Imdex up 8% after CEO consolidates share holding

Imdex (ASX: IMD) has added to yesterday’s gains, with the mining services and technology provider up 7% in early afternoon trade after advising the market that CEO Paul House had bought another 80,000 shares, taking his holding to 374,664 or nearly $817,000 worth.

The share price has been bouncing higher since mid-August when the mid-cap company released its full-year results, together with news of a new deal with iron ore giant Fortescue Metals (ASX: FMG).

Three-year agreement

Imdex expects a three-year agreement, to deploy its mining-support technology Blast Dog at Fortescue’s JV Iron Bride, to generate $13m over its initial term.

To the uninitiated, Blast Dog is a blast hole sensing and physicals measurement technology, which can be semi-autonomously deployed to log material properties and blast hole characteristics.

CEO Paul House alluded to the technology’s sustainable first move advantage; noting that to his knowledge, no other technology has the capacity to produce the same quantity and quality of pre-blast rock data and provide as large an impact on downstream processes.

What happened at the full year?

Despite challenging labour and supply chain considerations, positive market demand helped drive Imdex to record revenue, record earnings and continued earnings (EBITDA) margin expansion for full year FY22.

While activity was particularly strong in North America and Australia across all aspects of the business, the company reported earnings (EBITDA) of $104.9m, up 38.9%, on revenue of $341.8m, up 29.3% on the previous year.

Management attributed a strong uplift in earnings to an increase in integrated solutions to customers and the increasing percentage of revenue coming from the company’s higher-margin sensors and software business.

In addition to expanding further into mining production through the Blast Dog project, during the year the company also completed investments in DataCloud’s MINEPORTAl software and Datarock.

Other highlights at the full year included:

• Net profit after tax (NPAT) of $44.7m – up 41%

• Earnings per share (EPS) came to 11.3 cents – a 41.3% lift on that of the previous period

• Announced a 1.9 cent fully-franked final dividend – up 42%

• Strong balance sheet with a net cash position of $24.2m

• ROE of 16.2% and ROCE of 19.3%, up from 13.3% and 15.5% respectively

Outlook

Imdex provided no specific FY23 guidance.

For the balance of FY23 the company is committed to maintaining the strength of its core business, accelerating its extension into mining production, and executing Digital 2.0.

The company’s four growth drivers include:

• Technology Leadership – investing in targeted R&D to maintain technology leadership

• Extension into Mining Production – leveraging its core capabilities within the mining production market

• Integrated Solutions – designing tailored product solutions for the optimal determination of orebody knowledge for clients

• On-Strategy Acquisitions – acquiring technologies and software to build on geoscience analytics, AI and computer visualisation capabilities

Index share price over 12 months.

What brokers think

The Imdex share price is down -6% over one year but has been trading higher since hitting a year-to-date low of $1.67 early June.

Consensus on Imdex is Moderate Buy.

Based on Morningstar’s fair value of $3.07 the stock appears to be undervalued.

Based on the two brokers that cover Imdex (as reported on by FN Arena) the stock is currently trading with 11.9% upside to the target price of $2.45.

While UBS notes the company's leverage to the mineral exploration cycle, the broker believes the stock looks expensive and retains a Neutral rating. Target price falls to $2.20 from $3.10. (17/08/22).

Now representing 47% of the group's total revenues, Macquarie notes the American operations were the outperformers, with revenues up 39%.

The broker retains an Outperform rating and the target price is $2.70. (17/08/22).

After investing around $100m in R&D over the past five years, Longwave Capital Partners expects in the short-term to see an improvement in the company’s mining technology as a percentage of their revenue – leading to an expansion in earnings (EBITDA) margins. 

“… strategically longer term it’ll also potentially expand their market size by four times – doubling from existing into new exploration, and then from exploration into production,” the fund manager noted.