Why ATEC debutante Pointerra is ripe for insto money
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Geospatial cloud-based data-as-a-service company, Pointerra (ASX:3DP) entered the S&P/ASX All Technology Index (ATEC) this week, capping off a stellar year in both share price and operational performance.
Let’s be upfront, Pointerra is a RaaS client and a company that we have sought to work with for more than 18 months. Notably one of Australia’s leading tech entrepreneurs, Bevan Slattery, also identified Pointerra’s potential, taking a strategic stake in July which helped propel the share price from $0.04 to a high of $0.61 in September.
We would have liked to have secured Pointerra as a client before the rerating but were pleased to initiate coverage last month with a base case DCF valuation of $0.75/share.
Our valuation is predicated on Pointerra securing contracts with a combined annualised value of US$50m by June 2025.
Its last announced (November 26) Annual Contract Value (ACV) was US$5.82m, having almost doubled since June 30 and having grown 3.5-fold since the beginning of FY20. We expect Pointerra to finish this half with ACV of US$6.37m and FY21 with ACV of US$10.22m.
Why is this an important measure? Pointerra generates most of its revenue from recurring subscription revenue contracts which are usually open-ended in duration with many customers in the US utilities sector. As it is a rapidly growing company with contracts at various stages of being written, ACV gives investors a sense of what can be expected from revenues in the medium term as the business matures.
Over time, we expect ACV to closely correlate with revenues. This together with gross profit margin and EBITDA margin are the key parameters we look for in Pointerra.
Like most SaaS companies, Pointerra is a capital light business with significant operating leverage as revenues grow.
GP margin in FY20 was 92% and we expect this to stay around 90% for the foreseeable future.
EBITDA margins are forecast to grow to 60%+ over the next five years.
The company is profitable on an ACV basis and we are forecasting it will breakeven operationally in the second half of this financial year.
This is why its inclusion in the All Tech index is timely and, in our view, will be a turning point for institutional focus.
As a result of its index inclusion, Pointerra is now in the Betashares S&P/ASX Australian Technology Exchange Traded Fund (ASX:ATEC) which tracks the All Tech Index, debuting with a weighting of 0.191% which in dollar terms is a $0.327m holding in a $171m fund.
A small holding to be sure, but not the smallest holding in a fund tracking an index which has delivered a 44% year-to-date return versus a flat broader market.
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