MENU

Nearmap Ltd wants $70 million to fund its international expansion plans

Aerial-mapping business Nearmap Ltd (ASX: NEA) this morning announced plans to raise $70 million from institutional investors to fund its international expansion plans. The capital raising will only be offered to institutional investors at a price of $1.60 per share, which is a 11.1% discount to yesterday’s closing price of $1.80, or a 8.1% discount to the 5-day volume weighted average price of $1.742.

Nearmap will also pay around $3 million in fees (from the $70 million raised) to its underwriters Macquarie Capital and Cannacord Genuity.

The sum of $70 million is a significant amount that Nearmap is earmarking to fund international expansion, with the markets of Canada, the UK, and Europe specifically mentioned in today’s update.

Nearmap is currently in the middle of an expensive push into the large U.S. market with heavy investment over the prior two years now starting to pay off. In this large market annualised contract value now stands at US$12.9 million with growth accelerating over the last six months.

For a company valued around $700 million (at the rights price) an extra $70 million in issued shares will create significant dilution for retail shareholders unable to participate in the raising and the failure to find room for retail shareholders speaks patchily of management’s attitude to retail investors.

I’m not in the camp that it’s an outrage retail investors are excluded, but seeing they’re sharing the bill for the $3 million raising it seems right they should get the chance to participate.

Recently Gentrack Group Ltd (ASX: GTK) which is also a software-as-a-service business of comparable size to Nearmap raised NZ$90 million on a renounceable entitlement basis that even gave retail investors the option to try and sell rights they could not take up to others.

This is the gold standard of capital raisings that has also been followed by the likes of Corporate Travel Management Ltd (ASX: CTD) in the past.

The silver and still respectable standard is to simply offer retail investors some participation even if it is potentially scaled back, while Nearmap’s standard is off the podium (getting lapped) from a retail investor’s point of view.

It’s not the end of the world though, with the key being whether Nearmap can deliver a return on the $70 million invested for its international growth, sales efforts, and technology development.

It’s also worth noting that CEO Rob Newman knows how to strike when the iron is hot with the last raising at 70 cents a share towards the top of a strong share price run, as with this raising. While I won’t be complaining if Nearmap delivers on its ambitions to send shares higher in time.

Nearmap suggested only $5 million to $10 million of the proceeds is earmarked for investment in the US and Australian sales efforts over FY19 and FY20, which infers a move into either Canada or the UK is imminent as the company will have around $87 million sitting on its balance sheet after the capital raising.

Nearmap has also flagged it expects to invest further in technology such as 3D and obilque imaging that helps defend its competitive advantage over rivals and other forms of aerial mapping such as those offered by Google Maps, drones, or even satellites.

Foolish takeaway

I’d rather see the group focus on succeeding in the U.S. before it gets distracted by another high-risk overseas adventure and suspect that Canada has been identified as the next market that offers the best chance of a good return on investment given its adjacency to the U.S. While the densely populated UK must also be reasonably appealing given capture costs per head should be lower.

Either way the U.S. market size alone (plus ANZ) looks to have the potential to make Nearmap a success over the years ahead.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Tom Richardson owns shares of Corporate Travel Management Limited, GENTRACK FPO NZ, and Nearmap Ltd.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Nearmap Ltd. The Motley Fool Australia has recommended GENTRACK FPO NZ. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!