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Local Markets

Australian equities finished flat on Tuesday with the ASX200 edging 3pts higher as the market struggled to find direction for most of the day. Losses in the financial and energy sectors were offset by gains in materials and utilities.

The gold price firmed after hitting a two week low which saw the gold index climb by 1.6%. Saracen Minerals (SAR) was the notable outperformer, rising by 10% after the market reacted positively to its quarterly report which saw production hitting a record of 80,274oz and all-in sustaining costs fell by 11% to $1,008oz. SAR has maintained its full-year production guidance of around 300,000oz and costs of $1,150oz. Northern Star (NST) followed SAR's lead, trading 5.9% higher and Northern Star (NST) rose by 3.6%.

International Markets


U.S. markets finished higher on Tuesday with the Dow notching another record after both Caterpillar and 3M produced strong earnings results. Investors also have one eye on Friday's U.S. third-quarter GDP release and President Trump's likely appointment of a new Federal Reserve boss, expected within the week.

At the closing bell, the Dow Jones was up 0.7%, while the S&P 500 and the Nasdaq were both 0.2% higher.

Commodities were mostly higher overnight following a pullback in the USD and as investors are generally optimistic about the prospects for world economic growth. Copper hit a one-week high which follows on from last week's breach of the US$7,000 mark for the first time in more than three years. 

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Imdex Limited (IMD) - Research Report

A strong first quarter performance sets IMD up for another good year

Sector: Mining equipment, technology and services

Company Overview

  • Imdex has the vision to become the leading provider of real-time subsurface intelligence solutions to the global minerals industry and has offices located around the world. Its technology can improve the process of identifying and extracting information from below the earth’s surface for drilling contractors and resource companies. This can help in critical decision making from exploration through to mining and can allow its customers to control costs and increase productivity.
  • AMC business: IMD provide drilling fluids, equipment, technology and software solutions to maximise productivity with a strong presence within the horizontal directional drilling, waterwell and civil construction sectors.
  • Reflex business: Provides real-time subsurface intelligence technologies for downhole instrumentation, data management, and analytical software for geological modelling.
  • Cloud-based platforms: Resource companies and drilling contractors can connect to the IMDEXHUB-IQ cloud-based web portal which can connect Imdex products and technologies to the platform. The portal allows the collection and storage of operational information in a secure database which can be accessed from any internet connection via a smartphone, tablet or pc. The ease of access to data which is available anywhere and anytime can provide the following benefits to resources companies and contractors, through:
    • Faster decision making
    • Access to trusted field data
    • Reduced costs and increased efficiencies
    • Automated workflows
    • Turning data into intelligence
  • IMD has a very strong share registry with around 75% of its issued share capital owned by institutional investors.

Figure 1. ImdexHub Electronic Platform                                                                                                Source: IMD Presentation

Figure 2. Imdex Integrated Solutions                                                                                                   Source: IMD Presentation

Imdex is well placed to see the changing market conditions in the resources sector 

  • Imdex has seen that its REFLEX rental fleet has traditionally been a reliable indicator of market conditions within the resources industry, with the requirement for more instruments as more rigs return to work. IMD’s number of instruments on hire increased by 27% over the year to 30 September 2017 with the largest driver of rental activity seen in the gold and copper markets. The increased demand for instruments has been for traditional survey and core instrumentation along with its newer technologies. The newer technologies tend to yield higher rentals rates for IMD due to the greater value-add for their clients.
  • Activity has been recovering globally with increased activity seen particularly in Canada, Western USA, Latin America, West Africa and Australia. Initially, the activity uplift was seen in 4Q16 due to the pickup in the gold price, but they have now seen a broad-based recovery with all sizes of mining companies well-funded and with increased budgets.
  • The larger sized resource companies have been focussing on increasing efficiencies and reducing costs, which has seen newer technologies gaining momentum in an effort to lift productivity. Junior companies have been able to raise cash via equity markets and are now actively exploring. Both larger and smaller sized companies are on a mission to replace diminishing reserves and resources.
  • IMD sees that the robust activity within the major mining areas shows signs that we are currently in the early stages of a cyclical upswing, with the broader-based recovery likely to be steady and sustainable.

Figure 3. Reflex Instruments on Hire (Number of Units)                                                                        Source: IMD Presentation

Financial Performance for FY17

  • Imdex has impressed us with its solid turnaround in earnings which are cyclical in nature being sources primarily from the resources sector. In the recent FY17 earnings release, revenue increased by 23% to $176.2m while earnings before interest, depreciation and amortisation (EBITDA) for its continuing operations rose by 55% to $31.5m. 
  • During the year IMD divested its non-core underperforming AMC Oil & Gas business for $3.5m and wrote off $3.6m associated with its oil and gas technology.
  • In the first half of FY17, $45m of equity was raised to reduce debt and strengthen its balance sheet. A new, cheaper debt facility with Bankwest was arranged for up to $30m which had been drawn down to $7.1m as at 30 June 2017. IMD has $19.4m cash in the bank.

Figure 4. Full Year 2017 Financial Performance                                                                                   Source: IMD Presentation

Solid 1Q18 financial performance to start the year off

  • On 19 October IMD released details of its 1Q financial performance which saw revenues increase to $54.6m up 32% on 1Q17.  This which was the strongest 1Q performance since 2013.
  • EBITDA was up 42% to $11.4m over last year from $8.0m and 14% higher than 4Q17. If IMD can carry this result through for the rest of the year, it would be set to increase EBITDA by over 40% on last year.

Figure 5. 1Q18 Minerals Revenue Figures                                                                                          Source: IMD Presentation

In Conclusion

  • Imdex is a well-run WA-based industrial business which is strongly placed to continue to take advantage of the cyclical upswing in mining activity, especially with small and large sized resources companies looking at ways to increase efficiencies and reduce costs. IMD’s stock performance is in the process of turning around and is in a strong uptrend. It appears as though there is still plenty of upside, if the strong financial performance can continue on from the positive 1Q18 results released at its AGM on Thursday. The average consensus rating on the stock is a Buy with an average price target of $1.08, 13% above the last traded price on Monday of $0.955.

Figure 6. 7 Year weekly price chart                                                                                                                           Source: CIQ

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Research Analyst
Michael Ron

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SPECULATIVE BUY – Potential 10% or more outperformance, high risk
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