Nearmap Limited

Strong organic revenue growth: Nearmap Limited (ASX: NEA) is a small-cap technology company with the market capitalization of $1.7 Bn as on May 06, 2019. It has laid the platform for frequently-updated and high-resolution aerial imagery. The company caters to several industries including engineering, rail, construction, etc.

Financial Performance: Performance of the company was in line with expectations and witnessed strong growth in 1HFY19 key metrics with the group portfolio lifetime value exceeding $1Bn. The company is well positioned for future growth on the back of scaling for global opportunities, product enhancements, capture technology and machine learning research.


1HFY19 Key Metrics (Source: Company Reports)

On the financial performance front, the value of group portfolio increased to $78.3 million, an $11.3 million during the half, and 42% organic growth Y-o-Y post exchange rates adjustments. The growth was primarily driven by a strong rise in subscribers and the average subscription value. The group revenue grew by 45% to $35.5 million in 1HFY19 over the prior corresponding period. Net loss came in at ~$1.97 million in 1H FY19, showing an improvement of 70% against the loss of $6.50 in 1H FY18, primarily due to a significant rise in revenue during the same period.

The balance sheet of the company remained strong with no debt. The positive outlook for the business is enhanced by the recent capital raise, enabling Nearmap to accelerate its strategic objectives in pursuit of the considerable global market opportunity. The current ratio stood at 1.98x in 1H F19increasing significantly as compared to 0.92x in 1H FY18 on the back of a substantial increase in cash, strengthening the liquidity position of the company.

Looking Forward To The Second Half of FY19: In H2 FY19, the company will enhance its products, with a range of releases to be rolled out to increase the workflow utility and customer stickiness of the MapBrowser platform.Given the disciplined approach with respect to capital management, the company reaffirmed its cash flow break even guidance for FY 19 excluding the deployment of capital raise proceeds.

Stock Performance and Recommendation: The stock performed well with a YTD return of ~147.71%, and 77.90% return over the past three months. Driven by several strong fundamentals, the company is poised to expand its operations, supported by capital raising initiatives of the company. Further, with a large and growing global market opportunity back of growing aerial imagery market and market expanding business model we expect the company will capitalize on several growth opportunities.With key financial metrics improving significantly in 1HFY19, we expect the company to continue its momentum in the second half of FY19. Hence, we recommend a “Hold” rating on the stock at the current market of $3.640 per share (down 2.151% on 6 May 2019).
 

Serko Limited

Key Event to Watch Out- Upcoming FY19 Results: Serko Limited (ASX: SKO) is an Australia-based company that provides technology solutions for corporate travel. It is a Software as a Service (SaaS) provider that offers a cloud-based platform for online booking and other travel management services to its corporate clients.


Performance Summary 1HFY19 (Source: Company Reports)

Financial Performance in 1H FY19: Total Operating Revenue in the first half of FY19 increased by 25% to $11.4 million, reflecting a 21% increase in transacted booking volumes (which translated into an 18% increase in transactional fee revenue).It also reflected strong growth in income from expense platform transactions and content supplier commissions. The net profit declined by ~16.13% to $0.920 million in 1HFY19 as compared to $1.097 million in the prior corresponding period.

Most of the key margins remained under pressure compared to the prior corresponding period. The current ratio improved significantly to 6.70x in the reported period, exhibiting decent liquidity position on the back of improved cash.However, ROE and Pre-Tax ROA came down to 5.7% and 4.8% respectively during 1HFY19.

Annual Guidance For 2019: The company retains its guidance within the range of 20-30% operating revenue growth for the full financial year ending 31 March 2019. Uncertainty around currency fluctuations and the timing of customer onboarding will be key factors determining the result.

It will accelerate investment in system development during the second half to provide local content, additional functionality and to ensure that it has the infrastructure to support global growth. The company expects that the benefits of this investment will be apparent in the 2020 financial year and anticipates that most of these costs will be capitalised, resulting in the EBITDA remaining consistent with the prior period. Moreover, the company continues to assess acquisition opportunities to support the growth objectives. The company will announce its results for the year ended 31 March 2019 on Wednesday, 22 May 2019.

Stock Recommendation: Although the company experienced decent increase in operating revenue, lower net profit and efficiency ratio were driven by higher operating expenses. Going forward, the company is expected to announce it annual results for FY19 as on 22 May 2019, which, in our view, will be a key event to watch out from the perspective of past performance and future guidance. Hence, we adopt a wait and watch stance on the stock at current market price of $3.350 per share (down 6.609% on 6 May 2019).  
 

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