Should I Buy Nearmap Shares

Nearmap was a market darling back in 2019, with investors thinking the share price would continue to rise. Two years on, the price has fallen significantly, so we take a look and see, Should I Buy Nearmap Shares 2021?

About Nearmap Shares (NEA ASX)

Nearmap is a digital mapping technology (SAAS) service, which provides aerial imagery to the private, public and government sectors. The company was founded in 2007 in Perth, Australia, however, has since expanded overseas to North America, Canada and New Zealand.

Nearmaps provides frequently updated, high-resolution aerial imagery of 88% of Australia’s population, 68% of the United States population, 72% of the New Zealand population and 68% of the Canadian population.

The group provides Vertical, Oblique, 3D Imagery and Data, AI and Solar analysis through their online platform.

Example Imagery from the Nearmap Platform
Example Imagery from the Nearmap Platform

Nearmap Share Price ASX

The Nearmap Share Price is down 17.5% to $1.96 per share. Nearmap has a market capitalisation of $1billion at the current share price and is not yet profitable and hence, does not have a PE ratio at current.

The Share price is trading at about 15% higher than the bottom end of the 52-week range. NEA ASX Shares are down about 40% since their 52-week high of $3.22.

Nearmap Share Price$1.965 per share
Nearmap Market Capitalisation$1billion
Nearmap Shares Outstanding497.5million
52-Week Range$1.62 – $3.22
Nearmap Share Price Facts

Should I Buy Nearmap Shares News

FY21 Earnings Report

Nearmap has been relatively quiet on the news front to the ASX lately, with minimal news leading up to their FY21 Earnings Report announcement which was made on the 18th of August.

The group’s share price was very much unchanged by the release of the results to the market.

Headline results from the FY21 Earnings Report are as follows:

  • Annual Contract Value (ACV) portfolio closed FY21 at $133.8m (CC), exceeding initial guidance of $120m-$128m
  • Statutory Revenue of $113.4m, ↑ 17%
  • Cash at bank at $123million
  • Gross margin increased to 75% which was up from 69% in the PCP.
  • Record incremental ACV growth from the North American portfolio for consecutive half year periods
  • Breakthrough in HyperCamera3 progress
  • HyperCamera3 design completed and prototype system tested in flight
  • Significant technological breakthrough and further extends technology leadership
  • Balance Sheet strength maintained; supports future investment
  • Disciplined investment post capital raise with minimal cash consumption

From the headline results, the revenue growth in our opinion seems to have slowed considerably from prior comparable periods.

Nearmap Revenue Vs Revenue Growth 2018 - 2021
Nearmap ASX Revenue Vs Revenue Growth 2018 – 2021

As per the above chart, It seems that NEA ASX was unable to meet the considerable multiples that investors placed on it back when it had ~44% revenue growth in 2019 and trading around a market cap of $1.7billion.

This is an example of the valuation gap that we explained in our Webjet Article, where investors pay too much on the premise of future earnings. However, it may take considerably longer for the company to actually achieve the growth that investors are expecting. This typically results in shareholders receiving a below-market return for some years to come.

Nearmaps Capital Raising

The company tapped investors for additional capital in order to shore up their balance sheets back in September / October of 2010. The group raised $92.7million in net proceeds from investors.

Management mentioned that they intend to utilize these funds to reinvest back into the business. However, also go on to say that the majority of these funds will be utilized to expand their sales and marketing presence in North America and pay for additional capturing costs.

Capital was raised through a combination of a fully underwritten institutional placement and a non-underwritten share purchase plan. The placement was completed at $2.77 per share and ~26.0million additional shares will be issued as part of the placement. Investors who participated in the SPP received shares at A$2.36 per share.

As part of the placement, Nearmap’s non-executive director sold ~4.2million shares, which represented about 15.1% of their holdings in the company.

NEA ASX Insider Transactions and Ownership

Nearmap is owned predominantly by the general public at 74.8% ownership, this is followed by Institutional and Individual Insider ownership at 12.6% and 12.1% respectively. The insider ownership for a company of this size seems small compared to other similar companies of a similar size and nature.

