Urbanise.Com (UBN) 16 November 20152015/11/16 · We don’t believe Freelancer should be considered in this comparison as their network is not sticky and because there are so many

Recommendation Buy

Previous Recommendation Buy

Risk Rating Medium

Current Share Price $0.50

12 Month Price Target $1.15

Price Target Methodology 11x EV/Revenue FY2016E

Total Return (Capital + Yield) 64%

Market capitalisation $116.8m

Liquidity – Daily Value $0.2m

Key Points

• Urbanise has provided further clarity on cash flow profiles of the contacts signed during FY2015E, a part of the investment case investors desired more information on post the annual result.

• With the further clarity on the contribution of different contract models we believe the stock will start to re rate. 70% of the FY2016E revenue should be cash covered.

• We believe that fulfilling half of their current contracted clients’ total building portfolios could help the company achieve north of $50m revenue.

• Our estimates are forecast on assumptions of number of buildings and average take per building per month in USD; we then adjust back for AUD accounting. We are comfortable UBN can deliver north of $70m revenue in 2018E.

• We expect strong operating leverage to drive EPS growth; we are already seeing the effects of this cost base leverage.

• We believe that the UBN platform’s network characteristics are more favourable for investors than CRZ and REA. We don’t foresee industry player antagonism at seeing value erosion from a new platform for UBN. This antagonism was a key part of agents and dealers relationships with CRZ and REA when they were growing their businesses. We believe the UBN platform is more scalable than CRZ & REA; it also has a stronger network effect.

• The competitive landscape is attractive for UBN. Although we imagine a similar platform is being developed and rolled out somewhere in the world, we have not found one despite extensive research.

• Global leader in FM software is FSI Global, a privately owned UK based company operating in UK, ME and Australia. IBM [with Maximo and Tririga] is the other main incumbent. We believe IBM and FSI’s offerings are much more expensive, are aimed at more complex industrial assets, and lack the crucial occupant interaction that makes the UBN platform so appealing to service providers.

• There are a number of commercial trials underway across UBN’s markets and we expect near and mid-term news flow to be positive. We see contracts signed with new service providers and facilities managers as catalysts for the share price.

Financial Forecasts & Valuation Metrics

Y/e Jun ($m) 2015A 2016F 2017F 2018F

Revenue 10 25 57 73

NPAT 1.0 3.5 11.1 17.6

EPS (cps) 1.5 4.8 7.6

EPS Growth 221% 58%

DPS (c) 0.0 0.0 0.0 0.0

EV / EBITDA (x) na 30.8 9.0 5.1

PER (x) 50.3 15.7 9.9

Dividend Yield 0.0% 0.0% 0.0% 0.0%

Gearing -27% -35% -50% -59%

Interest Cover (x) na na na na

Source: PAC Partners estimates

UBN share price performance

Source: IRESS

Could be Australia’s next big platform stock

• We believe Urbanise (UBN) can develop to be Australia’s next big platform stock after Carsales.com [CRZ] and Realestate.com [REA]. In this note we examine the UBN platform’s characteristics against the known networks of CRZ and REA.

• We believe UBN should trade on 11x EV/Revenue 2016E giving a target price of $1.15. This is > 50% discount to US peers on a growth adjusted basis.

• Transaction pricing models (PAYG) should improve cash collection; we forecast 2016E revenue to be 70% cash covered.

Urbanise.Com (UBN) Could be one of the best listed platforms yet

16 November 2015 Emerging Companies research team

[email protected] +613 8633 9831

The information contained in this report is provide d by PAC Partners to Wholesale Investors Only. PAC Partners is paid a fe e by the ASX under

the ASX Equity Research Scheme for this research. T he information contained in this report is to be read in conjuncti on with other important

disclosures at the end of this document.

PAC Partners | Equity Research Urbanise.Com (UBN)

Page 1

Table of Contents

Urbanise the next big platform? ................... ............................................................................................................................... 2

Cash and Revenue at the FY15 results .............. ......................................................................................................................... 2

The cash and accrued revenue facts ............................................................................................................................................ 2

Australia’s 3 rd major platform stock after CRZ & REA? ............. ............................................................................................... 5

Similarities between UBN, CRZ and REA: ................................................................................................................................... 5

$100m Revenue achievable within 5 years ........... .................................................................................................................... 10

Strong top line, all about the land grab ....................................................................................................................................... 10

Attractive competitive landscape .................. ............................................................................................................................ 14

Valuation $1.15 .................................... ........................................................................................................................................ 15

Contact Information .................................................................................................................................................................... 18

Recommendation Criteria ........................................................................................................................................................... 18


Page 2

Urbanise reported in accordance with AASB118

FY2015 contracts should lead to overstated cash flows going forward

Though hard to see this coming based on previously released information

Urbanise the next big platform?

We believe Urbanise can become the next listed strongly profitable infrastructure technology platform following in the footsteps of Carsales and Realestate.com.

We believe there are five main investment points to cover, starting with near term issues:

1. What happened at FY15 results with their reported annual revenue and actual cash takings?

2. Analysing the UBN platform and its future opportunities; we choose to analyse UBN’s platform against the characteristics of the CRZ and REA platforms.

3. Analysing the market for UBN’s platform and near term forecasts

4. Analysing the current competing industry FM software

5. Valuation

Cash and Revenue at the FY15 results

The cash and accrued revenue facts

Some queries in the market around FY15 reported revenue of $10.17m and the $6.85m movement in working capital. No Urbanise report could get an audience in the market without a detailed analysis on revenue recognition and cash flow, so we begin here. Urbanise is audited by Pitcher Partners.

The majority of Urbanise’s reported FY2015 revenue has a cash collection profile detailed in their below slide. In accordance with accounting standards they have reported the discounted value of future revenue to be received.

