Ord Minnett has rated Atomos Limited (ASX: AMS) shares a buy with a price target of $1.75. Atomos shares are currently trading at $1.41. Atomos is a media device company in the consumer discretionary sector that produces monitor-recorders used in video production.
Headquartered in Melbourne, Atomos was founded in 2010 and listed on the ASX in late 2018, issuing shares at 41 cents apiece. In FY19, the company reported turnover of $53.7 million, $11.5 million ahead of prospectus forecast and $18.1 million up on the previous year. Earnings before interest tax depreciation and amortisation (EBITDA) were $1.78 million, $1.49 million ahead of prospectus forecasts and $1.56 million up on the previous year.
The Atomos product range
Atomos’ monitors transfer images captured by cameras to their hard drive, which the enhances the quality of the video through increased data rates, allowing standard definition cameras to be enhanced into high resolution systems. The monitor can be added to phones, tablets, or video recorders and used to view, play, and edit video.
Atomos’ range covers the gamut of production needs from photography and social content to pro video, television, and cinema content. Atomos has developed strategic relationships with other tech players within the content creation ecosystem including Apple, Adobe, Sony, Canon, Panasonic and Nikon. The technology works with both that of camera manufacturers and post-production software providers, creating a seamless workflow for users.
The addressable market
Atomos is well positioned to take advantage of the exponential global growth in video content creation, a trend driven by social media and YouTube. It was estimated there were over 900 million content creators in 2018, a number that grew 23% annually between 2012 and 2016. Atomos’ focus is on expanding its footprint in the growing Social and Entertainment video content markets and building on its success in the Pro market. The company has experienced significant growth in these markets in the past several years.
In September, Atmos launched its Neon range of products, targeted at the Cinema market, which are expected to drive strong sales growth. Demand for high quality content has grown alongside the growth in streaming services. Netflix, Amazon, and Apple are expected to grow their combined spend on original content from US$5 billion in 2017 to over US$23 billion in 2022.
Atomos will benefit from its strategic relationships with other tech providers in the content creation ecosystem going forward – Atomos is one of just two companies globally licensed to use Apple’s updated recording format, ‘ProRes RAW’. ProRes RAW is one of the most popular codecs in professional post production, strengthening Atomos’ competitive position. Atomos products can also link to the iPhone, allowing users to record and monitor on their phone screen.
Atomos has invested heavily in research and development, spending a total of $7.2 million on R&D in FY19. Ord Minnett is predicting this investment will pay off, forecasting a compound annual growth rate of 22% for revenue between FY19–25, 50% for EBITDA, and 72% for NPAT. The broker predicts Atomos will record NPAT of $3.6 million in FY20, growing to $23.4 million by FY25.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.