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Audinate Group: the growth worth listening to

Audinate group

Audinate Group: the growth worth listening to

As we sift through the results from our companies over the first reporting season of the year, we watch with great interest as the market is reminded that company fundamental results still matter. We have seen macroeconomic speculation influencing market returns and share prices significantly over the last 18 months, rather than, in some cases, consideration for the fundamental changes occurring within some companies at a base level.  

We have seen an example of this in the recent results posted by Audinate Group (ASX:AD8), which we would consider a structural grower within our portfolio of the Montgomery Small Companies Fund.  

But before discussing Audinate, it is worth taking a quick trip down memory lane back to the tech wreck of 2000. During this downturn, it was make or break for almost all tech companies; this was when they first plotted the path for not only long-term survival but also how to thrive. Once discovered, the business plan was simple: mange or cut costs, grow revenue, and become profitable and sustainable as quickly as possible.  

If we quickly look at these same businesses again, namely the largest tech stocks in the world in Alphabet Inc. (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and the like, they made the same assessment in 2023 that they made in 2000. That was cut unnecessary spending and grow their earnings as quickly as possible. This particular playbook saw these businesses become some of the best performers on the market over 2023. Their success also paved the way for their smaller counterparts to follow (albeit not quite as quickly as their larger cousins).  

This brings us back to the company in focus in Audinate, if you take a moment to imagine a theatre or a conference hall, any kind of exhibition style of presentation. You quickly think of the flood of cables that often run in all directions to manage the audio and visual presentation or performance you see before you.  

Audinate is a market leader in the development of digital hardware and software solutions that allow their customers to do away with all of the complex and labour-intensive traditional audio & visual equipment. They now implement state of the art digital equipment and software to improve the presentation, management and quality of all video and audio signals. This is now managed by a specialised software platform and computer network.  

Like many technology companies, Audinate has made significant investments in developing and deploying this technology. However, with increasing interest rates and worry around all levels of consumer demand, it was important for Audinate to provide the market with results that reflected not only the economic benefit of their past investment but also cashflow and momentum in their earnings growth as proof they were on their journey to financial success. 

With the recent delivery of the half-yearly results for financial year 2024, Audinate did just that. We saw revenue increase by 51.1 per cent to AU$46.6 million, earnings before interest, tax, depreciation and amortisation (EBITDA) increasing 136.5 per cent to $10.1 million. Furthermore, we saw a 0.6 per cent increase in gross margins, with compounded annual growth of the company’s gross profit increasing by over 24 per cent since 2021.  

These results reinforce our conviction in the stock as a structural grower in our portfolio. We have seen our patience rewarded with the recent performance in the Audinate share price, which is now moving north of $20.  

Finally, and most exciting, audio networking, video networking and software services, Audinate now has a total addressable market (TAM) that is estimated to be a US$2 billion market opportunity. Presently, Audinate is estimated to have only approximately 9 per cent market share. This means the opportunity for growth is still significant, providing solid upside for the company in the medium to long term.    

The Montgomery Small Companies Fund owns shares in Audinate. This blog was prepared 23 February 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Audinate, you should seek financial advice. 

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Michael Gollagher has over 18 years’ experience in financial services with distribution roles spanning investments, platform and advice. He joined Montgomery in June 2019 as an Account Manager to manage the firms relationships with financial planners and research accounts in Queensland. Prior to joining Montgomery, Michael was the Business Development Manager in Queensland at Perpetual Limited for 13 years managing financial planning and dealer group accounts across Queensland.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. Hi Mike, Agreed AD8 has a lot of potential. They are clear leaders in the audio segment with some 90% of the market. However the Audio-Visual market is one where, as far as I can ascertain there is at present no clear leader.
    What evidence do you have to make you so confident AD8 will also become dominant in Audio-visual market?

    • Hi Mic, thank you for the comment.

      Our view is not that AD8 necessarily have to become the dominant player in all sectors they service for their strong growth to continue. They do however need to continue to win market share.

      This is something we think is very achievable in the Audio-Visual market. Particularly with the Dante product suite they are developing, which is being utilised across many segments of that market. Given the quality of the product and its many applications we believe there is still a long runway of market penetration left for AD8.

      Thank you,
      Michael

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