Consensus community valuation
$2.25
Average Intrinsic Value
4%
Overvalued by
Active Member Straws
#FY20 Results
Last edited 4 weeks ago

Nearmap has achieved an Annualised Contract Value (ACV) of $106.4m for FY20, up 18% on the previous year.

This was a combination of a 7% lift in subscriptions growth and (encouragingly) an 11% lift in average revenue per subscription.

Statutory revenue was up 25% to $96.7m.

However, a big increase in capture costs and an increase in their rate of amortisation saw a drop in gross margins. Combined with a 47% lift in operating expenses, the after tax loss more than double to -$36.7m.

This added spend is (obviously) hoped to have laid the foundations for scalable growth into the future. It will be something to watch though; Nearmap's costs have always grown at a pace that offsets its strong revenue growth and has kept the business in a cash losing position. 

At present, Nearmap has $33.8m in cash. Due to cash management initiatives implemented in April, the business expects to be cash flow breakeven in the current year. Safe to assume the market will very much welcome this if achieved.

North America, which accounts for 17% of total subscriptions but has about double the average subscription per user (greater proportion of larger enterprises), saw 27% growth in ACV. The pace of revenue growth is much greater than where ANZ was at the equivalent point after launch.

Growth so far in FY21 is on pace with last year. Combined witha resilient second half, it appears Nearmap's sales have held up really well during COVID.

At present, shares are on a P/S of about >12, which is certainly up there. That being said, should the business pivot to cash flow positive, maintain strong growth and show improved cost discipline, it could well be at a price that appears cheap in the medium to long term.

I think they continue to hold a very favourable competitive position, are showing good traction in their key growth market, and continue to broaden the product offering.

Nevertheless, I still see shares as a bit overvalued (see valuation).

You can read the results presentation here

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#Capital Raise
Added a week ago

Nearmap is raising $70m through an institutional raise, and up to a further $20m through a shareholder purchase plan (SPP).

This will involve the issue of at least 26m new shares, or 33m if the SPP is fully subscribed. That's a ~7% increase to the total share count.

The reason is to "accelerate growth opportunities" which basically means increased Sales & Marketing (especially in North America) and development costs. With a minimum of $105m in cash post-raise, NEA also said the raise will give them a lot of strategic "opportunities in a dynamic market", which I assume means potential acquisitions.

It's worth noting that Nearmap capitalises a lot of development and capture costs, and last year reported negative $37m in free cash flow. That's a deterioration from the previous year due to a 47% lift in operating expenses. So although it wasnt highlighted in the announcement, i dare say a good portion of the capital will be used for working capital.

To wit, Nearmap said the cash balance at the end of FY21 is expected to be between $32-35m. Put another way, the total value of the institutional raise will be spent in less than a year. 

As always, whether this is a good or bad move depends on the Return on Investment (ROI) they can get on this capital. The business has achieved 27% compound annual growth in Annualised Contract Value (ACV) in the past couple of years, and US subscription revenue is already twice what it was in Australia & New Zealand at the same stage of maturity. There's defeinitly very solid sales momentum, and the market opportunity is large and growing. Nearmap appears to be very well placed competitively.

I like the tech and the offering and think top line growth will remain strong for a good while yet. But although the scalability of the business model has been touted for many years, we're yet to really see that realised in the financials due to an ever growing cost base. Granted, these increased costs have helped underpin very solid top-line growth, but at some stage -- hopefully sooner rather than later -- we really need to see expenses stablise and the operational leverage of the business unlocked. At the very least, it'd be good to see them move much closer to a positive free cash flow position.

It's also worth noting that a good deal of growth is already assumed by the market. Based on the raise price of $2.69, the company is valued at $1.3 Billion -- over 12x the ACV.

Still a bit too rich for me.

[disc. I don't hold on Strawman, but have a small parcel in my real portfolio that was purchased in 2015 and mostly sold down in 2019] 

Details of the raise here.

 

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#May Trading Update
Last edited 4 months ago

A great update from nearmap today.

Key points:

  • Annualised Contract Value (ACV) now exceeds $102m. Passing the lower bound of earlier guidance from February. (that's at a FX rate of 0.7 AUD-USD, but at the current rate of 0.66 ACV is $104m)
  • FY20 ACV now expected to be between $103-107m (prior range was $102-110)
  • New AI functonality to be launched on June 1
  • Company on track to be cash flow breakeven by June 30
  • Cash balance expected to be $32-35m at and of year
  • Despite the impact of COVID-19, Nearmap has continued to grow its portfolio month on month
  • Churn has reduced to 10% from 11.5%

Glad i added it to my Strawman portfolio last month -- just wish i'd bought more! :)

You can read the ASX announcement here

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#Risks
Added 4 months ago

Nearmap seems to be failing to deliver from my perspective. There's huge amount of promise and discussion around the potential for AI to enhance services and product offering yet it doesn't appear to be eventuating. 

Digital Agricultural Services (digitalagricultureservices.com) is doing the ground breaking technological work I'd expect NEA to be pushing into... but they aren't. I honestly believe that as time marches on NEA will have more competitors and aerial mapping will have reduced barriers to entry. The winners will be the companies that can provide the insights from the photographs and information, not the photographers themselves. 

The bearish view on the business itself is supported by repeated earnings downgrades and negative results. 