Nearmap Ownership Breakdown
Nearmap NEA ASX Ownership Breakdown

It is great to see director Ross and Chairman Peter James buying shares on market. It seems that the pair see value in the company below the price of around $2 per share. There would also be strong support levels above this point due to the recent SPP and Placement completed in September/October 2020.

DateValueNameEntitySharesMax Price
11 May 21+$100,625Peter JamesIndividual57,500AU$1.75
07 May 21+$928,500Ross Stewart NorgardIndividual500,000AU$1.86
30 Mar 21+$1,021,000Ross Stewart NorgardIndividual500,000AU$2.04
15 Mar 21-$809,999Peter JamesIndividual382,075AU$2.12
Nearmap Recent Insider Transactions

The Top 5 shareholders in the company consist of Ross and Jennifer Norgard, and Robert Newman (CEO). Ross owns $40.5million of shares at the current prices.

OwnershipNameSharesCurrent ValueChange %Portfolio %
4.15%Ross Stewart Norgard20,630,888 A$40.5m2.48%no data
3.6%The Vanguard Group, Inc.17,887,950A$35.1m2.87%no data
2.17%Jennifer Norgard10,809,292A$21.2m0%no data
2.12%Robert Newman10,546,951A$20.7m9.72%no data
1.47%Mutual Trust Pty Ltd7,298,344A$14.3m0%2.9%
Nearmap Top 5 Shareholders

Skin in the game helps ensure the management’s motives are in line with ours. We like small-cap stocks with ~30% insider ownership and history of owners buying on market.

Nearmaps Fundamentals

NEA ASX Balance Sheet

Nearmap provided an updated look at their balance sheet in their FY21 annual report. The group at the end of the year had a cash balance of $123.4 million, this was however attributed to the share purchase plan and placement conducted by the company.

Nearmaps have no debt on their balance sheet, which is typically a sign that we like for SaaS companies.

Nearmap Balance Sheet
NEA ASX Balance Sheet FY21

NEA ASX Income Statement

From the FY21 Income statement, you can see revenues increased from $96.7million to $113.4million PCP. The group reported a loss before tax of $37.1million and a negative EPS of (-8.14cps).

NEA ASX Income Statement
NEA ASX Income Statement

The group provide a breakdown of their revenue mix in their FY21 annual report. Interesting that they split the group into ANZ and NA, however also have an unallocated column. This we assume is ‘shared’ group resources.

You can see that the ANZ business has a much higher gross margin than NA, this is due to the additional costs associated with getting the NA segment up and running. For example capturing imagery more frequently, setting up servers, storage and other systems to cope with the new geography. As the NA business matures, we should start to see gross profits for that segment trend closer towards the more mature ANZ market.

Nearmap Income Statement Mix
Segmental Revenue Mix Nearmaps

Whilst GP for the ANZ business it’s important to remember that this number excludes sales and marketing costs which is quite considerable. If these are included GP trends are closer to ~40%. This cost should in theory also decrease over time as companies sign larger multi-year contracts with Nearmaps and continue to generate repeat business from customers.

Should I Buy Nearmap Shares – Prophets Take

It seems that revenue growth is starting to slow down YoY, with Nearmap reporting a lower growth in growth since 2019. This is also due to coming off a higher base, however, one would think that the US expansion would be starting to gain traction a little faster. As customers in the NA segment start to generate repeat business for Nearmaps the marketing expenses should start to trend downwards and hence increasing profitability.

This seems to have been the focus of the SPP and institutional placement, to generate capital in order to expand sales and marketing in North America. There also seems to be additional costs required around the HyperCamera 3 project and hence also once this project is completed we imagine additional capturing costs.

Recent insider transactions suggest that some of the directors and the CEO potentially see value in the shares below the ~$2 mark, with a combined buying of over $2million on market between the two.

The key risk to the business in our opinion is the company not being able to reinvest back into R&D. The business with the most frequent and highest quality data will win the space. Hence when monitoring Nearmaps it’s also important to monitor what key competitors are up to, such as EagleView.

We would like to see a return to faster growth in the North American segment prior to considering Nearmap shares further. We first bought NEA shares at 0.68c back in 2018, riding the stock up ~458% with parcel sales along the way.

This was a share that made Prophet a lot of money back in the day! However, we are happy to hold it as part of our VAS ETF. We would revisit our opinion based on seeing increased margins and faster growth in the NA business.

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