One fund manager sees blue skies for a particular small-cap ASX share, saying it potentially has an “unregulated monopoly” in its sector.
Medallion Financial Group managing director Michael Wayne told the Switzer Investor Strategy Day that he’s very bullish on the long-term prospects of Audinate Group Ltd (ASX: AD8).
Audinate is a maker of digital networking protocol software for audio distribution. Its flagship product is called Dante, and it allows big stadium and arena events to replace numerous cables with a digital signal.
Wayne said the company’s fortunes nosedived during the COVID-19 downturn last year.
“They’ve been doing it tough. There’s been less outdoor concerts, less sporting events.”
But Wayne reckons the depression is temporary as Audinate pretty much has the industry to itself.
“This particular business is being adopted 17 times quicker than the nearest competitor,” he said.
“Every new electronic item that’s being produced — 70% of those new items — include this Dante protocol.”
Audinate’s Dante can become an ‘unregulated monopoly’
The rapid unrivalled adoption of Audinate’s technology drew parallels to another familiar protocol that we’re all now familiar with.
“You can liken it to Bluetooth, if you like. Except Bluetooth isn’t as good a technology and it’s owned by a cooperative,” said Wayne.
“In many ways, we believe this Dante product by Audinate has the potential to be an unregulated monopoly.”
Only 2 weeks ago, Audinate reported its highest-ever quarterly revenue, suggesting the recovery out of the pandemic is well on its way.
Audinate chief executive Aidan Williams, however, did warn of some short-term headwinds.
“We are closely watching global supply chains for potential negative impacts on both our customers and Audinate, which may constrain our near-term revenue and growth,” he said at the time.
“Along with our manufacturing and OEM partners, we are working to mitigate supply chain challenges and expect this near-term uncertainty to resolve itself as calendar year 2021 progresses.”
Audinate shares ended Monday 1.36% down, to close the day at $7.98. It is down from the start of the year when it went for $8.28, but only after a spectacular recovery out of the coronavirus low of $3.13.
Morgan Stanley rates the stock as “overweight” with a price target of $10.
Dante was first developed in the 2000s with a grant from the National Information and Communications Technology of Australia (NICTA). The team was spun-off into its own company in 2006, then listed on the ASX in 2017.
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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia has recommended AUDINATEGL FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.