Not all software is built the same

Every technological revolution creates two kinds of businesses: those that ride the wave, and those it washes over. The new "haves and have-nots" aren't defined by capital or headcount — they're defined by who has built intelligence into the core of what they do and the problems they solve.

Urbanise.com Limited (ASX: UBN) has been a NAOS investment for over four years, and the thesis has always centred on the strength of the strata management software and the potential growth and consolidation within a sleepy and archaic industry. And we believe they are on the cusp of the new wave of growth.

New Beginnings

Prior to our involvement, UBN underwent several iterations, and, like many ASX-listed companies, suffered from misguided strategic decisions by former board members and management. These missteps, in our view, led to a loss of focus and significant capital waste, resulting in accumulated losses exceeding $100 million on the balance sheet.

Since our involvement as investors, UBN has shown notable progress. A pivotal catalyst for this turnaround was the appointment of Darc Rasmussen as Director and subsequently Executive Chairman. We believe these changes were critical in sharpening UBN’s strategic focus, reinforcing its commitment to its strata management software, and addressing both industry needs and deficiencies in its own platform.

This strategic shift culminated in May 2025, with the signing of a strategic partnership with Australia’s largest business bank, National Australia Bank Ltd (ASX: NAB). Key highlights of this partnership include:

· NAB acquired an initial 15% stake in UBN with the option to purchase an additional 4.99% within 12 months of the product launch through a share placement at $1.255 per share.

· UBN and NAB will collaborate to develop and launch a data and payments integration service tailored for strata managers and their clients.

· UBN will receive recurring payments from NAB for the development, implementation, and ongoing maintenance of the service outlined above.

UBN and NAB will seek to deliver a best-in-class service for strata managers and their clients by integrating UBN’s fully cloud-based strata management software with NAB’s tailored banking solutions designed to address the specific needs of the strata industry. And it was just announced that the staged progressive pilot release of these capabilities is targeted for July 2026.

For context, there are approximately 2.3 million strata-titled properties (also known as lots) in Australia, underscoring the significant market potential for this offering.

Body corporates, also known as Owners Corporations, are a mandatory component of a strata scheme comprising multiple strata-titled properties. These entities must maintain bank accounts to collect strata levies from lot owners and facilitate payments for various expenses, including cleaning, maintenance, and capital works programs. Typically, these accounts are divided into an Admin Fund and a Capital Works (or Sinking) Fund. A strata manager, appointed by the body corporate, oversees the management and accounting of these accounts.

Based on publicly available information, we estimate the average funds held in body corporate bank accounts are approximately $3,500 per lot. Applied to Australia’s ~2.3 million strata-titled properties, this suggests around $8 billion in deposits within strata-related accounts. We believe this estimated quantum of funds within strata bank accounts may even be conservative.

Public data suggests that over 70% of the strata-related bank deposit market is held by one major Australian bank, which also processes a significant portion of the associated payments. We also believe there is a high level of fees associated with said payments.

Banks use customer deposits to fund a portion of the loans they provide (e.g., mortgages, car loans), generating a net interest margin (NIM) by lending at higher rates than those paid on deposits. Strata-related bank accounts, which typically earn low deposit rates, allow banks to achieve a higher-than-average NIM on these funds. Consequently, a bank with a significant share of the strata deposit market benefits from a substantial cost advantage and a stable, low-cost funding base, particularly when compared to term deposits, which may cost banks approximately 4-5% annually.

In Need of Efficiencies

The 2024 Macquarie Strata Management Benchmarking Report indicates that only ~22% of Australian strata managers qualify as ‘higher-performing businesses’. According to the report, a key aspect of a higher-performing business is its investment in technology to create operational efficiencies and generate materially higher profit margins than the industry average.

It is no surprise that the strata industry is generally characterised by legacy technology systems, from both a strata banking and a strata management perspective. We estimate that ~40% of strata managers rely on outdated DOS/Windows or on-premises software systems, which limit scalability and efficiency, forcing firms to hire more staff to manage growth. Consequently, as shown in the chart below, average profit margins in strata management have declined steadily over the past two decades. 

The opportunity for UBN’s strata division lies in addressing these challenges, with revenue potential driven by three key factors:

1. Software Revenue Growth – At the close of FY25, UBN generated over $7 million in recurring revenue, purely from its strata management software, holding an estimated ~15% market share in Australia with a historical growth rate of ~3% per annum. Should the NAB payments portal gain traction within the strata management industry, we anticipate accelerated growth as managers adopt UBN’s software alongside NAB’s potentially best-in-class payment platform to maximise efficiencies. The chart below shows the potential based on the total lots in Australia. And, pleasingly, UBN recently announced two contract wins from a major legacy provider, indicating the shift is already underway.

2. Recurring Revenue from the NAB Payments Platform – Starting in FY26, UBN will receive a fixed recurring fee of $1.3 million from NAB for maintaining the payments platform. Additionally, UBN may receive variable recurring fees tied to the volume of strata-related bank accounts held with NAB. With an estimated $8 billion in strata deposits, UBN’s recurring revenue is expected to be tied to a portion of the net interest margin (NIM) generated from these deposits. UBN has publicly projected this opportunity at approximately $30-$54 million annually, equivalent to an interest cost of ~0.625%.

2. Market Consolidation – Over the longer term, consolidation among strata software providers presents a compelling opportunity. With 3-4 providers each holding 15-20% market share, UBN stands out as the only major player with a fully cloud-based platform. Providers with legacy systems face a critical choice: invest heavily in cloud migration or merge with a provider like UBN that already offers a scalable, modern solution.

What Lies Ahead?

Looking forward, we believe UBN has the potential to generate more than $20 million p.a. in recurring revenue from its strata-related products over the next 3-5 years, with incremental revenue expected to deliver progressively higher margins. Importantly, this recurring revenue, in theory, will be very sticky, potentially commanding a premium valuation multiple in the market.

UBN is now strongly positioned financially, with net cash of $12.3m, but this cash balance could increase further if NAB exercises its option to acquire an additional 4.99% of UBN at a share price of $1.25 ($6.1 million in cash) and UBN decides to divest any non-core assets. Given the current market capitalisation of approximately $55 million, we view UBN's enterprise valuation as highly attractive relative to its recurring revenue opportunity.

The next 12-18 months will be critical in determining the success of the UBN-NAB partnership and whether strata managers understand and embrace its benefits for themselves and their clients.