On EBITDA – its an interesting metric, but it excludes the continual flow of funds hurled at data capture, development and intellectual property. The cash-flow statement does not detail all of these, but the two major spends are provided. In FY20 Nearmap sensibly decided it was amortising too slowly, so there was a significant catch-up in the annual amortisation expense, but this blip ha now washed through. All metrics below are $k.
................ Development ..... Capture ..... IP .... Other .... Total
Spend. .............. (6,350) ...... (8,466)
Amortisation .... (5,199) .... (12,455) .. (475) ... (49) .. (18,178)
It is Gross Margin and NPAT that interests me,and both metrics require amortisation to be considered, particularly of capture costs and development.
Gross margin for ANZ is 93%, for NA 53% and total 77%. That suggests that we can expect significant improvements in the USA as it scales up its revenue.
NPAT has improved by some $9 million, this suggests to me that we will see break-even in terms of statutory NPAT a six months hence, or soon afterwards in calendar year 2022. The H1Y20 and H1Y21 NPAT metrics were (9,386) (18,607).
I must admit that I am heartened by the focus on costs and expenses, and the prospect of these being relatively static compared to growing revenue.
Relevant to comments made in the link above is the fact that nobody has mentioned the freebies that NEA conceded to various USA agencies (national, state and county) as a Covid-19 goodwill gesture. These actually cost near-nothing from a marginal cost perspective, but if NEA actually charged a peppercorn fee for this service to satisfy the requirements for the creation of a legal contract, then it is possible that any movement to normal pricing could be categorised as up-sell. Further, if NEA has invested in value-creating IP, then it makes perfect sense to pluck the low-hanging fruit from existing customers initially, and later use these to reference sell to new customers.
On the valuation of $2.35 mentioned in the above link, I think that it is too light, and I would regard circa $2.77 that was used in the recent capital raising as being more realistic, because institutional investors would have done their homework. I find it difficult to value a company that is not making a profit in a relatively steady-state environment, so I have not attempted to value NEA, at I settled for about $2.77. I take heart in the fact that the NA business can at least aim to get closer to the profitability of the ANZ business, so even if it does not get there, NA is likely to show increasing profitability. Brokers 12-month TPs are in the $2.75 to $3.10, so $2.77 in a shorter time is not too outlandish.
NEA Price at posting:
$2.57 Sentiment: Hold Disclosure: Held
