In the AFR today....

In the AFR today.


https://www.copyright link/technology/nearmap-soars-as-us-growth-takes-flight-20190222-h1bm0r

Nearmap soars as US growth takes flight

Yolanda Redrup

Nearmap CEO Rob Newman said it was a surreal moment when the business hit $1 billion in market capitalisation. Ross Swanborough
Impressed by aerial imaging company Nearmap's ability to make headway in the sizeable US market, investors have pushed the company's shares up 70 per cent already this year.
The company, which was trading at $2.55 on Friday, soared past the $1 billion market cap milestone this month on the back of its half-yearly results which substantially beat analysts' expectations.

The business provides high resolution 2D and 3D imaging of buildings and infrastructure in urban and regional areas to customers in fields like telecommunications, utilities and construction, letting them virtually inspect locations from anywhere and analyse work sites.

Nearmap CEO Rob Newman said it was a surreal moment when the business hit $1 billion in market capitalisation. Ross Swanborough
Unlike its biggest competitor EagleView, Nearmap provides its aerial imaging services on a subscription basis rather than as a one-off contract, and updates its images multiple times a year. Its camera system is considered by analysts to be best-in-class. It captures multiple viewpoints and stitches together images to create a 3D representation.

Chief executive Rob Newman said the business was already dominating the local market, and is now proving its worth overseas.

"About four years ago we started capturing content in the US. In the first year we didn't gain much traction, but as we collected more content and developed a history we started to grow," he said.

"We had record growth in the first half in the US and our unique business model is gaining traction.

"We are very different. You can't get high resolution, up-to-date content from any other source ... and we're also a reliable business-to-business supplier, meaning we've been able to sell to large enterprise clients."

In the six months to December 31 Nearmap recorded a 45 per cent jump in revenue to $35.5 million, while its net loss narrowed to $2 million, down from $6.5 million in the previous corresponding period.

The company emphasises its annual contract value as its key growth metric and in the US its ACV jumped to $US17.6 million ($24.7 million), more than double where it was 12 months ago, while in Australia it now has an ACV portfolio of $53.3 million.

Nearmap also reported a lower customer churn rate in the half, down to 5 per cent.
Momentum to continue

In the next year one of Nearmap's major priorities is to build in more data analysis tools to its imaging products, letting customers quickly determine anything from how many solar panels could be put on a roof to risks to a property.

"At our heart we're a tech company and we have to stay ahead in capturing, processing and the extracting value from the images," he said.

In the last year the percentage of institutional shareholders on Nearmap's registry has doubled to about 40 per cent.

Since joining AusBil Investment Management in 2017 portfolio manager Mason Willoughby-Thomas has built a sizeable position in Nearmap. He bought up a lot of the fund's 1.4 per cent stake at a price between 60¢ and 70¢, saying that it was an "under-appreciated star story".

"It's one of the better performing companies in our portfolio. Over the last 18 months to two years it started to hit its strides, management became more confident than they were two years ago and they understand the business and they're measured in their approach," he said.

"We think there is still plenty of upside and I think it will continue to deliver earnings surprises."

RBC Capital Markets equity research director Garry Sherriff said the business had the potential to follow the trajectory of another small cap success story, Pro Medicus, which in the last three years has gone from a share price of only $3 to above $14.

"If one of its competitors tried to change their business models [to be like Nearmap] it would be very hard to do and they'd see the cashflow and profitability hit as headwinds.

"Execution is clearly the biggest risk, but what we like about them is they deploy capital very sensibly and they're not spending their cash war chest in one hit."

RBC initiated coverage on Nearmap when it was trading at $1.10 and Mr Sherriff said he could see its current momentum continuing.

Being part of the tech sector, he cautioned investors that it could get caught up in another "hate period" where it could fall 10-20 per cent in a month for no reason, which he recommended as the time to buy in.

When Nearmap ticked $1 billion in market value, Mr Newman was in a hotel room in the US and said it felt surreal.