The Motley Fool

Citi tips Nearmap share price to climb to $4.59

The Nearmap Ltd (ASX: NEA) share price is down around 15% since it reported a widening net loss of $14.9 million on revenue of $77.6 million last Wednesday. The rising losses are on the back of increased investment costs in sales and marketing efforts in the vast US market where it managed annualised contract value (ACV) growth of 76% to US$22.7 million over the year.

FX-adjusted US ACV now represents over one third of the group total of A$90.2 million and Nearmap has grown in the US market far quicker than it did in ANZ. The chart below shows this.

Source: Nearmap presentation, Aug 21, 2019.

Nearmap’s ANZ business posted a net operating cash inflow of $32.5 million on revenue of $53.17 million for fiscal 2019, so we can see that if the US business continues on a similar growth trajectory it’s likely to be highly profitable itself in a couple of years time.

However, I’d caution investors not to extrapolate too much from the chart above or ‘bet the house’ on Nearmap rocketing as further progress in the U.S. market is far from guaranteed.

More importantly Nearmap has invested heavily in new product and technology to support its competitive position in the U.S. and to up-sell new products to customers globally.

It now offers 3D mapping, and will soon offer more comprehensive AI and data analytic tools to help users get even more value out of the product.

You can’t get something for nothing in the tech space and given how impressive its new tech mapping tools look I expect the increased investment should pay off over the medium term.

In particular if it can reduce churn and raise average revenue per user on the back of investments that would be two key steps of progress alongside its sales ambitions. 

After all if Nearmap is genuinely ambitious to grow into a far bigger global business it needs to invest heavily today to support the big returns of tomorrow.

Fortunately after a recent capital raising it has $75.9 million cash on hand with its ANZ group’s profits effectively able to self fund losses in the US for now.

The balance sheet strength also leaves it plenty of room to invest to grow into Canada and elsewhere globally, or on new tech initiatives. It should also mean the group does not have to go back to the market again for more cash if management execute’s on its strategy.

According to financial news wires the sell side research analysts at Citi remain bullish on the group’s outlook and even lifted their share price target to $4.59 after the full year results.

If Citi is on the money Nearmap shares have some 73% upside over the 12 months ahead. At $2.67 this afternoon I’d also rate Nearmap shares a spec buy.

Other growing businesses in the software-as-a-service space investors might want to consider include Catapult Group Ltd (ASX: CAT) and Infomedia Limited (ASX: IFM).

Another business I'd definitely suggest looking at is The Motley Fool’s #1 BANK STOCK for 2019 it's one of the ASX's best businesses for income and growth in my opinion.

BRAND NEW! For a limited time, The Motley Fool Australia is giving away an urgent new investment report with all the details on our #1 BANK STOCK for the next 12 months and beyond…

Now, if you’ve been around this site for any length of time, you know The Motley Fool usually shuns bank shares.

But we’ve recently discovered a ‘hidden in plain sight’ bank stock with what we think is mouth-watering potential.

With the company boasting nearly 25% net profit growth every year for the last 5 YEARS…

And the shares paying a fully franked dividend that beats the pants off term deposits!

So if you like steady, high-growth income plays – we’ve got you covered!

You’re invited. Simply click the link below to discover our #1 ASX bank stock to profit in 2019. To scoop up your FREE copy, simply click the link below right now. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!