The Nearmap Ltd (ASX: NEA) share price will be one to watch this morning after it was the subject of a bullish broker note out of Goldman Sachs.
What did Goldman Sachs say?
According to the note, Goldman Sachs has upgraded the aerial imagery technology and location data company's shares to a buy rating with a $2.75 price target.
Based on the latest Nearmap share price, this price target implies potential upside of almost 29% over the next 12 months.
Why is the Nearmap share price in the buy zone?
There are a number of reasons why Goldman believes that Nearmap share price is in the buy zone right now.
These include its attractive valuation relative to peers, its strong balance sheet, and the broker's expectation for a strong macro recovery.
It commented: "We upgrade our recommendation to BUY (was Neutral) given the strong macro recovery expected by our US Economics team, NEA's strong balance sheet (A$110mn in net cash forecast by end of FY21E), its market leading technology capabilities and relatively attractive valuation metrics (our revised target price of A$2.75 implies a potential return of +29% relative to the +15% expected of our coverage universe)."
And although the broker believes Nearmap is currently facing a challenging demand environment in the US as COVID-19 impacts its sales cycle for new customer contracts, it is anticipating these headwinds to ease through 2021.
After which, it believes a sharp economic recovery will support the reacceleration of Annualised Contract Value (ACV) growth from the June quarter. Especially given how ~37% of its FY 2020 ACV came from segments that are likely to have some economic cyclicality or be impacted by social distancing measures.
Technological advantage
Also driving growth will be the quality of its technology, which Goldman believes is market-leading.
It commented: "Our review of the competitive landscape in the US market concluded that NEA is a leader in both quality and frequency of update and has made a substantial investment to provide oblique and 3D imagery and AI/ML driven analytical capability at scale for its customer base which few competitors currently replicate."
"Our broad conclusion is that based on frequency of capture and image quality (measured by GSD), NEA remains the leader among its competitor set. Eagleview offers a higher resolution image than NEA but its frequency of capture is significantly lower (once every 2-3 years vs. 6x per year)."
"In our view, the value derived from the imagery for customers is dependent on both aspects as they combine to provide a quality of data advantage (i.e. higher quality data captured more frequently allows for better interrogation/analytics capability from the data set)," it concluded.
