Brokers believe that some ASX tech shares are worth a buy by investors.
Not every business has the advantages that technology businesses do – the capital expenditure is relatively low and profit margins can be quite high.
However, valuation is an important factor for brokers, particularly in the shorter-term.
These two ASX tech shares are ones that brokers like:
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Audinate Group Ltd (ASX: AD8)
Audinate is the business behind the digital audio platform called Dante.
A few brokers reckon that Audinate is a buy, including Morgan Stanley – it has a share price target of $10 for Audinate.
The broker thinks that Audinate has improved its position against the competition, which has increased the longer-term potential of the business. The broker believes that FY22 could be a good year of recovery.
In the FY21 half-year result Audinate boasted that its revenue has returned to pre-COVID-19 revenue levels.
Audinate reported that revenue was US$11.1 million for the half, the same as the prior corresponding period. It was an improvement from the second half of FY20's revenue of US$9.3 million.
The ASX tech share's gross margin improved year on year by $0.1 million to US$8.6 million. In the second half of FY20 its gross margin was US$7 million. So there was a material improvement half on half.
Audinate's earnings before interest, tax, depreciation and amortisation (EBITDA) was $1.8 million, slightly down year on year. It made a net loss after tax of A$1.2 million.
Dante enabled products went up 27% to 3,008 – which is a key leading indicator of future growth according to Audinate. The company believes that the pandemic could serve as a catalyst for an acceleration of transition from old analogue cable technology to networked audio and video.
MNF Group Ltd (ASX: MNF)
MNF describes itself as a provider of cloud communications software and services in Australia and New Zealand. It says that its platform enables companies like Zoom, Google and Twilio to launch and scale communication services.
Broker Ord Minnett likes MNF Group and thinks that there will be more customer demand over the next year alongside a global recovery from COVID-19. It also thinks that MNF has growth potential in Asia and a good balance sheet. Ord Minnett has a share price target of $6.08 for MNF Group.
In the FY21 half-year result the ASX tech share reported that recurring revenue improved by 15% to $55.7 million because of growing wholesale revenue. EBITDA increased slightly faster, rising by 16% to $19.6 million.
Underlying net profit (NPAT-A) grew by 30% to $8.4 million. Earnings per share (EPS) went up 62% to 7.83 cents, supporting a 32% increase in the interim dividend to 3.3 cents per share.
MNF Group said that its net revenue retention (NRR) rate across its top 10 customers was 115%.
The company also said that trials have commenced with customers in Singapore, which marks a major milestone in MNF's offshore expansion strategy.
The ASX tech share finished with net cash of $22 million.
The MNF Group CEO, Rene Sugo, said:
Importantly, our expansion into Singapore is progressing well. We have commenced technical trials with three major global customers. These trails are the final step before going live in the Singaporean market which we expect to occur later this financial year. We have taken a measured approach to ensure we are meeting the highest standard of customer service, consistent with our service levels in the Australian and New Zealand markets.
However, Mr Sugo explained that the company isn't completely through this difficult period:
While we have seen sustained positive effects on the business as a result of changing nature of communications, the significant reduction in international travel continues to impact MNF's global roaming business and domestic small business expenditure remains subdued. This offsets the strong gains in our recurring revenue and saw overall group revenue flat. Importantly, we see these as being temporary headwinds and expect revenue growth to recover as international travel resumes and there is improved confidence in the small business sector.
In FY21, MNF Group is expecting EBITDA of between $40 million to $43 million.
