In this wire we provide an overview on three emerging technology companies with the following attributes: 1: A globally unique technology offering with proven capabilities on the world stage; and 2: A high calibre management team that maintain absolute alignment and have established and built the company personally.
Audinate is a global leader in professional digital audio networking technology. Dante, its industry leading technology, delivers uncompressed multi-channel low-latency digital audio over a standard Ethernet network. This digital technology protocol is being adopted by global audio equipment firms such as Bosch, Bose and Roland. Audinate has a 75% market share and is 4x its nearest competitor and growing. As a signal of Audinate’s technical superiority, 10% of the company is owned by Yamaha, a major Audinate customer since 2009.
Audinate’s dominant position and early stage penetration of digital audio networks globally is driving revenue growth in excess of 30%. Of the 360 equipment manufacturers who are now Audinate clients, less than half have Dante enabled products today. In our view, this signals ongoing organic growth for the company as these manufacturers bring more products to market. Audinate raised money (via a recent IPO which Paragon participated in) to move into the video vertical of the Audio Visual (AV) market by displacing the HDMI cable with IP networking infrastructure. The prototype is planned for completion by 30 June 2018, which could double their addressable market (currently ~$350m) revenue base.
The first quarterly released post its IPO reported revenue ahead of prospectus forecasts, which we believe has the potential to grow at a rate of 20% p.a. over the next decade, with shareholder returns in excess of this given the operating leverage.
FastBrick Robotics is a Perth based company that has designed a robotic positioning system for the construction industry. Mark Pivac, a mechanical and aeronautical engineer, owns 12% of the company and is the creator of the technology Hadrian X, a robotic bricklayer. The company estimates that it can build a standard brick house in 2 days compared with the average 28 days it currently takes manually, with accuracy to 0.5mm of the CAD design, regardless of weather or surface.
There is enormous potential cost savings in this positioning technology (bricklaying makes up 10% of the total cost of a house to a residential builder in the developed markets) that is also relevant to applications such as glass deployment on skyscrapers instead of man driven cranes and ship to ship goods transfer. It is FastBrick’s ability to work in the field that makes it unique. Since initiating our position at 8c, global construction giant Caterpillar, after almost a year of due diligence, has signed an MOU with FastBrick, including a $10m investment in order to fast-track their time to market. While the scope would initially be to deploy their robotic bricklaying technology in Caterpillar branded equipment, we believe the opportunity to develop broader applications is the driver behind Caterpillar’s interest, although it is too early to ascribe any value for these other commercial opportunities.
The global opportunity for bricklaying machines is estimated by FastBrick at somewhere in excess of 10k machines. With a royalty revenue stream shared with Caterpillar, even a quarter of that number could generate potential revenue to FastBrick in excess of $500m p.a. In our view, such an outcome, which is well below company estimations, would see the stock valued in excess of $2/sh over the next decade.
Updater is an American software company that listed in Australia in late 2015. The company, led by founder and 25% shareholder David Greenberg, has over the last 5 years established a strong presence within the real estate agent market, as a software tool provider to make moving house much easier – effectively organising for the house mover their connections to essential items such as insurance, energy, internet and cable. Through their significant alignment with real estate agents in the US, the most recent release shows that Updater is estimated to have processed 11% of all American household moves, on its way to 15% by the end of the year.
The premise behind the model, however, is the value which is placed on knowing when people are moving house. The companies selling these essential items such as house insurance and internet services, spend billions each year in advertising in order to keep and attract customers who typically make decisions on utility items when they move house. For the advertisers, knowing when a customer may actually be moving, and being able to communicate with them at that point, is where the value in Updater’s platform lies. This is evidenced by recent trials with Liberty Mutual, Capital One Financial and AT&T.
With successful results from the trial with insurance company Liberty Mutual, Updater forecasts that the Insurance industry alone could net the company some US$100m in revenue. While we make much more conservative assumptions, the opportunity for Updater remains significant given the current valuation suggests a revenue opportunity closer to US$70m. Should Updater be able to deliver outcomes across multiple verticals in line with trial results, we believe the shares could be worth in excess of $4/sh within 5 years.
Contributed to Livewire by Paragon Funds
By adopting a thematic-led, fundamentally-driven high-conviction strategy that can profit from rising and falling share prices, Paragon aims to provide its clients with excellent long term returns regardless of market performance.