Urbanise: Growth Potential In Managing Facilities

This story features URBANISE.COM LIMITED. For more info SHARE ANALYSIS: UBN

-Cost effective solution
-Sticky customer base
-US expansion potential
 

By Eva Brocklehurst

Urbanise.com ((UBN)) could be in a building near you. The company has developed a cloud-based platform for facilities management, which enables operators to manage buildings more efficiently. Canaccord Genuity believes the company is preparing for a period of predictable and consistent revenue growth, with earnings margins in excess of 30%.

The broker highlights a highly relevant product, a sticky customer base and a market dominated by expensive legacy systems among the positives for the company. A Buy rating is underpinned by projected earnings on a five-year compound growth rate of 48% to FY18. The broker's price target is $1.54. A large proportion of that revenue is recurring and urbanisation is helping support growth in demand. Existing buildings on the company's customer base which could be migrated onto the platform are in the vicinity of 4,000-6,000.

Mystrata, which Urbanise.com recently acquired, currently has access to 6,000 buildings, providing large opportunities for cross selling. Mystrata is a strata management administration platform with more than 138,000 units under management. Urbanise.com charges a monthly software subscription fee based on platform usage. Canaccord Genuity estimates that in FY18, recurring revenue will be around 96% of the total. Moreover, once the software is embedded in a business the customer is largely locked in, making revenue quite predictable.

First half results show the customer adoption rate is accelerating. Buildings that are connected are forecast to increase more than tenfold this year, to 1,150. Canaccord Genuity expects 7,150 by 2018. The broker met with some companies in Dubai and the UK to obtain feedback on the service. They suggest Urbanise.com is user friendly and helps improve customer service levels and ability to generate new revenue. These companies are looking to innovate with technology to combat pressure on margins and this should bode well for Urbanise.com signing up customers quite rapidly, in the broker's view.

Further potential catalysts for the stock include the upcoming FY15 results, additional contracts garnered from large integrated facilities management companies and entry into new markets, particularly the US. Any weaknesses? Canaccord Genuity considers one of these is the lack of tailoring in the solution. There is also the continuing threat of new technology or competition eroding the company's edge. Still, on the positive side the software is able to integrate with other systems. It is also well priced against traditional systems in terms of initial installation and maintenance.

Facilities management has a range of specific services which need to be organised and coordinated such as cleaning, maintenance, security, electrical & plumbing and heating & cooling and the responsibility lies with either the building owner or property manager. The company calculates that the industry's annual expenditure on building operations and management is around 3-5% of GDP in western markets. However, points of difference between developed and developing markets such as India and China are diminishing. The company is looking to expand in North America which would increase the market opportunity immensely, in the broker's view.

Canaccord Genuity has not factored in any revenue growth into new markets in its estimates. The company listed on ASX last year and Cisco Systems invested in 2009 in order to be at the forefront of developing smart cities and harnessing the next wave of the internet. Cisco has a 10.6% stake in the company. As well has having a strategic stake, Canaccord Genuity considers Cisco could become the natural owner of the company in time. Urbanise obtained its first customer in Dubai in 2011 and has since opened offices in Dublin and Singapore.
 

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