Despite a tough economic backdrop, aerial imagery company Nearmap Ltd (ASX: NEA) has performed fairly strongly since the onset on COVID-19 last year.
The Nearmap share price chart tells a slightly different story, however. Despite a rapid recovery from March last year, the Nearmap share price has languished and gradually trended downwards since September, with shares currently sitting at $2.15 per share.
NEA share price chart
Nearmap background
Sometimes referred to as “Google Earth on steroids”, Nearmap essentially stitches high-resolution images together through aerial imaging and geospatial mapping technology.
Its customers are typically small to medium sized enterprises in sectors like engineering and construction who can then access Nearmap’s imagery through a cloud-based platform.
Recent financial performance
Despite the company saying COVID-19 had no material impact on operations, Nearmap put various cost-cutting measures in place to achieve a cashflow breakeven position, including temporary reductions to employee salaries.
Through FY20, Nearmap’s Annualised Contract Value (ACV) grew to $106.4 million (up 17% pcp) and global subscriptions jumped to 10,458 (up 6.7% pcp).
Considering Nearmap’s client base, I would’ve thought the company would be sensitive to business spending and investment levels during pandemic times. But it seems like this hasn’t been the case, with the company increasing its FY21 guidance and expecting ACV to be between $120 million to $128 million.
How is Nearmap fuelling growth?
While the company can boast a debt-free balance sheet, much of the investment spending that has fuelled growth over the years has been the result of a series of capital raisings.
At the end of FY16, Nearmap had 356 million shares outstanding and today, this number has grown to 492 million. Every time a capital raising is completed, there’s a dilutive effect on existing shareholders. And I’d imagine sentiment might be running lower if investors are anticipating more capital raisings around the corner.
Nearmap’s most recent capital raising was in September last year and the company said part of the proceeds would be used to fund its continued expansion in the US market.
Funds will also be invested in the company’s fourth generation camera system and new internal systems allowing it to scale better, both of which will fuel growth into FY22 and beyond.
Where to from here?
It seems to me that Nearmap is still an evolving growth story as evidenced by continued investment and growth initiatives into other markets.
Nearmap had roughly $33 million in cash on its balance sheet as of FY20. After the most recent capital raising and subsequent expenditure, it’s unclear what this figure looks like today.
I’m not completely sure if Nearmap’s shares are a buy today, but I’d definitely add it to the watchlist for now.
Nearmap has explicitly said it will continue to reinvest free cashflows back into the business to continue its expansion for the time being. It seems like the company isn’t aiming to be profitable in the short term at least, so I don’t think another capital raising would be off the cards at some stage.
For other ASX growth shares for your watchlist, click here to read: 2 ASX growth shares to add to your 2021 watchlist.
