Aerometrex: Leaving 1H turbulence in the rear mirror

About the author:

Anthony Porto
Author name:
By Anthony Porto
Job title:
Senior Analyst
Date posted:
25 August 2021, 9:00 AM
Sectors Covered:
Online, Emerging Tech

  • With expectations rebased following AMX’s mid-June guidance update, AMX has produced a FY21 result at the top end of guidance and ahead of MorgansF.
  • AMX continues to show promising growth in the MetroMap subscription product, with period end ARR of $4.81m +189% on pcp (+13% on Mar Q) and 7% ahead of MorgansF. AMX is confident of converting a portion of lost project revenue to subscription, with MetroMap 3.0 to feature UX enhancements.
  • The 3D opportunity in the US remains largely nascent, with AMX disclosing a $1.3m spend in the US in FY21 to establish their footprint. Delivery of the Google order, opening of a 3D store and a US based advisory board, should aid growth in this large market.
  • Despite revenue downgrades from cessation of project work, our valuation/Target Price reduces a modest 3.6% to (login to view). We retain the Add rating on AMX, seeing the risk/reward tradeoff as attractive as AMX targets opportunities which could lead to a step change in the earnings profile.

2H comes roaring back after bumpy 1H

A welcome return to growth in 2H (revenue +25% on pcp, +45% on 1H) saw FY rev +5% (+6% on MorgansF) to $21.2m. EBITDA of $2.9m saw a $3m turnaround hoh but was still down 38% on pcp (+27% in 2H).

AMX outperformed nearly all line items vs MorgansF, which admittedly were rebased in mid-June post the company releasing FY21 guidance. A 6% revenue beat saw a 53% EBITDA beat (law of small numbers) with OCF +6% on MorgansF and FCF +40% ($4.6m lower cash outflow than forecast).

MetroMap performance encouraging, 3D product a huge opportunity

MM ARR growth to $4.81m was a key highlight with AMX adding $3.1m of ARR in the year (~$820k from the Spookfish acq). This compares reasonably well to the $4.8m of domestic ACV NEA added in FY21 (67% of NEA).

Despite NEAs sales team dwarfing that of AMX, AMX’s partnering strategy appears to be resonating. Although seemingly a duopoly in subscription services, competition remains fierce.

The US market for 3D is said to have ~10x potential of the Australian market, with AMX likely to continue to invest ahead of the curve to break into this market. The quality of corporations interested in AMX’s product (incl Google, Cesium, Unreal Engine) is encouraging.

We note a modicum of success in penetrating this market would see a step change in AMX’s earnings profile.

AMX’s search for a new CEO post the announcement of Mark Deuter’s retirement at the end of the year, is said to be progressing well.

Forecast and valuation update

Cessation of aerial project work (ann late June) has seen downgrades to revenue forecasts, with a more muted EBITDA impact given lower margins. AMX is confident of converting some of this revenue (~$1-3m) to the MetroMap product.

We assume only minor success here. Whilst we anticipate a slowing in MetroMap growth rates, we see this product as broadly washing it’s face within FY23.

We downgrade revenue 4%,11% and 9% over the next 3 FYs, with EBITDA +8% in FY22 (better run rate exit out of FY21) but down 8% and 4% in FY23/24.

Our valuation moves to (login to view) with an unchanged DCF and a 7% reduction in the EV/Rev (5x) valuation component from reduced FY22 rev (it could be argued that the remaining revenue deserves a higher multiple, but we see a ~25% discount to NEA’s multiple as broadly appropriate in our valuation).

Investment view: Retain the Add rating

We remain attracted to the growth potential in AMX. We see the risk/reward tradeoff as favourable with the company remaining funded ($16.6m cash on BS, $5.4m FCF burn in FY21) to execute on these opportunities in their current scope.

Price catalysts

Continued MM ARR growth (higher multiple rev stream) 3D product sales in the US, potential strategic M&A (product or geographic extension)

Risks

Intensifying competitive pressure domestically and a lack of ROI on investment in both the domestic and US markets.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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