Australia has some great companies working in the fields of 3D and aerial data, and Data-as-a-service (DaaS), led by former market darling Nearmap. Here are the three main exposures, of which Aerometrex looks the most appealing investment right now.
1. Nearmap (NEA, $2.21)
Market capitalisation: $961 million
Three-year total return: 20.6% a year
Analysts’ consensus target price: $2.60 (Thomson Reuters), $2.567 (FN Arena)
Aerial imagery and location intelligence company Nearmap has been a market darling at times, but as often happens with the attainment of that status, Nearmap flew too close to the sun and the share price (and market capitalisation) was drastically cut. That can be a problem for exciting tech market leaders that are not yet profitable.
Founded in Australia in 2007, Nearmap is a location intelligence company that captures data about the real world from aerial photography – its subscribers use that data to remotely view buildings, assets and land, so that they can inspect, monitor, plan, evaluate and quote, without needing to physically view the site.
Using its own patented camera systems and processing software, Nearmap captures wide-scale urban areas in Australia (90% population coverage), the United States (80% population coverage), New Zealand (73% population coverage) and Canada (64% population coverage) through overflights, multiple times each year. The updated content is delivered to customers as orthogonal (2D) imagery, oblique cardinal direction imagery, and 3D models.
In 2020, Nearmap launched its Nearmap AI product, an AI-enabled system that uses processes such as deep planning, post-processing algorithms and layers of machine learning to extract attributes from aerial data, such as road surfaces, solar panels, poles or construction equipment. Effectively NEA is now generating insights from its data and selling these insights to customers. At present the subscription base numbers more than 11,000 customers across a number of industry sectors (or “verticals”) – the company is well-diversified across industry sectors, with AEC (architecture, engineering, construction) accounting for 23% of customers, followed by insurance (20%), solar power (9%), utilities (8%) and commercial property (17%).
I first covered [1] Nearmap in the Switzer Report in January 2015, at 57 cents, saying that the analysts that covered the stock reckoned it could reach 85 cents. Late in 2019, Nearmap was one of my five top stocks for 2020 [2], at a price of $2.68.
The company started to take off in 2014 after entering the US market, and by June 2019 was trading at $4.12. That was the Icarus moment – flying too close to the Sun – as the Australian share market went wild for software-as-a-service sector (SaaS) stocks, propelling Nearmap to a $1.9 billion market valuation.
It struggled to sustain that, amid intense competition in the US market, and then COVID-19 interrupted business. At the depths of the COVID Crash, March 2020, NEA had slumped to $1.00, for a market valuation of $435 million.
This year, Nearmap has been forced to defend itself against an extremely negative report from a US short-seller firm, J Capital Research Limited, in the latest “short raid” on ASX-listed companies – that hammered the share price in February, but Nearmap impressively mounted a front-foot defence, rebutting J Capital Research’s claims in some detail, along with boosting its FY21 guidance for increased Annual Contract Value (ACV) – when the result came out even better than that, the share price recovery was almost complete. (A patent infringement case brought in the US by major competitor Eagle View also slammed the share price.) For 2021 to date, NEA is down 2.6%.
Nearmap is still a loss-maker, but the company is performing well in the crucial US market, where increased scale should eventually flow into net profit, particularly as the company leverages its new AI capability, which allows NEA to sell insights, as opposed to simply data-as-a-service.
The short raid hurt Nearmap, but the company appears to have dealt with that with a strong FY21 result, which contradicted much of what the short-raider said. The local market was concerned about issues of increasing competition and overly rapid expansion into the US, which was why the J Capital Research report had such an impact – but in the wake of the FY21 result, analysts see good scope for the NEA share price to get back to the levels where it was before J Capital Research’s drive-by “whacking” attempt.
2. Aerometrex (AMX, 76 cents)
Market capitalisation: $70 million
Three-year total return: n/a
Analysts’ consensus target price: $1.31 (Thomson Reuters), $1.31 (FN Arena)
Adelaide-based Aerometrex, which listed in December 2019 at $1 a share, is a similar business to Nearmap – it also creates and sells aerial imagery on a Data-as-a-service (DaaS) basis – but it is slightly different, with a technological edge in its LiDAR (light detection and ranging) capability which accurately maps the ground surface using airborne lasers. Aerometrex has conducted major aerial imagery work programs for Microsoft, with its Bing Maps Ultracam Osprey oblique camera program for every Australian major capital city, and for Google Earth, with its Australia/NZ Cities 3D mapping program.
