Most undervalued growth stock, page-2

Like many AMS shareholders, I have been enjoying the recent rapid share price recovery, while having a battle between my gut feeling that it is worth a lot more, and that constant temptation in my head to take some profits. So, over the weekend I did some detailed financial analysis, which I am happy to share below for those interested (includes all my assumptions including for cost growth). For those who don’t need to look at the detail, my conclusion from this analysis is:

• Even using a very conservative growth estimate of 10% for FY22 (on the H2 FY21 monthly sales rate) and 15% for FY23, my analysis shows NPAT growing from $4.2M to $10.8M. This is entirely due to the leverage this business has through its low growing cost structure (details in my spreadsheet below). Note that AMS has considerable tax losses to partly offset future tax liabilities over the next few years.

For those readers who are skeptical of my growth assumptions, please consider the following:

• Atamos grew revenue at CAGR of 30.2% pa over the last 3 years;
• The core Pro Video market is growing at around 70% pa
• AMS has a strong pipeline of new products, new markets & new software, which should increase growth from FY23
• The current weakness in the AUD should reverse the revenue headwind experienced in FY21, as sales in North America and Europe exceed that in Australia.
• There may be a small impact in the relatively smaller Australian market due to current lockdowns, hence my lower growth assumption for FY22

What are the share price implications if FY22 NPAT does reach $10M? At this level, AMS is already very profitable with approx 15% ROIC. P/E at current price would be around 32, IMO very low for a company with AMS’s growth profile, expanding markets, and moat from its intellectual property and partnerships. I think it is very capable of becoming another aussie unicorn with >$1B market cap within a couple of years. It is currently at one-third of this.

It is also worth investors considering the upside from my analysis. What happens to profit growth if AMS can do better than my conservative growth estimates, more in line with historical growth of 30%, or even higher market growth?

Now for the detail:

	FY19	FY20	FY21	FY22E	FY23E
REVENUE	53.7	44.4	78.6	100.8	115.9
Cost of Goods Sold	29.9	26.8	41.2	52.0	59.0
Gross Profit	23.8	17.6	37.4	48.8	56.9
GM %	44.3%	39.6%	47.6%	48.4%	49.1%
Variable Opex		3.5	5.8	7.4	8.6
Fixed Costs		17.7	18.4	19.4	20.4
Operating Expenses	18.3	21.2	24.2	26.8	29.0
EBITDA before R&D	5.5	-3.6	13.2	22.0	27.9
R&D	4.1	3.8	5.0	6.0	7.0
R&D % of Revenue	7.6%	8.6%	6.4%	6.0%	6.0%
EBITDA	1.4	-7.4	8.2	16.0	20.9
EBITDA Margin	2.6%	-16.7%	10.4%	15.8%	18.0%
D&A	1.5	3.8	3.2	4.0	4.5
EBIT	-0.1	-11.2	5.0	12.0	16.4
Finance Costs	1.4	0.4	0.2	0.3	0.3
PBT	-1.5	-11.6	4.8	11.7	16.1
Tax	0.8	0.8	0.5	0.8	1.0
NPAT	-2.4	-12.3	4.2	10.9	15.1
Scenario 1 Assumptions:	Revenue in FY22 grows 10% on (2x the revenue in H2 FY21)
	Revenue in FY23 grows 15% on FY22
	Gross Margin only improves by 7 - 8 basis points each year
	R&D stabilises at 6% of Revenue
	Variable Opex grows in proportion to revenue growth
	Fixed costs grow at around 5%, just a bit more than inflation