Amino Technologies: Disrupting a disrupted landscape

Amino Technologies (LON:AMO) is an innovative global provider of modern, scalable media and entertainment technology solutions. With an award-winning IP/cloud video solutions and deep deployment expertise, the company believes it has the competitive advantages necessary to become the designer and deliverer of choice for modern TV experiences. 

Furthermore, over 20 years’ experience and a presence in over 100 countries and working with over 250 operators, Amino has the knowledge base as well as the global network and scale necessary to achieve its vision of driving the all-IP/cloud future of media and entertainment. The company strategy is to provide software solutions from their wider portfolio to drive recurring revenue growth.

While the company’s growth goals are ambitious, 2018 saw revenue and earnings fall substantially as second half orders came in significantly lower than originally expected. Revenue declined 7% year-over-year and adjusted basic earnings per share fell 30% year-over-year. 

This came as a result of a very negative macroeconomic environment in which supply costs are elevated and operators are facing pressure from rising content costs and cord cutting. These conditions are expected to persist through 2019. Additionally, several emerging market economies suffered from instability, combining with the trade tariffs in the US to generate disappointing demand for the company’s products and services.

That being said, the company’s debt free and strong cash position enabled management to raise its dividend by 10% during 2018 (their seventh consecutive year of dividend raises), reflecting their more optimistic long-term outlook. 

Management is driving more resilient long term earnings growth by jettisoning lower margin commoditised hardware products in order to focus more effectively on higher-margin and more resilient software and services businesses through both organic and acquisition efforts. 

Furthermore, an aggressive cost savings program will try to create sustainable annual savings from overhead. This transformation of the business should eventually restore it growth as the software and service businesses saw 19% growth and annual recurring revenues from the SaaS Engage platform grew by 36% in 2018. 

In the short term (the next 1-2 years), revenues will very likely continue to decline. However, in the midterm, growth will return if management can successfully execute on opportunities in industry disruption: multi-screen deployments, Cable to Android migrations, North America device demand (Linux, Android and Cable), and upcycling projects. Longer term, Amino plans to drive growth through the IP/Cloud TV Everywhere, Operator Ready Android TV, and Upcycling legacy devices. 

Conclusion: Trading at a P/E of 9.9 and hovering at levels not seen since 2014, Amino Technologies is clearly very cheap. However, it is cheap for a reason: the business is expecting sharply declining revenues and earnings over the next year at least, if not longer as the industry as a whole suffers from disruption. Therefore, it is probably prudent to hold off on purchasing shares until further signs of stabilisation emerge and management proves that its turnaround plans are yielding tangible results to the bottom line.