The company has a strong relationship with Google: it has been creating 3D models for regions of Australia and New Zealand for Google since 2013, but in May the companies signed what could be a transformative deal when Google bought a 3D model of downtown San Francisco that Aerometrex is creating. The model was created at a very high resolution of 2-centimetre pixels. Aerometrex has also created 3D models of the cities of New York, Philadelphia, Denver and Miami, and the company expects to be able to monetise these data sets to a wide range of organisations. At these levels of resolution, the 3D models can recreate the experience of actually walking or flying through these cities. The Google deal – struck before the work is complete – lifted the Aerometrex share price by 14%.
Aerometrex’s 3D model data is being used in a wide range of industries – Aereometrex says 18, at last count – such as urban planning, civil engineering, asset management, mining, oil and gas, coastal erosion, and emergency services. Its LiDAR laser mapping service is being used in Australia for bushfire fuel load modelling, to measure the amount of biomass in a given area and its connection to a vegetation canopy, to inform bushfire prevention and management work.
There is also a growing business opportunity in virtual reality systems and gaming engines – the gaming industry wants just as rich data as any other industry to make its games as realistic as possible.
Another major growth area is the MetroMap online store that allows customers to access and buy specific 3D datasets from an Australia-wide archive of high-quality, accurate aerial imagery, that is updated four times a year for capital cities, and once a year for major regional and rural centres – companies, especially small-to-medium-sized (SME) businesses, can buy precisely the images they need, cost-effectively.
In FY21 Aerometrex lifted operating revenue by 4.2%, to $20.9 million, with subscription revenue up five-fold, to $3.6 million, and annual recurring revenue almost tripling, to $4.8 million. EBITDA (earnings before interest, tax, depreciation and amortisation) was down 15.3%, to $4.2 million. Analysts don’t see profitability before FY24, but virtually every other number is heading in the right direction.
Aerometrex says its total addressable global market for 3D mapping and modelling is estimated to exceed $USD8.1 billion ($10.8 billion) by 2025. The stock is down 24% since listing – and down 39% so far in 2021 – but I think it looks very attractive buying at these levels. The pain for IPO subscribers is working in the favour of someone buying the stock now.
3. Pointerra (3DP, 44 cents)
Market capitalisation: $275 million
Three-year total return: 143.7% a year
Analysts’ consensus target price: n/a
Perth-based Pointerra is different to the two aforementioned stocks in that it does not create its own images, but its unique selling proposition is its proprietary cloud-based solution – based on compression, visualisation and analytics algorithms that “index” massive 3D datasets – that gives anyone, anywhere in the world the ability to store, manage, view, analyse, work in, and share entire 3D datasets – which could come from aircraft, satellites, helicopters, drones, even mobile-enabled backpacks – all from their computer, tablet or phone.
It’s a DaaS digital asset management service that is used by the utilities, AEC (architecture, engineering and construction) sector, surveying and mapping, oil and gas, engineering, transport, mining and construction clients in Australasia and North America; and it is attracting the interest of defence and intelligence organisations. The power utilities sector is currently Pointerra’s largest by ACV spend.
Pointerra says its solution is used by the “digital engineers of the 21st Century,” who design, plan, and build in 3D. It says its revenue model is “sticky subscription,” both for big and small numbers: small initial spends tend to start to grow as customers add more users and start to ask Pointerra to solve more problems. In June, the company bought US-drone based digital asset management company Airovant. For FY21, Pointerra reported annual contract value (ACV) growth of 240%, to $9.8 million; meanwhile, cash receipts from customers surged 128%, to $4.1 million. The company reported an underlying EBITDA loss of $1.27 million, an improvement on the FY20 loss of $1.83 million. The cash balance stood at $5.18 million as at 30 July.
The company’s offering starts with the Pointerra CORE baseline platform access and 3D data workflow offering. From that, customers build into the Pointerra ANALYTICS product, which creates a “digital twin” to enable physical assets to be analysed; the highest-value product is Pointerra 3D ANSWERS, which leverages AI to deliver actionable predictive insights that enable definite answers to physical asset management questions.
At present, as Pointerra grows its customer spend, costs rise with that; but at a certain point, when it achieves the scale for which it is aiming, revenue starts to rise well past costs, which start to stabilise when compared to the revenue growth. The company says it sees that situation happening in FY22 and into FY23 – it says profitability is not far away, but there will be some growth in costs, to achieve that. For investors who are comfortable with that, Pointerra looks very exciting.
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