Citi initiated coverage yesterday.
Nearmap Ltd (NEA.AX)Not Too Low, Not Too High, Just Right…
Initiating Coverage With a Buy and $4.26 Target Price — Nearmap is a globalleader in location intelligence, providing high resolution, timely aerial imagery invarious formats to customers in a range of segments, the largest being thearchitecture, construction and engineering. We believe Nearmap is well positionedto facilitate a variety of companies to increase their operating efficiency, safety andprofitability by utilising Nearmap’s technology in the US and incrementally in newcountries and regions over time. Our proprietary analysis of Nearmap’s individualflights (by frequency, location and unique capture) gives us confidence in their rapidrollout. We initiate coverage with a Buy/High Risk rating and a $4.26 target price. Five Reasons to Buy Nearmap — i) Nearmap’s Software as a Service (SaaS)business model is highly scalable, with its ‘Capture Once, Sell to Many’ modelfacilitating considerable operating leverage; ii) Nearmap's largest addressablemarket is the US worth ~A$1.5bn. Nearmap’s US 1H19 revenue of A$10m is <1%market share; iii) In the US, the number of customers whose Annualised ContractValue (“ACV”) is >A$50k is Nearmap’s fastest growing category, and are up morethan 4x from 1H17 to 1H19 (to $12,000); iv) We ascribe no value to any success inCanada where Nearmap has already captured 62% of the population footprint; andv) Nearmap is debt free and we are forecasting an FY19e cash balance of $100m. Forecasts & Valuation — We are forecasting FY19e sales growth of +37% to$73m and EBITDA growth of +20% to $15m, driven by Group ACV growth of +49%(ANZ: +24%, US: +124%). Our FY19e and FY20e revenue forecasts of $73m and$99m are -3% and -1% below consensus respectively. We value Nearmap using anFY20e EV/Sales multiple of 18.1x which is a +15% to peer global high growth SaaScompanies (15.7x) due to its strong revenue growth trajectory expected in the US. Risks to Our View — i) Competitors could develop and commercialise competingproducts; ii) There could be operating implications to from legal or regulatorychanges to privacy laws; iii) Unsuccessful expansion into non-tangential marketscould reach profitability slower than other regions, or not at all; and iv) Loss of keysenior executives could impact its expansion strategy.
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