Nearmap (ASX:NEA) share price tumbles 11% following capital raising

Nearmap emerged from a one-day trading halt today after announcing a $90 million capital raising. Here's how investors are reacting.

| More on:
A paper plane crashed in sand.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Nearmap Ltd (ASX: NEA) share price is down 11.07% in mid-morning trading after emerging from yesterday's trading halt. At the time of writing, the Nearmap share price has fallen to $2.59 after closing yesterday's session at $2.57.

Nearmap requested the trading halt following its ASX announcement of a capital raising.

The $90 million capital raising is comprised of a $20 million share purchase plan and a $70 million institutional placement. Nearmap stated it plans to use the funds to increase its investments in sales and marketing, with a focus on its dominant market in North America.

The company also plans to accelerate the roll out of its next generation camera systems, HyperCamera3, and potentially expand its operations into new geographic locations.

What does Nearmap do?

Nearmap was founded in 1998 in Perth. The company provides high resolution aerial imagery technology and location data for companies and government customers across Australia, the United States, Canada and New Zealand. Its technology allows customers to conduct detailed virtual site visits rather than needing to fly to and over the locations in person.

Nearmap shares first traded on the ASX in 2000. Today, the company has a market capitalisation of $1.3 billion.

What Nearmap's CEO Rob Newman told us about the capital raising

I caught up with Nearmap's CEO, Dr Rob Newman, via Zoom yesterday afternoon to get his views on the company's $90 million capital raising.

Firstly, I wanted to find out the rationale behind the timing of the capital raising.

Newman explained:

We think this is a really good time for us to accelerate our growth and this additional capital will allow us to do that. We see a very strong opportunity (to grow) in North America; it's been there all the time.

As you know, the last 6 months have been quite disruptive globally. What we've found, looking back at how our business has performed over the past 6 months, is that our business is very resilient, that we continue to grow. We're seeing specific opportunities in those verticals which I mentioned in the release: insurance, government and roofing.

In the release, Newman stated that these three verticals "have benefitted from the increasing attractiveness of our premium content types and we see a significant opportunity for Nearmap to establish a leadership position in each."

Newman told me that somewhat less than a third of the new capital will go into sales and marketing in the short term to support these three verticals. Though he noted that, "As the business continues to grow, we'll continue to invest in sales and marketing."

$15 million is allocated to accelerate the roll out of Nearmap's next generation HyperCamera3.

Newman said:

If we hadn't allocated $15 million to the roll out (of HyperCamera3), we'd have to roll them out in ones or twos. These systems cost somewhere around half a million dollars each. With this capital we can roll out a significant amount of systems and really increase our coverage in North America and allow us to go to Europe if we choose to.

Having mentioned Europe, Newman stressed that the capital raising won't have any direct influence on Nearmap's expansion into the continent. However, the company is happy to accommodate its existing customers if they want content in Europe. Newman added that, "HyperCamera3 will be a much more productive system given the weather in large parts of Europe, so that certainly will help us expand into that market."

As for Nearmap's growth outlook, Newman pointed out that, "We've previously guided that our growth rate would be somewhere between 20–40%. And if you look at where most of the analysts have it, it's much more towards the bottom end of that range."

Following its capital raising, however, Newman says the company can now "grow at a much faster rate" and see a push up in that guidance rate, though that accelerated growth likely won't begin to materialise until next year, as Nearmap makes the investments.

Finally, I wanted to know how Nearmap determined the $70 million to $20 million split between the institutional placement and the share purchase plan.

Newman explained:

We do a lot of analysis on the amount of capital we require. We know we need to lock in the $70 million, so that's underwritten, committed from our banking partner. Then with the additional $20 million, obviously we want to be fair to our retail shareholders so they can participate in this as well. Now that's not committed; we're not committing our retail shareholders, but giving them an opportunity to invest on very good terms. (Either) the lower of the price that we do today (yesterday) or a discount to the weighted average at the end of this share purchase period.

It's a nice way to balance getting the commitment to the capital that we need from the institutional investors and also being fair to our retail shareholders. And we'd like to get that extra $20 million because that would allow us to accelerate even more.

Newman said Nearmap is very confident in the state of its business.

Despite today's selloff, the Nearmap share price is up 2.39% year to date, overcoming a crushing 64% fall during the COVID-19 panic selling.

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap Ltd. 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.

More on Share Market News

Top ten gold trophy.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors endured a sour end to the trading week today.

Read more »

Lion holding and screaming into a yellow loudspeaker on a blue background, symbolising an announcement from Liontown.
Opinions

3 ASX shares that could walk away winners from the 'Future Made in Australia Act'

Life is a whole lot easier when money is being thrown your way.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Dividend Investing

With 8%+ dividends, how long can these ASX 200 passive income shares stay cheap?

I think ASX 200 investors looking for ‘cheap’ passive income shares will want to check these out.

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Avita Medical, Cettire, Domino's Pizza, and Star shares are falling today

These ASX shares are having a tough end to the week. But why?

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Share Gainers

Why Boral, FBR, Origin, and Regis Resources shares are pushing higher today

These ASX shares are ending the week positively. But why?

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Broker Notes

Up 15% in 13 days, is it too late to buy South32 shares?

South32 shares have risen 1%-plus per day for the past 13 trading days. Have investors missed the boat?

Read more »

Animation of man and woman shaking hands on a deal on top of gold coins.
Mergers & Acquisitions

Which ASX companies are deploying dividends to secure a $1.9 billion deal?

Dividends appear to have sealed the deal for an ASX mega-merger.

Read more »