The company that proves you can still find value in the market
These days, I hear many commentators say it's hard to find value in the market. But if you look hard enough, it's still possible to find a gem.
One of these is IMDEX (IMD), a global mining-tech company. With a strong management team, an attractive product suite, high returns, and a net cash position, IMDEX could be set for a significant step-up in earnings growth.
At the Montgomery Small Companies Fund, we believe IMDEX is now at an important inflection point in its life cycle with an exciting pipeline of new technologies progressively being commercialised representing an opportunity for transformational growth and material value creation.
Based on our assessment, the share price ascribes very little value towards these new products and we like free options, especially when the odds of success appear favourable.
Founded in 1980 and listed on the ASX in 1987, IMDEX has established a dominant market position within its niche industry segment.
We believe the company has a strong and sustainable competitive advantage, underpinned by its technical leadership and strong customer value proposition. IMDEX's leading-edge technologies essentially help clients drill faster and smarter, increasing productivity rates and lowering operating costs.
IMDEX's technical leadership is reflective of its continued investment in research and development and targeted acquisition strategy. The portfolio of patents and intellectual property also act as a firm barrier to any new entrants, further reinforcing IMDEX's competitive positioning.
IMDEX has an attractive business model being relatively capital light and generating high returns. Group gross profit margins are a healthy 65% and the business scales well when demand grows on the largely fixed operating cost base - EBITDA margins are around 22% at present.
With broker estimates currently forecasting just 6-9% annual revenue growth over the next three years, and the core business likely growing mid-single digits, we think the market is attributing little value towards the new technologies.
We rate management and back them to execute on the growth strategy. Trading on 7.5x FY21 EBITDA with a net cash balance sheet and material upside to market expectations, we see value on the table and have invested.