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Nearmap Pty Ltd (NEA)

First Mover advantage doesn’t go to the company that start’s up, it goes to the company that scales up. Exactly that thought was going through the minds of some Nearmap shareholders at its recent annual general meeting (AGM).

The high resolution aerial imagery company has broken into the lucrative US market and expects to expand its annual contract value (ACV) next year as it looks at more geographic expansion. ACV in FY 20 is estimated at between $A116 and $A120 million, up from $90 million the previous financial year. And that means NEA will be approaching cash flow break even in the US. This means NEA has capacity to reinvest up to $350m over the coming three years in R&D, and image capture to enhance its competitive moat and market positioning.

NEA reiterated its competitive positioning, 99% Australian market share, having invested more than $200m in developing its propriety camera/processing technology over the previous 12 years. Anecdotally NEA’s image capture which includes 3D, is three to four times more efficient than its rivals off-the-shelve camera systems.

NEA may come back to capital markets to raise capital to help fund its expansion. But given the strength of its Australian business and the expansion in the USA, debt lenders will be lining up to shower the company in cash. Cash on hand is expected to grow to over $70 million in the next couple of years

The subscription model NEA’s operates makes its business revenue incredibly sticky – and inherently difficult to disrupt. Competitors are required to raise and spend bigger amounts of cash while trying to align the sales process to make profits. A long slow, high risk, hard road.

NEA now captures 600 cities globally in 2D/Panorama with more than 80 cities in high-resolution 3D. NEA continues to expand its use cases for 3D, adding tools/ features to the data-set, which is now embedded in its MapBrowser – expected to contribute materially to FY20 revenues. So, when customers annual subscription contracts come up, competitors are running flat out going backwards, trying to match NEA’s product offering and pricing.

The AGM presentation saw shorters take their foot off the stock’s throat and it immediately jumped from its lows of $2.40 to around $2.90. It has settled back a touch since then.

The stock did undergo a big derating in the past six months, crashing back from the high mid $4’s.

With this volatility some investors are adopting a wait and see approach. But given what NEA has unveiled to support its product roll out like Machine Learning(ML)/Artificial Intelligence (AI) this ground breaking technology gives NEA subscription customers a unique offering to assist in the prediction, classification and clustering of aerial imagery data across a variety of industries. NEA is selling 35 services from its growing data base. And this is expected to grow to over 150 in the coming 12 months. New applications are for risk modelling by insurance firms across 1m properties; power and light poles in California for network planning and antenna placement used in the rollout of its 5G networks; tree maps for local government authorities and identification of solar, pools and construction sites for utilities to asses electricity grid demand/supply and regulatory reporting. There is a large backlog of potential new subscription customers.

So, my giddy aunt account (usual investment advice – cup of tea, a bex and a good lay down) thinks in the next 6 months as NEA crystalises its product offering, the revenue drive, will help push the stock back towards $3.60. 

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