and we need to decide if AD8 can resume growth in FY26 as they’ve suggested after what they termed a ‘transitional year’ in FY25.
The initial selling yesterday, with the stock opening at $6.55, down 50% shows how disappointed the market was with the announcement, and while it climbed back to $10 at one point, with the information we had to hand yesterday, the eventual decline felt about right.
- We need more information about the drivers of this significant change before making a definitive move on the stock.
- UBS this morning cut their price target from $22.80 to $10.90 – retained buy, however, that is a meaningful change in forecasts.
MM is now neutral AD8, holding our current position in the Emerging Companies Portfolio
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