A promising stgelopment on ASX in the past two years has been growth in tech floats. For all its promise, the technology sector is badly underrepresented on ASX. Investors wanting exposure to high-tech trends have had to look overseas.
Tech-float momentum is building, albeit off a low base. The Freelancer IPO in 2013 kick-started the trend and several promising tech companies followed, among them iSentia Group and 3P Learning. This column has favourably reviewed these companies.
Building-services software group Urbanise.com has also delivered strong gains since listing. After raising $20 million at 50 cents a share in September 2014, it raced to 90 cents, and made the All Ordinaries Index in the Standard & Poor’s March quarter rebalance. Ubranise.com was 2014’s sixth best-performed float, relative to the issue price.
Chart 1: Urbanise.com
Urbanise.com is a cloud-based provider of software for building operators. Its software helps owners and managers of apartment blocks and office towers run their buildings. City densification and more high-rise towers are powerful trends for Urbanise.com.
This column has been bullish on urbanisation-related stocks over the past year, nominating listed property trust National Storage REIT as a beneficiary of greater demand for self-storage space. I should have included Urbanise.com in that analysis, having followed its float.
Urbanise.com has clever software. Its cloud platform helps building owners manage help-desks for occupants, maintain common areas, co-ordinate work by staff and contractors, manage energy consumption and fix system breakdowns. It remotely connects buildings at low cost to improve the efficiency and cost of all building-maintenance tasks.
One can imagine a sharp increase in the number of city apartment blocks in the coming decade and greater demand for building-services software. Expected population growth in Sydney and Melbourne, for example, will surely densify already crowded city centres. Growth in smart homes as the “internet of things” connects stgices via the internet is another powerful emerging trend.
Urbanise.com has an interesting business model. It charges building occupants and owners a small fee each month based on usage volumes. Like all good software products, its system quickly becomes embedded in building platforms and has high switching costs if customers decide to change providers. The result should be sticky, annuity-like, high-margin revenue that ticks over every year.
Urbanise.com can scale the opportunity without huge extra investment thanks to a capital-lite business model. It already operates in the United Kingdom, the United States and the United Arab Emirates and says there is growing interest from the Netherlands, Singapore and Indonesia.
I like tech services that are an easier upfront sell for customers. In Urbanise.com’s case, the small subscription fee means the service is low cost and low risk for potential users. Also, there is no installation of computer equipment on site or extra tech personnel required. Urbanise.com should rapidly build customer numbers and lift the average revenue from each over time as more services are used.
It serviced more than 45,307 households worldwide in June 2014 and forecasts 170,050 customers by June 2015. Urbanise.com signed up two large customers in March.
Revenue has grown from $1.47 million in FY11 to $5.1 million in FY15. The prospectus forecasts $9.7 million of revenue in FY15 and $2.4 million in after-tax profit. Urbanise.com said it is on track to deliver key prospectus forecasts at its interim FY15 result in February.
Urbanise.com is not cheap. A near doubling of the issue price and a $198 million market capitalisation leaves little room for error. But there’s much to like about its early performance as a listed company, its software, market and business model.
If it can rapidly sign up building owners and managers, scale the opportunity, and build a larger base of recurring revenue, Urbanise.com will be worth much more in 3-5 years. Unlike several emerging tech peers, it is already profitable and has an attractive business model.
The intersection of cloud computing and building services, in an increasingly urbanised world, has plenty of investment appeal. Also, Urbanise.com is applying an emerging technology to an established market, rather than creating a new one.
Nevertheless, it suits experienced investors who are comfortable with the higher risk of small-cap stocks and able to hold this investment with a medium-term view. Successful tech IPOs have a habit of being overhyped, shooting higher after listing, and just as quickly giving up early gains.
Tony Featherstone is a former managing editor of BRW and Shares magazines. The column does not imply any stock recommendations. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at April 2, 2015.