26-Nov-2020:  Taylor Collison: Aerometrex Limited (AMX): Initiating Coverage - Outperform

Analyst:  CAMPBELL RAWSON,  crawson@taylorcollison.com.au +61 415 146 725  www.taylorcollison.com.au

• Recommendation:  Outperform
• Market Capitalisation:  $112m
• Share price:  $1.19
• 52 week low:  $0.70
• 52 week high:  $2.60

Our View

AMX operates in an industry where having leading technology is crucial to success. In all operating areas, AMX is the leader or equal leader in aerial image capture and processing with regards to technological capability. Limited access to capital has meant this capability has to date, not led to the corresponding leadership in market share and revenue. Following an IPO 12-months ago, AMX has invested heavily in more technology, people and marketing with the effects only now beginning to flow through the P&L. FY21 will likely see minimal EBITDA growth due to continued investment however we forecast 76% growth for FY22 as recent initiatives take hold and believe FY22 will be a sustainable earnings baseline. Trading on 10.8x our FY22E EV/EBITDA forecast we expect to see multiple expansion as earnings traction increases through 2H21 and the market begins to price in FY22. Furthermore, we expect AMX to take market share in the subscription-revenue space from Nearmap which trades on an 47x FY22E EV/EBITDA multiple. We believe AMX’s 77% discount to Nearmap is too steep given the growth outlook and the industry leading nature of AMX’s assets.

Long-Term Attractions

• AMX has industry leading capture and processing technology across all divisions. The design of its own cameras and processing tools now allows AMX to maintain significant IP and produce higher quality imagery than competitors. This is highlighted in 3D where no competitor globally is producing imagery to the same detail (2cm resolution).
• AMX has a first mover advantage in 3D modelling having begun 3D operations in 2012 and only in recent years has it become more widely utilised in many industries. This provides a significant competitive advantage with most competitors years behind in development. AMX has recently begun operations in the USA where we estimate the market to be worth ~$500m.
• AMX has a difficult to replicate personnel base with most operational staff being experts in their field. Specialised operators are attracted to AMX based on the technological leadership prevalent in the business model. This has led to significant levels of expertise and we expect this experience to keep AMX at the forefront of industry innovation.
• The Australian aerial photography and LiDAR market is worth $150m (excluding 3D). AMX has a realistic opportunity to capture 50% of this through increased awareness of its services, driven by leading technology.

We see the following as the biggest risks to AMX’s future earnings

• AMX is currently in a heavy investment phase with a focus on building out its MetroMap image base and growing 3D revenue in the USA. Despite superior technology and early signs of traction, there remains execution risk in the USA. Additionally, $5-$6m p.a. will be spent on image capture to build out the MetroMap platform and once again, despite strong growth rates to date, there is a risk subscription-based revenue may not grow to cover this cost as the near-monopoly incumbent, Nearmap (NEA), could alter pricing or strategy.
• Whilst employee expertise is one of the biggest assets, it also provides keyman risk. We note this is particularly evident in 3D where the capture of images is fundamental to produce high quality models. Few in the market have this expertise. Many employees are subject to confidentiality agreements and all are well incentivised by salary and share options with 80% currently owning AMX shares.

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