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Treasure Chest: Imdex Unrivalled

Treasure Chest | Sep 09 2019

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Imdex has an unrivalled position in mining instrumentation and Bell Potter initiates coverage on the stock.

-Leveraged to growth in global expenditure on mining, particularly gold
-New products have potential to materially increase returns
-Higher stock multiples can be expected

 

By Eva Brocklehurst

Imdex ((IMD)), which provides instrumentation for mining, has an unrivalled range of products, and benefits from a network of customers which integrate with its platform of proprietary applications. Hence, the company is well-positioned to realise the benefits of its R&D, currently commercialising a new product and with two others on track to be launched soon.

Bell Potter believes these three products have capacity to generate material growth in revenue, initiating coverage on the stock with a Buy rating and $1.60 target. Any certainty surrounding earnings from the new technology would result in material upgrades to the broker's estimates from FY21.

The view is supported by increasing gold exploration and supply deficits in copper as well as expanding market share and margins. The broker also suggests the company's patents and intellectual property act as a barrier to entry.

While Imdex is leveraged to growth in global exploration expenditure, Bell Potter also notes that future resource discoveries will be deeper and require more advanced systems, providing further support to the business. The business is at a significant inflection point, the broker asserts, as the current price of the stock only values existing growth and there is a free option on new technology.

The success of the CoreVIBE instrument alone has potential to materially increase returns and dividends in the near term. The company provided no specific guidance at its FY19 results in August, although noted its first CoreVIBE units went on rent in the first quarter of FY20.

Moreover, a successful commercialisation of the multi-sensor Last Dog in the second half of FY20 would represent significant diversification in the production cycle, which Bell Potter notes would address a market that is much larger and less variable than exploration alone.

UBS found the outlook in the FY19 results positive and agrees the favourable gold price will support junior mining activity and, in turn, Imdex. The broker considers the stock price undemanding and retains a Buy rating and $1.55 target.

The company is in transition, to reflect mining technology rather than just mining services, and Canaccord Genuity agrees this should attract higher multiples, particularly with early signs of a recovery in small-mid cap gold mining activity.

Margin outperformance made up for a revenue result that was below expectations in the second half and further margin upside should be forthcoming as the mining cycle continues to improve. Given this, Canaccord Genuity has a Buy rating and $1.35 target.

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