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Freelancer Ltd + NearMap Ltd - Are these Small-cap Stocks set to fly high?

Sep 24, 2015 | Team Kalkine
Freelancer Ltd + NearMap Ltd - Are these Small-cap Stocks set to fly high?

Freelancer Ltd



Exceptional revenue and gross payment volume growth: Freelancer Ltd (ASX:FLN) continued to deliver outstanding performance even during the first half of 2015 and reported a net revenue increase of 41% yoy to $16.8 million while the gross payment volume surged 30% yoy to $64.1 million. The increase was mainly contributed by the growing user, project & contest acquisition, and better marketplace efficiency and conversion rate optimization. FLN has also been making efforts to improve its products, value-added services and optimizing memberships. On the other hand, the group continued to witness a net loss after tax of $0.8 million, while the operating EBITDA is $(1.0) million. FLN raised over $10 million of new shares at $1.40 to global and domestic institutional investors. Accordingly, Freelancer used the capital raising to improve the free float to 23%, consequently boosting share trading liquidity. Meanwhile, the group acquired Escrow.com, a secure online payments provider with a gross payment volume of US$265 million in 2014, and a net revenue and EBITDA of US$5 million and US$1.2 million respectively. FLN launched jobs across 100 categories of location specific work, to magnify its overall addressable market from $122 billion in GPV to several hundred billion dollars per annum.

 

Gross Payment Volume and take rate performance (Source: Company Reports)

Stock Outlook: We believe that Freelancer is on track to sustain its revenue and registered users growth coupled with increase in posted projects for the entire 2015 fiscal year. Moreover, Escrow.com contribution would also be reflected in second half of 2015, which would further boost FLN results. FLN stock had already delivered outstanding performance generating over 114.6% returns during the year. Despite a rally, we continue to be bullish on the stock given its expanding addressable markets, growth from acquisitions and earnings potential. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $1.42.


FLN Daily Chart (Source: Thomson Reuters)

NearMap Ltd         



Good performance in Australia and the US market is set to underpin future growth: Nearmap Ltd (ASX: NEA) delivered a 32% year on year (yoy) growth in revenue to $23.6 million during the FY2015, driven by 32% yoy rise in subscription revenues and higher renewals during the period. Gross Profit improved by 36% yoy to $20.7 million during the period, and accordingly the gross margin rose to 88%, as compared to 85% in prior corresponding period (pcp). However, the group’s profit before tax plunged 82% yoy to $0.6 million, impacted by the US setup costs. The group’s US segment contributed to the revenues for the first time during the year. Total contracts signed in the US surpassed over $100k, and NEA had already built a solid pipeline while the trial subscriptions have been rising on a daily basis. Nearmap is focusing on government, construction and engineering, commercial enterprise and utilities industries.



Fiscal year of 2015 performance (Source: Company Reports)

New Patent wins: The group got two patent approvals for its new multi-directional oblique views, high-resolution digital elevation models - HyperCamera and HyperCamera 2. NEA is planning to launch HyperaCamera2 in the first half of 2016 in the US market. NEA is targeting the global aerial imaging market which is estimated to grow to USD 2,288 million by 2020, from USD 966 million in 2013, witnessing a CAGR of 13.4% during 2014 to 2020. The major end-use industry is Government. Accordingly, the group integrated MapBrowser with ESRI ArcGIS platform ESRI software, which is used by >350k organizations worldwide. As a result, NEA intends to leverage this opportunity by marketing and targeting most governments and more than two-thirds of Fortune 500 companies. The group is already winning new clients and is offering competitive pricing.


Market Opportunity (Source: Company Reports)
 
Stock Outlook: NEA reiterated its revenue forecast in the range of $30 million to $50 million in the US by December 2017. Although the company has narrowed down the Australian revenue run rate guidance range to $28m-$32m by December 2015 from $30m-$50m in view of recalibration, it still believes to have substantial growth going forward. Particularly, significant growth opportunities in AU and US market driven by increasing awareness, rising penetration and new products would drive its growth in the coming periods. The shares of NEA have corrected over 30.3% year to date (as of Sep 23 close), partly attributed to its earnings pressure due to heavy US setup costs and tough market conditions. However, we believe that the group’s efforts in the US would be paid off in the coming years, and accordingly drive the stock performance. We give a “BUY” recommendation to the stock at the current price of 0.46.


NEA Daily Chart (Source: Thomson Reuters)

Disclaimer
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Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.




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