Reporting Season Highlights - Imdex, Lovisa, Isentia

Glennon Capital


Last week marked the busiest week of the current reporting season. With most of the smaller companies reporting there was no shortage of stocks to profile. We take a look at three of these businesses, how they have fared during the reporting period and what this means for the businesses going forward.

Imdex (ASX:IMD) is a provider of technology and drilling fluids to the mining industry. The business had been out of favour for a few years, with a sharp contraction in drilling as the resources cycle slowed to a crawl leading the group into debt trouble. The business is now in a net cash position after a capital raising in September, some non-core businesses have been disposed of, and the environment for their products has improved as miners return to drilling. Activity broadened out from gold, was seen across all geographies, and resulted in a 20% increase in the number of tools on hire for the half.

The first half of the current financial year showed 10% revenue growth translating into a 69% improvement in earnings before interest, taxation, depreciation and amortisation. And therein lies the leverage of the business – with a largely fixed cost base even small increases in revenue have a substantial impact on profit. This operating leveraged worked against the business over the past few years and is now starting to provide a significant tailwind into an improving environment.

Lovisa (ASX:LOV), a retailer of fashion jewellery, delivered a strong result. Same store sales were up 12.6% during the half, with revenue rising 21% and EBITDA improving 48%. This time last year was a completely different story: gross margins had taken a hit from the devaluation of the Australian dollar and increased sales activity. Lovisa had been slow to adjust pricing higher and the stock plunged as the result was preannounced. With those prices having been increased, and customers continuing to shop, gross margin has now recovered to about 78%.

Importantly this increase in pricing also drove sales growth in the half, while the number of units sold remained stable. As a result management guided to slower same store sales growth in the second half of the year. Growth in stores from the current 268 is likely to take up the slack however; overseas expansion plans remain robust with an aim to deliver close to 30 new stores this year.

Isentia (ASX:ISD), the media intelligence business, plunged more than 40% during the week as it reported the first half year largely in line with preannounced expectations but gave a lower indication of the second half. Revenue growth was only 5% in the half while EBITDA fell 13%. The content marketing business performed particularly poorly, with revenue falling 11% and losing $2m in EBITDA. The penetration of the company’s social product, which had been growing strongly as recently as mid-2016 also declined in the half.

Guidance for the second half of the year has the ANZ and Asia businesses growing at low digits only for the year; this implied a downgrade to expectations of 16% and a year on year fall of 11%. Churn was called out as an issue. While churn had previously been less than 1% of revenue it increased to 2% (importantly 6% of customers), implying some larger clients had discontinued the company’s products. Competition has also been increasing from new entrant Meltwater.




Glennon Capital holds shares in Imdex for client portfolios. Glennon Capital does not hold shares in Lovisa or Isentia for client portfolios. The information contained in this article is general in nature and does not consider your personal financial situation.  The information is not a recommendation or offer to buy securities.  You are advised to seek professional financial advice prior to making any investment decisions.  The views expressed in this article may change at any time, such is the nature of the investment markets.

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Glennon Capital
Glennon Capital
Fund Manager

Glennon Capital was founded in 2008 by Michael Glennon. Previously, Michael worked with some of the best institutional small company fund managers in Australia. In 2007, he received the IMCA Money Management Fund Manager of the Year (Small Cap)...


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