NEA - Nearmap Limited

sinner · 6 May 2013

Re: NEA - Nearmap

It will pull back tmr imo. The quarterly cash flow is good but anyone annualising that will be in a big shock in a few more quarter's time.

I am interested in how you value a company like this?

Cash Flows / Shares Outstanding ~= 0.01

So that puts price about ~28 multiple?

Without a dividend, the market is essentially pricing a very high (>25%Y) growth rate in this figure?

Please correct me if I'm wrong.

McLovin · 6 May 2013

Re: NEA - Nearmap

Peer comparison

Some sort of metric built around number of subscribers.

My old favourite from the dot bomb era "earnings before expenses" (ie revenue).

Clearly there is some sort of breakeven point after which profit should grow pretty fast, assuming these guys have high fixed costs.

Any DCF will have so many assumptions built into it it will be useless.

The easiest way is probably to make some guesstimates around subscriber growth and revenue, then try and work out fixed/variable costs and go from there. It will give you a nothing more than a ballpark figure.

sinner · 6 May 2013

Re: NEA - Nearmap

If it's not too much trouble McLovin, would you mind providing an example of how you'd value this (or an imaginary example) company based on revenues?

McLovin · 6 May 2013

Re: NEA - Nearmap

sinner said:
If it's not too much trouble McLovin, would you mind providing an example of how you'd value this (or an imaginary example) company based on revenues?

I'd never value anything based solely on revenue. The jist of what I was saying (poorly) is that the more speculative the company the less one should rely on the valuation and the wider the margin of safety. Ultimately, you still need to come up with some sort of profit (as a proxy for cash flow) with which to base a valuation.

I'm afraid it's a bit beyond me how to work out a value that makes me sleep at night for these sorts of companies, however if you're interested, you might like this ppt from Damodaran on valuing young, unprofitable firms.

http://people.stern.nyu.edu/adamodar/pdfiles/country/darkside.pdf

mr. jeff · 6 May 2013

Re: NEA - Nearmap

I would propose taking from post #18 all the figures from the CFO, halving the projection and making that projection a 5 year target. Then create a lineal prediction per year based on

1. Start from figures from past quarterly
2. Determined projection based on forecast / 2

Then you have the yearly total expected sales for the next 5 years.
I would then factor in some increasing costs that vary inversely with profit to be safe (by percentage)

Then you can either perform an extremely questionable DCF on that set of figures or you can just pick a P/E from peers and apply that to the projected income at any point in time. If you want to, you can then use the P/E to come straight back to a share price at any point in that projection.

This will probably just make you realise that it could end up anywhere depending on thousands of factors and that it is worthwhile having some sort of projection, but spending a lot of time on the figures is probably not going to help that much in a buy/sell type decision, as it all depends on your own input into the forecast.

pixel · 6 May 2013

Re: NEA - Nearmap

mr. jeff said:
I would propose taking from post #18 all the figures from the CFO, halving the projection and making that projection a 5 year target. Then create a lineal prediction per year based on

1. Start from figures from past quarterly
2. Determined projection based on forecast / 2

Then you have the yearly total expected sales for the next 5 years.
I would then factor in some increasing costs that vary inversely with profit to be safe (by percentage)

Then you can either perform an extremely questionable DCF on that set of figures or you can just pick a P/E from peers and apply that to the projected income at any point in time. If you want to, you can then use the P/E to come straight back to a share price at any point in that projection.

This will probably just make you realise that it could end up anywhere depending on thousands of factors and that it is worthwhile having some sort of projection, but spending a lot of time on the figures is probably not going to help that much in a buy/sell type decision, as it all depends on your own input into the forecast.

Or you could take Sir Alan Greenspan's approach to price predictions and "toss a coin".

The most reliable determinant of a company's present share value is its present trading level. That integrates all available data and - in part where applicable - assumptions about probable directions in a consensual opinion by the average participants in the Market. Accepting market sentiment sure beats trying to guess by oneself. Saves a lot of time as well.

sinner · 6 May 2013

Re: NEA - Nearmap

pixel said:
Or you could take Sir Alan Greenspan's approach to price predictions and "toss a coin".

