Infomedia (IFM) Delivers Another Strong Result – Is It Time To Buy?

The Infomedia Limited (ASX: IFM) share price was up close to 6% in early trade this morning after the company released impressive FY19 results, lifting profit by 25% and providing a positive outlook for growth.

Infomedia is a leading provider of SaaS solutions to the parts and service sector of the automotive industry. The company was founded in 1987 and has its headquarters in Sydney.

What Did Infomedia Report?

The company announced a 25% increase in net profit after tax (NPAT) to $16.1 million. The strong profit result was driven by a 16% increase in revenues to $84.6 million.

Infomedia carries no debt on its balance sheet and is able to generate strong cash flows, with the company reporting that EBITDA, on a cash basis, was up 82% to $19.1 million.

The strong performance was attributed to sound investments made in previous years along with tight cost controls implemented by management.

The company declared an unfranked final dividend of 2.15 cents per share, bringing the full year dividend to 3.9 cents.

Management Comments

Commenting on today’s result, CEO Jonathan Rubinsztein said, “Our performance during the year reflects the growing importance of parts and service after sales to the global automotive industry. Our investment to date has contributed to an increase in scale and improved margins.”

He added, “We will continue to invest to capitalise on the emerging opportunities that will arise from significant disruption. We are investing to differentiate Infomedia to be the leading software solution provider to the parts and service sectors of the global automotive industry.”

High Quality But Expensive

The company gave very positive guidance saying they expect to deliver double-digit growth in both revenue and profit in FY20.

Infomedia is a high quality, well managed company that consistently produces a high return on equity. However, after today’s result it is trading on a PE ratio of 38 and a dividend yield of just 2%. If we factor in 20% profit growth for FY20, the forward looking PE ratio falls to a more palatable 32.

Would I Buy Infomedia Shares?

I previously owned Infomedia shares but sold out for a handsome profit after the company released its first half results in February. Despite a great set of results and a positive outlook for growth, I found it hard to stretch my valuation to meet the then current share price of $1.50. Since then, the company is up nearly 25% and I have missed the gains.

So, here we are again. Another great set of results and expectations of continuing strong growth. Once again, I am making the claim that I think the current share price is overvalued.

It will give me great pleasure if the share price has a significant pullback, not because I would be right, but because I could potentially buy back in to this wonderful company.

At the time of publishing, Luke has no financial interest in any companies mentioned.

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