Nearmap Limited

NEA Details

Recent Business Releases: Nearmap Limited (ASX: NEA) is engaged in providing geospatial map technology for businesses, enterprises, and government customers. On 14 December 2021, it announced that its Annualised Contract Value (ACV) from its North America portfolio is expected to outperform ACV of its ANZ portfolio. The milestone is expected to culminate by the end of December 2021.

FY21 Financial Update

Top Line Metrics: Revenue grew by 23% YoY and clocked $119.0 million on a constant currency (CC) basis. The upshift in topline was primarily driven by the North America portfolio’s record ACV expansion. Annual contract value surged to $133.8 million (CC), up by 26% YoY.

Bottom Line Metrics: Operating expenses surged by 8% (CC), reflecting surged headcount to 361 across all business operations to scale future growth. Sales team contribution ratio surged to 89% from 54% recorded in FY20—subscription retention inclined by almost 300 bps to 93.1%. Subsequently, gross margins expanded to 75%, delivering 6ppts gains from the previous year.

Financial Position: Cash balance as of 30 June 2021 stood at $123.4 million relative to $36.1 million as of 30 June 2020. The significant uptick was primarily driven by $92.7 million in proceeds from the equity offering, increased net cash flow from operating activities to $31.0 million ($12.1 million in FY20), and reduced investment activities.

FY21 Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

• Data Security and Cybersecurity Risk: The company’s business is exposed to a risk arising from the failure in maintaining data and cybersecurity; as a result, operation headwinds can prevail.
• Technology Risk: NEA exhibits risks related to the frequent shift in technology, affecting the way of doing business.

Outlook

• Guidance: NEA continues to target 20% - 40% growth in ACV in the medium to long-term, with an underlying retention rate of over 90%. $30 million proceeds from capital raise will be deployed in FY22 key growth initiatives.
• Go-to-Market Strategy: NEA continues investment into data and operational systems to lift go-to-market strategy, adding targeted marketing programs and industry specialists.
• Product & Content: NEA is expected to commence the roll-out of HyperCamera3 systems gradually in FY22 to deliver vertical solutions for industry core growth.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of NEA gave a negative return of ~34.013% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $1.370 - $2.790. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the favourable cash and financing position and operational efficiency. For valuation, few peers like Infomedia Ltd (ASX: INF), Iress Ltd (ASX: IRE), Pointerra Ltd (ASX: 3DP) have been considered. Given considerable operational improvements, the potential roll-out of HyperCamera3 systems, significant ACV growth, and upside indicated by valuation, we provide a “Speculative Buy” recommendation on the stock at the current market price of $1.525, as of 17 December 2021, 02:53 PM (GMT+10), Sydney, Eastern Australia.

NEA Daily Technical Chart, Data Source: REFINITIV

Bravura Solutions Limited

BVS Details

FY21 Financial Performance: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients in the wealth management and funds administration industries.

• Top Line Update: Revenue slipped by 11% to $243.0 million. Revenue generation from the wealth management segment dipped by 11% to $160.1 million due to decreased UK professional services work. Funds administration revenue slipped by 12% to $82.9 million because of the negative impact from COVID-19 in UK professional service work and lower license fees.
• Bottom Line Update: EBITDA margin slipped by 15% to $49.3 million, and EBITDA margin shed 1ppts and stood at 20%, primarily driven by shredded revenue streams. Reported NPAT slipped by 14% to $34.6 million.
• Financial Position: BVS held $73.6 million in cash balance as of 30 June 2021, down from $99.1 million registered in the previous year. BVS continues to explore a pipeline of organic and acquisitive growth opportunities. Operating cash flow, excluding cash taxes, stood at $51.8 million, holding up a conversion rate of 105%.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

• Rising Competition: The company operates in a very competitive environment, and the rising market share of competitors could affect its financial standing.
• Foreign Exchange Risk: Considering multi-geography operations, the business is exposed to a risk arising from adverse movement in foreign currency.

Outlook

• Improving Demand: The demand for microservices, SaaS, cloud and other subscription-based services is strengthening.
• Strategic Update: BVS has taken strategic growth initiatives, coupled with investment in research & development for componentisation of products during FY21, shall support company financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The stock of BVS gave a negative return of ~27.035% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $2.310 - $3.980. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers,  considering its decent financial position and positive net margin relative to the industry median. For valuation, few peers like Nearmap Ltd (ASX: NEA), Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE) have been considered. Given the decent financial position, soaring product demand, leveraging R&D investment, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.490, as of 17 December 2021, 01:01 PM (GMT+10), Sydney, Eastern Australia.

BVS Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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