Negativity aside the business has reduced churn, is proving there is growth in the market, and could breakeven soon. Long term negative view, short-mid term is a positive or neutral view. A stock with the chance to temporarily run hot with the right earnings result. 

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#COVID-19 Update
Added 5 months ago

Nearmap has provided another trading update. Key pionts:

  • Claims it has seen no material impact on trading conditions
  • It is however seeking to reduce operating and capital costs by up to 30% 
    • including a 25% pay cut for board and CEO and 20% cut for everyone else
    • Reducing heacount by 10%
  • Expects to be cash flow breakeven by the end of FY20

You can see the full ASX announcement here

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#Capital Raise
Added a week ago

Capital raising - 10 September 2020

https://www.asx.com.au/asxpdf/20200910/pdf/44mhjw9qfj0lnc.pdf

  1. Institutional placement of ~26m shares totaling $70-72.1m at $2.69 to $2.77/share, being 6.9% and 4.1% discount to prev close of $2.89. Bookbuild underwritten at $2.69/share. As I'm posting this a day late, this ended up completing at $2.77/share.
  2. SPP of up to $30k per shareholder for a target of $20m at the lower of the above and 2.5% discount to 5 day VWAP at close of SPP.
  3. Director sell down - Ross Norgard selling 4.2m shares (~15% of his holdings) at the insto price, also underwritten.

The stated purposes are the usual accelerating growth. Of particular note is the rollout of HyperCamera3 which allows higher & faster flying meaning increased coverage, in their words "geographical expansion". Unclear if they are teasing new geographies, or if they mean simply greater coverage around their existing territories.

Overall I'm comfortable with this raise, mostly based on my history with Rob.

In context, they raised $20m @ 70c in late 2016, $70m @ $1.60 in late 2018, and now $2.77.

They have been clear and consistent in their stated use of funds, ramping up sales & marketing each time and allowing STCR to get back to 100% before going some more. I think that's as prudent as you can get -- basically apply more capital for as long as you can keep accelerating growth.

The one blip in their track record was December 2019/January 2020 period when they had the 3 big churn events in the US, and also increased churn in AU. There wasn't a lot they could have done about the US and I believe they've addressed the AU (loss of focus) issue.

As with previous raises, some smaller shareholders are frustrated that no prior indication was given of an upcoming raise. In particular the business was on track to running to "proper" cashflow breakeven and many interpreted that as "no need to raise capital". But as explained above with the STCR, if you can apply capital to accelerate growth, and the TAM is huge, you should do it.

This same pattern occurred in the 2018 raise. The business had pretty much reached cashflow breakeven and they tried to point that out in the halves following the raise by splitting out costs pre-raise vs the increase in costs post-raise used to accelerate growth.

I understand the frustration of a lot of shareholders because new funds are always being applied so it's never been possible to compare like for like and see that the business has been or is clearly profitable. Superficially it looks like costs keep growing and therefore the business may never actually reach profitability, necessitating perpetual capital raises, when (at least in my mind) the reality is the other way.

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#Bull Case
Added 4 weeks ago

FY20 Full Year results - 19 August 2020

ACV came in at $106.4m, at the upper end of their $103-107m range provided on 28 May (when they were already >$102m ACV).

This seems decent enough given their churn issues in December/January and COVID-19.

Of note, the STCRs for US and AU which are historically around 100% were down to 34% and 58% (US) and 69%, 79% (AU) for H1 and H2 respectively. This reflects both the churn events, loss of focus in AU, and addition of new sales staff in US.

Also noteworthy is the Trade Receivables have grown significantly. Image attached. There's roughly $2.6m in receivables >30 days old, vs $550k at 30 June 2019.

Looking ahead, my best guess for 21H1 ACV is:

1. AU: $68.5m (+$4m)

2. US: US$33.4m (+US$4.7m)

This is based on the following assumptions:

1. Direct sales cost remain constant (as indicated by commentary today saying they expect costs to remain roughly stable)

2. STCR improvements: AU improves from 79% to 90% and US improves from 58% to 70%.

I believe these are reasonable assumptions as the AU STCR had been affected by sales leadership being stretched globally, and we now have Jeff Adams in the CRO position. And US improvement to come from the team gaining experience and operational improvements.

So I'm confident we'll be properly* cashflow breakeven by Dec 2020 assuming no external explosions.

*- Nearmap achieved cashflow breakeven at 30 June 202 through the cost cutting measures taken in April. Properly cashflow breakeven means reversing the April compensation cuts.

The provided outlook is for closing FY21 cash balance of $32-35m is where we are today. Which is to say that they expect to ramp up spending again early next year.

All in all I think it's quite a positive report other than the trade receivables which could dent ACV by ~$1-2m.

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#COVID-19 Update
Added 6 months ago

Nearmap has provided an update in light of the coronavirus pandemic.

No detail was provided in terms of the impact to sales experienced or expected, with the company only saying that it's offering helped facilitate remote working and that it was well placed to endure any impact due to its near $50m in cash.

You can read the full update here

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#ASX Announcements
Added 4 weeks ago

I hold Nearmap shares

View Attachment

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#History
Added a week ago

Capital Raising to keep the business going WOW what a suprise here. hence I now got myself 2 share accounts (wife and I) for such SSP like NEA and APT every year.

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