The most reliable determinant of a company's present share value is its present trading level. That integrates all available data and - in part where applicable - assumptions about probable directions in a consensual opinion by the average participants in the Market. Accepting market sentiment sure beats trying to guess by oneself. Saves a lot of time as well.

View attachment 52046

pixel, I have no issues with valuing a financial instrument based on technicals or quantitative measures. I was just curious to hear from the value guys how they might determine where this stock is deemed cheap or expensive.

skc · 6 May 2013

Re: NEA - Nearmap

sinner said:
pixel, I have no issues with valuing a financial instrument based on technicals or quantitative measures. I was just curious to hear from the value guys how they might determine where this stock is deemed cheap or expensive.

Here's a broadbrush approah doing it backwards. High growth internet companies can easily attract PE 20+ (look at REA and CRZ). The current market cap of ~$89m, so a PE 20x implies earnings ~$4.5m, or 1.4cps.

Looking at what they did last quarter with ~$2.0m operating cashflow, you'd say a translation to $4.5m a year NPAT isn't a huge stretch.

This may not make it a fundamental value buy - but at least a logically sensible punt if you think those quarterly incomes are just at the infancy of its growth.

pixel · 6 May 2013

Re: NEA - Nearmap

skc said:
Here's a broadbrush approah doing it backwards. High growth internet companies can easily attract PE 20+ (look at REA and CRZ). The current market cap of ~$89m, so a PE 20x implies earnings ~$4.5m, or 1.4cps.

Looking at what they did last quarter with ~$2.0m operating cashflow, you'd say a translation to $4.5m a year NPAT isn't a huge stretch.

This may not make it a fundamental value buy - but at least a logically sensible punt if you think those quarterly incomes are just at the infancy of its growth.

Fair approach, skc;
and quite a simple one too.

The open question is then how much you estimate their forward earnings to be.
In their latest presentation, they seem to expect growing revenue streams, even within the next year. It would therefore be reasonable to assume annual earnings to be somewhere in the region of $ 8 to 12 Million.

Maybe that justifies the continuing uptrend?
In any case, I'm happy to hold a while longer, even at current prices.

McLovin · 6 May 2013

Re: NEA - Nearmap

skc said:
Here's a broadbrush approah doing it backwards. High growth internet companies can easily attract PE 20+ (look at REA and CRZ). The current market cap of ~$89m, so a PE 20x implies earnings ~$4.5m, or 1.4cps.

Looking at what they did last quarter with ~$2.0m operating cashflow, you'd say a translation to $4.5m a year NPAT isn't a huge stretch.

This may not make it a fundamental value buy - but at least a logically sensible punt if you think those quarterly incomes are just at the infancy of its growth.

The only problem with using peer comparisons is making sure they're actually peer comparisons. How comparable are CRZ and REA to these guys? NEA seems to be quite a specific mapping product. I mean how many people are going to need/pay to find their nearest pizza restaurant or vertical blind store, and what it looked like from space, 1 week, 1 month, 1 year ago, from NEA when it's all free on Google Maps? I have no idea how big the market for NEA's specific product is but surely it's far smaller than a mass consumer website like CRZ and REA.

Unless I've missed something about their product?

ETA: That's not to say I have a better method, I don't. Just pointing out that it might be an apples v oranges comparison

odds-on · 6 May 2013

Re: NEA - Nearmap

sinner said:
I am interested in how you value a company like this?

Cash Flows / Shares Outstanding ~= 0.01

So that puts price about ~28 multiple?

Without a dividend, the market is essentially pricing a very high (>25%Y) growth rate in this figure?

Please correct me if I'm wrong.

Hi Sinner,

If there is insufficient profitable operating history to gain confidence in the survival of the business over the next couple of years I personally would only value it by calculating Liquidation Value. Position sizing would be like an angel investor portfolio.

Cheers

odds-on

sinner · 7 May 2013

Re: NEA - Nearmap

odds-on said:
Hi Sinner,

If there is insufficient profitable operating history to gain confidence in the survival of the business over the next couple of years I personally would only value it by calculating Liquidation Value. Position sizing would be like an angel investor portfolio.

Cheers

odds-on

Hey odds-on,

Thanks for your input. I just finished reading Seth Klarmans "Margin of Safety" tonight and it sounds like you have read it too?

odds-on · 7 May 2013

Re: NEA - Nearmap

sinner said:
Hey odds-on,

Thanks for your input. I just finished reading Seth Klarmans "Margin of Safety" tonight and it sounds like you have read it too?

