Why brokers are positive on this ASX-listed drilling services provider (it isn’t DDH)

Bell Potter analyst Joseph House is bullish on ASX-listed Imdex (ASX:IMD), and he isn’t alone on Tuesday in voicing support for the stock. 

The research house has ranked Imdex a BUY with a target price of $3.00. 

This reflects a total shareholder return (TSR) of 22.4%, based on a closing price of $2.48.

As at 1220 AEST on Tuesday 14 February 2023, the company’s share price sits at $2.46. 

Company overview

Imdex has two main business arms: 

AMC—a company which provides drilling fluids and equipment to junior explorers 

REFLEX—a company which rents out downhole instruments and recurring subscriptions to geodrilling software products used in exploration 

The company operates globally in the mining technology space and offers its own proprietary products. 

Why is Bell Potter bullish? 

First and foremost, Imdex’s latest 1H23 results reflect a record revenue and earnings (“EBITDA”) result. 

• Revenue was up 18% pcp to $198.8 million. 

• EBITDA was up 22% pcp to $62.8 million. 

Net Profit After Tax (NPAT) clocked in at $22.7 million, but this was actually below Bell Potter’s estimates. 

The broker noted that Imdex has been embroiled in a court case which ultimately led to a one-off cost of nearly $10 million. 

But, with that process now wrapped up, 2H23 earnings are likely to incorporate these missed costs. 

Regardless, this NPAT weakness was not enough to shake the broker’s conviction that the share price still has room to run. 

Positive environment ahead 

Bell Potter analyst Joseph House sees strong commodity prices benefitting Imdex (due to an increase in demand for services as explorers try to seize on higher prices). 

“We remain positive of IMD’s near-term outlook considering recent strength in copper and gold prices, strong client order books and recent encouraging junior and intermediate financings are conducive of stable to improving activity,” House wrote. 

The analyst also sees two key acquisitions allowing Imdex greater footprint into downstream markets, as well as a general rejuvenation of exploration demand. 

“Medium to long term structural exploration themes underpin our earnings and cash flow expectations in FY24-25 and beyond.” 

“The highly complementary and strategic nature of the Devico and Krux Analytics acquisitions should support IMD’s product offering into underpenetrated markets while improving the company’s extension into the larger Mining Production market.”

What about the other brokers? 

A range of brokerage firms provided updates on Imdex on Tuesday. 

Citigroup—BUY—price target of $2.98—TSR of 20.2% 

Macquarie—OUTPERFORM—price target of $2.85—TSR of 17%

IMD's one year charts as at 1315AEST Tuesday 14 February 2023