Foster note from this morning. 24 May 2016 Updater Inc. (UPD;...

Foster note from this morning.

24 May 2016

Updater Inc. (UPD; $0.23; Market Cap ~$100m; Cash ~$20m) | Initiation. On track to be the dominant player in home relocation industry.
SPEC BUY; PRICE TARGET $0.50


Overview:

• In the 5 years prior to IPO (in late 2015), UPD successfully developed proprietary technology and formed relationships to secure a leading position in the ‘new mover’ market in the US. The mover market is massive, with 17m households relocating p.a. in the US alone. The average American moves a staggering 10-15 times throughout their lifetime.
• UPD’s online platform provides movers with a seamless process to enable transferring of insurance contracts, utilities, forwarding of mail, updating of accounts and the many other tedious tasks associated with relocation. The typical mover wastes around 10 hours reaching out inefficiently to individual businesses currently to update their records etc.

Investment Thesis:

• Growing market share (target 15% by end of 2017), foundation built and time to scale. In our view, one of the key attractions to UPD is the 5 years spent building the tech and developing hundreds of relationships with real estate companies (and integrating with their back-end software systems, not an insignificant task). As a result, UPD has a highly defensible position. Since launching its integration platform in February 2015, the Company has impressively increased their market share of processed moves in the US from 0% to more than 4% in a little over 12 months. The target by the end of 2017 is 15% market share.
• Market share crucial metric, as correlates with revenue potential: UPD’s target at the time of IPO in December 2015 was to reach a market share of 5% by year end 2016. In April 2016, UPD had already reached a market share of 4.26% and, based upon the current growth trajectory, has released a new target of 15% by end of 2017. With significant market share, UPD can unlock a massive revenue opportunity. That is, big corporates are currently spending an estimated US$50b annually on archaic methods (e.g store coupons via mail, TV advertising and internet) on acquisition and retention marketing, primarily targeting new movers, who typically make lucrative long-term spending decisions at the time of relocation. The biggest issue with existing practices is that they are not targeted and are received after the mover has already made many of these long-term spending decisions.
• Accelerating ‘Business Product’ pilot programs in 2016. UPD’s planned ‘Business Products’ will provide businesses with the opportunity to communicate with movers at the right time, in turn increasing their marketing ROI significantly. The Business Products are expected to further enhance the ‘Mover Product’ given the communication will be contextual and relevant to the specific mover. UPD is targeting to close three pilot program partnerships by the end of 2016 based upon interest shown by corporates to date to access the Updater platform and momentum seen in recent months (doubling of market share since the IPO in late 2015) and reaching a critical mass threshold at which they are now relevant to the largest national advertisers in the US.

Recommendation:

• We initiate coverage with a SPEC BUY and price target of $0.50.
• As more detail is released in respect of the ‘Business Products’ and commercialisation, we expect to conduct a more detailed valuation analysis. We do however highlight that if the Company becomes the dominant player within the industry (which based upon growing market share seen to date, appears apparent), the prize is likely a multibillion dollar valuation as has been seen historically with stories such as Carsale.com, REA Group, Seek.com.au etc.