Never read it, too expensive for me Can i borrow your copy?

http://www.amazon.com/Margin-Safety-Risk-Averse-Strategies-Thoughtful/dp/0887305105

If you ever get the chance read some academic papers on business failure, it changed my view of business and investing.

mr. jeff · 9 May 2013

Re: NEA - Nearmap

Some figures which are all guesses based on the theory that there will be 70M in sales in the future - I put this about 3-4 years out based on current subscription growth plus the added sales growth from single user licensing I expect to be released next year - sooner would be better. (highlighted on data)

View attachment NEA SIM.pdf

Almost completely unfounded but it shows an interpretation. I have also indexed costs using a simple proportionate rise with income. As far as cash flow goes, that could be anything...

SuperGlue · 25 May 2013

Re: NEA - Nearmap

Article from Sydney Morning Herald:

Growth targets - and the Google risk

Further growth could be achieved, as the company expands its coverage beyond capital cities and outlying regions. And it's not just Australia that Nearmap could target. The ultimate target is to cover over 20 per cent of the world's population or around 700 cities, with PhotoMaps updated monthly.

Read more: http://www.smh.com.au/business/motl...ising-stock-20130522-2k0hh.html#ixzz2UGNEXNPB

Country Lad · 25 May 2013

Re: NEA - Nearmap

"......we are planning to launch new subscription structures in the near term that will further broaden our user base.”

As a recent user of Nearmaps, I was asked to complete a survey by the company. I have strongly suggested they do the above, and in particular, single user small business rates as well as appropriate lower rates for personal use. There is huge potential for these - smaller subs/margin but huge volume.

Cheers
Country Lad

ROE · 25 May 2013

Re: NEA - Nearmap

Get an iPad and use Apple maps ..they provide similar information for free...

Apple bought out a mapping company about 2 years ago doing similar work to Near Map where they capture
3D high Resolutions for most US city.....close up...fly by shot...they do cover other cities outside US and it just a matter of time before they roll out more....

http://www.apple.com/au/ios/maps/

Microsoft, Google and Apple are very big in mapping area and they already has infrastructure in place if they want to do something similar to Near Map it wouldn't take much effort...

SuperGlue · 26 May 2013

Re: NEA - Nearmap

The company's patents are based on an aerial camera system called “HyperPods”, which allow large areas to be captured cheaply and quickly. Its photos capture several angles, are higher clarity, and are updated more frequently than free alternatives.

I don't know much about maps & mapping technology, but if what it says above, patented, cheaply & quickly, then NEA may have an advantage.
Only time & fast changes in technology will tell.

ROE · 26 May 2013

Re: NEA - Nearmap

nothing special in this patent they just pattern one way of capturing photos, there are hundred of way of taking photos ....

just like computer software patents, there are hundred of ways of achieving the same result...
Samsung/Google android doing exact same thing as Apple and stealing its market share fast...and Apple has millions of patents on software

Facebook look to move into mapping area as well
http://www.afr.com/p/technology/google_eyes_waze_as_facebook_circles_EYtwqieVrqenMUw4DRpQTP

having said that NEA market is different from these guys but I wouldn't bet on their patterns as a competitive advantage when you deal with companies that are several thousand times bigger with deeper pockets and bigger resource pool....

NEA best describe as niche market filling a hole that Google/Microsoft/Apple/Facebook has not spend a lot of time on it...what happen when they do get into it and this product is free vs a paid product? ...look at what happen when Internet explorer offered free when Netscape cost $10 a pop....

Smurf1976 · 26 May 2013

Re: NEA - Nearmap

The main practical use I'm aware of for the product relates to enforcement by various authorities.

For example, Nearmap makes it very easy for your local council to know exactly when that new extension was built and whether or not it had approval. No arguing there.

There are similar applications relating to insurance, the electricity industry and others. Basically for anyone who wants to prove when something outdoors was done, there's huge value in regularly updated aerial photos. Police might have a use for it too I would think.

I'm 100% certain that electricity distributors are using it in some areas. Not sure about the others but there are obvious applications.

NEA - Nearmap Limited

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