Company Interview / Three growth stocks with blue sky ahead...

Key points:

AI media (ASX: AIM) transitions to high-margin AI model and dominates US broadcastNuix (ASX: NXL) experiences strong growth with its NEO AI-powered solutionsComms Group (ASX: CCG) in telco sector poised for acquisition amid rapid consolidation

Ron Shamgar from TAMIM Asset Management highlights several promising companies with overseas growth. He focuses on AI media (ASX: AIM), noting its transition to a high-margin technology model with its AI-powered Lexi product, which dominates the US broadcast market.

Ron also discusses Nuix (ASX: NXL) and its success with NEO, an AI-powered solution. Nuix (ASX: NXL) has seen impressive adoption rates and strong financials, projecting significant revenue growth in the next few years. This positions Nuix (ASX: NXL) as a compelling investment opportunity.

Comms Group is also a Tamim pick (ASX: CCG), a telco in a sector undergoing consolidation. With solid FY24 results and recurring revenue, Comms Group (ASX: CCG) appears ripe for acquisition, potentially offering substantial returns. Ron is optimistic about its growth and market position.

Full unedited transcript below:

0:00

Let's get to our next guest, who is standing by to find out what stocks he has his eye on this week. It's ransomware. All right, let's get to it, shall we? Because, um, I've had a number of conversations this week with asset managers who say, if you want growth, you've got to head overseas. Is that right?

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Um,

0:22

well, I mean, you don't have to head overseas, but there are a really great, um, Australian listed companies that have, uh, lots of growth overseas. Um, so today I'll talk about a couple of, uh, businesses that we think are really sort of benefiting from this whole AI, uh, boom that's going on. They actually got AI applications and they're growing overseas strongly, and they're actually really profitable. Um, so, um, I'll start with the first one. Uh, that's a company called AI media. Oh, yeah. The code is ehm, um, really exciting story. So there are captioning and transcription business and they're basically transitioning from a low margin services based model to a high margin, technology focused model with a focus on AI powered language services. Now, the key product here is Lexi, and that's essentially an AI powered captioning and transcription solution that is

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integrated into their customers workflows through their proprietary encoder devices. So if you think about the Olympics that we just watched, all the captioning that was done in the Olympics was actually done with Lexi AI, so there was no humans involved. And now the company dominates the US broadcast market, and even their competitors are using and paying for their encoders as well. So that's pretty interesting. And now Amy's looking to replicate this success in the US, in international markets and also in new sectors such as government and enterprise. Now in FY 24, results were really good. And it showed that the technology revenue, which grew 37%, has now overtaken, you know, as more than 50% of the group's revenue. And that's forecast to become more than 80% of the group revenue by the end of 2025. Now, remember, this is very high margin, 85% margin. Now,

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the founder who's the largest shareholder, he was on your show actually I think last week. And he's a really high energy, passionate guy, which we like. He's forecasting in the next five years a target of 150 million revenue and 60 mil of cash EBITDA. Now, if they're able to execute on that, we think it's 1010 bagger from here. Yeah. You're not the only one. But yeah, ten bagger from here. That's a big call when you consider its share price is up 135% year to date. Gotcha. That's growth. Let's go to another company then. That's got profitable growth going on. And yeah tailwinds behind it.

3:02

Yeah. So the next one is uh new mix and Excel. Um To add a bit of a, you know, roller coaster ride since it listed a few years ago. But things are looking good now. So there are software company that provides intelligent software solutions to a global customer base. They've got about a thousand clients and, you know, very long term clients. Now, the software essentially allows clients to process data and make sense of it, mostly government, legal and other regulatory departments, and uses the features such as data privacy, forensic investigation, legal processing. I'm sure the ATO is using it to look at our tax returns as well.

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Uh, now, the last year the company, they launched a new neo, which is which is their AI powered solution, and that's resonating really well with their customers. Now, neo AI solutions have already been adopted by 23 clients, and they've generated 12 mil of annual recurring revenue in its first year. So that's pretty exciting now. Newark's is a highly profitable business and cash generative. They did 64 mil of EBITDA in FY 24, and they're forecasting revenue to grow by more than 15% in FY 25 to $250 million or more. Now, if Newark's NIO takes off, um, they generate much higher revenue than the traditional software with the AI product. Then they could potentially double their revenues in the next three to maybe five years and deliver really strong margin expansion. Now, these type of global technology companies that can grow like that

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usually trade on 7 to 10 times their annual recurring revenue. So if that were to happen, we think it could go to 8 to $10 in the next couple of years. Well, that's a big call. Good. And there's another company that I think we should discuss and that's APM Animal Health. RH is the ticker code. So this is this is a cyclical business. Is it because it has exposure to the rural um veterinary market is this one that you've got in your fund, Ron?

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Yeah, we do own APM. I was actually going to talk about another company. Uh, comes Group, um, CCG to telco, but I'm happy to talk, you know, talk about coms group because I spoke with the CEO earlier this week. So I'd be curious to get your take on it. Yeah. And APM, I can talk about next time. It's actually quite interesting as well. But yeah. So Tom's group, they're they're basically a little they're micro-cap, um, they're a small telco. We think they're ripe for a takeover. Now, what they do is they provide a cloud communications, secure workplace solutions, global unified communications. They focus on the corporate mid-market mostly in the APAC region. Now, they had a really good FY 24 results. They grew organically to 55 mil revenue and 6.6 million EBITDA. They actually generated nice free cash flow of about $3.5 million. 90% of their revenue is recurring. And so it's quite sticky and they've announced their maiden dividend. So actually paying a nice yield of about 4 or 5%. Um, now

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for FY 25, they're forecasting to grow organically again to about 60 million revenue and and more than seven mil of, of EBITDA. They've got a good balance sheet. Now what's going on in the telco sector is that it's going through this rapid consolidation phase usually happens every 5 to 10 years. Last year we saw Aussie Broadband Superloop fight over symbol. Then we had Aussie Broadband go for Superloop earlier this year. Now in the background, we actually have a bit of a bidding war for a company called Bonox by Swoop and Max hotel. So, you know, we think that, uh, you know, most of these transactions are happening around 7 to 8 times EBITDA. Coms Group is on four times and the board owns 23%. The managing director is is a large holder, is highly incentivised to deliver value. And we think it's just a matter of time before someone makes a bid for, uh, for comms group. And we think that if they do, it will be $0.12 or higher. So it's an interesting one to take a look

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at.