Where to From Here?

I can't help but notice that most recent comments on NEA have been focussed on the share price trend over the last year, which has not been good.


As an investor, I prefer to look forward and to predict what is likely to happen in the future based on all sorts of clues that have been given.


Some of the most important clues given recently (at November AGM) are:

• "Continued strong performance, particularly in NA Roofing, Insurance and Government"
• "Tailwinds in core growth verticals"
• "FY21 Group ACV portfolio expected to be between $120 million to $128 million on a constant currency basis"
• "Continue to target 20-40% ACV growth medium to long term"

In addition to these clues, it is helpful to think about the likely comparison of 1H21 to 1H20, which should be announced mid February. 3 NA churn/downgrade events occurred in 1H20 which amounted to AU$6.9M in lost ACV. These were not an underlying problem, but occurred due to:

• One permanent court injunction imposed on a partner
• Two churn/downgrade events involving a slow-down in the autonomous vehicle industry (this is a one-off and could revert in the future)

Another major positive approaching in 2H21 is likely positive results in the testing of HyperCamera3. I say this is major as it will enable:

• Significantly lower cost per square km of capture;
• Expanded coverage at higher fidelity, making the NEA more attractive to customers particularly in NA;
• Expansion into new geographical markets (most likely when NA becomes cash flow positive).

It is also helpful to try to estimate the underlying ACV growth rate trends. ACV growth hit a low in 1H20, mostly due to the events mentioned above. In NA, the half-yearly growth rate hit 9.7% (calculated by me from the half yearly reports), while in ANZ it hit 5.4%. Note that during Coronavirus in calendar year 2020, growth again started accelerating. In 2H20, these rates hit 15.7% and 5.7% respectively (note that the annual run-rate is double these). My prediction based on all the above evidence is that these rates will continue to increase to approximately 17.4% and 6.2% in 1H21. NEA continues to guide to group ACV medium term growth of 20-40%, so ACV should continue to accelerate in FY22.


My conclusion is that it may not be wise to focus on past share price weakness (due to 3 problem contracts over a year ago, coronavirus temporary weakness and the raising of capital for growth). Instead, investors should focus on:

• Accelerating ACV growth;
• Improved offering at lower cost to be enabled by HyperCamera3;
• North America overtaking ANZ in size (likely in 2H22 or 1H23);
• North America becoming cash flow positive (likely FY22 or FY23);
• The very long growth trajectory in NA due to the size of the market and the current penetration of that market.

Happy New Year to all NEA investors, and I wish you a prosperous 2021.