Following a fourth quarter trading update from
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-Trading update shows strong demand and manageable chip supply
-FY22 revenue guidance beats the consensus forecast
-Supply constraints may linger and labour inflation may weigh
-Earnings visibility improved by revenue backlog
Shares of audio-visual company
Apart from the general downdraft for technology shares caused by the prospect of rising interest rates, concerns largely centred on supply-chain pressures and chip availability.
Since those May lows, shares have resumed an upward trend, further boosted by a fourth quarter trading update this week that revealed supply constraints remain at manageable levels and strong demand has continued into the fourth quarter.
This update follows another in late April, which showed strong trading conditions during March and April, following replenishments of chip supplies in March. At the time, Morgan Stanley became more confident that revenue was reaching a nadir, due to improvements in both the supply of chips and the product mix.
Now,
The group develops and sells digital audio visual (AV) networking solutions to end users that include universities, corporates, convention centres, theatres, stadiums, theme parks and recording studios. The company also supplies original equipment manufacturers (OEM) such as Bose, Yamaha, Shure and Sony, who on-sell Pro-AV products (speakers, amplifiers and mixers) to system integrators.
Importantly, as the structural shift to networked AV unfolds, network effects are becoming more relevant, and it becomes harder for users and OEMs to adopt alternatives.
As part of the trading update,
Canaccord attributes the better-than-expected trading update to elevated product demand, price rises in March (up 25% for
Providing a note of caution, Buy-rated
Revenue backlog
Revenue visibility has improved for
The backlog highlights that with no new sales, the company's revenue run-rate stands at more than
Product investor day
A shift in revenue mix to more software sales over hardware sales, and ongoing investment in new products and features to enhance the company's Dante ecosystem, were key takeaways for Canaccord from last week's technology day held by
Software sales now account for 25% of group revenue, up from 16% in FY19, and are growing at a 50% five-year compound annual growth rate (CAGR). This has resulted from new releases of software/cloud products (
The benefits of Dante and networked audio have been conveyed via the training of around 15,000 industry personnel by
The outlook
There appears to be no problem with product demand, observes Canaccord, and supply issues being experienced will inevitably abate. Meanwhile, there's expected to be a material step-up in revenues as the company's
Finally, Shaw likes the entrenchment of Dante as the global default standard in AV and believes the company will be a major reopening beneficiary following the covid downturn. In terms of long-term rewards, the analyst concludes
Two FNArena database brokers cover the stock and each have Buy (or equivalent) ratings for a consensus target price of
For those brokers that are not updated daily in the FNArena database,
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