Source: Company presentation 11th Sep 2015

We don’t believe there was anything ‘wicked’ about the FY15 reported results and the accounting treatment of revenue during the period. Urbanise has produced its accounts in accordance with the relevant Australian standards. However, the share price move following results showed that some investors were not fully aware of how Australian accounting standards treat UBN’s earned and executed revenue. Indeed, before these results, the only pointer investors may have seen with regards to UBN revenue recognition was on page 56 of the prospectus which shows a large blow out in receivables and payables in 2013 and 2014. No significant move in the Dec 2014 reported receivables gave little opportunity for investors to see this coming.


Page 3

Management on boarded significant clients during the half, a better alternative to ‘buying customers’

We note that the contracts that produced these $6.75m of receivables are mostly with 8 customers in the Middle East and UK with whom Urbanise agreed to match the clients’ contracted maintenance outflows on legacy systems in order to remove the liabilities from the client and to enable the client to on board onto the Urbanise ‘Job Cost Model’ [PAYG] immediately. One could say this was ‘buying customers’ but under this strategy management state they will create more value for shareholders. These contracts are ‘irrevocable’ and the costs were incurred in FY2015, in addition there are agreements in place for further work to be carried out with these clients, with extra cash and revenue to be received over the next 5 years.

Going forward management state they will see FY16 cash conversion of 70% and FY17 will be 100% cash covered. We take them at their word: even with growth cash should be overstated going forward as they collect on the $2.9m of cash from the revenue reported at FY15. In addition the characteristics of the UBN model clearly lends itself well towards gaining a float income on transactions and benefitting fully from immediate credit card collection from customers and paying service providers 30 days later. We believe there is a strong possibility of this in the future. Indeed several large device monitoring customers will pay a year upfront going forward.

As a young company Urbanise is still fine tuning its business and contract models. Urbanise’s US roadshow deck has split out expected commercial contract and invoicing formats, giving more clarity to investors.


Urbanise has dictated to the market how their cashflows from all three models should be collected quarterly from regular invoices as seen in their slides below. This is key to a stock re rating: Urbanise shouldn’t need to come to market to drive organic growth. Particularly given the upfront fee from Enterprise activations. We believe this is what drives management’s expectation for FY2016E revneue to be 70% cash covered.


Page 4



Page 5

Urbanise is a platform stock like CRZ and REA

Urbanise not seeing reluctance from major industry players like CRZ and REA did

Australia’s 3 rd major platform stock after CRZ & REA?

We believe Urbanise will develop as a platform infr astructure stock like CRZ and REA. Urbanise want to be the platform that facilities ma nagement and buildings’ occupants interact on, and take a $ fee per transaction.

As such we believe investors should keep a close eye on the number of buildings signed up to the network. Investors should also focus on new service providers signed up and we believe should be seen in a similar light to dealers for CRZ and agents for REA. With the notable difference that service providers are keen to sign up immediately as there is no implicit erosion of market pricing for their industry. The UBN platform is immediately accretive to service providers and facilities managers.

Here is the first major plus point versus the REA and CRZ stories. When CRZ and REA were starting out there was strong reluctance from agents and dealers to engage with these early platforms. Urbanise are having the opposite experience.

Similarities between UBN, CRZ and REA:

Below we summarise our comparison between the two most successful platform infrastructure technology stocks in Australia and Urbanise. We don’t believe Freelancer should be considered in this comparison as their network is not sticky and because there are so many competing networks, none of which, by their very nature, are bounded by a particular market. In addition we don’t believe Xero should be regarded as a platform as one side of the network, the customers, are not in any real way tied in to the network. As a result the network effect isn’t there to the same extent as UBN, CRZ and REA. (for below tables source: company presentations, ARA group, FSI Global, IBM, AWS, and ABS)


Page 6

[Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Drawing Tools tab to change the formatting of the pull quote text box.]

Infrastructure

Platform

Characteristics

UBN CRZ REA

Yes

Yes. They defined next generation networks as

first movers with their extra layers, e.g. dealer

market data.

No, first generation network, need to deliver on

finance and utility connectivity operations to add

those extra layers to be considered a next gen

network in our eyes.

So big it is irrelevant for the next 10 years. Frost

& Sullivan estimated it will be $1.5trn by 2019.

Current contracted clients have 24k buildings in

their portfolios, enough to get group revenue

above $50m on our rough numbers.

Market peaked at 233k cars inventory in FY13,

not been beaten since. Enquiries are sitting

around the 2.75m level (total Australian

passenger vehicle fleet is 13.5m, 2015 ABS ).

CRZ have expanded the $ size of their market

through new offerings most notably dealer data.

We would expect them to continue to grow the

overall pie in international businesses as well.

CRZ estimated 2012 online auto classifieds

industry to be north of $200m. CRZ delivered

$216.5m in domestic online advertising in 2015

and $311m group total. The pie continues to

grow.

Listing volumes down 4% in FY15. Australia

has 9.5m residential dwellings with a value of

$5.5trn (2015 ABS ). Australian real estate

classified market size was $1.1bn in 2015. Of

which $700m was digital. REA took 67.5% of

this with a domestic revenue of $473m in 2015.

Frost & Sullivan expect total market to grow to

$1.3bn in FY18, of which $930m will be

online. IAB Australia estimates total 12 months

Australian general display online advertising

expenditure to reach $1.5bn in March 2015.

Should be good going forward. Longer term

there is an opportunity of float income. One of

the main attractions for service providers is the

instant credit card payment before a job is

dispatched. Cash collection is a pressing

concern for all service providers. Management

expect FY16 revenue to see 70% cash

conversion and FY17 revenue to see 100% cash

conversion. However this was a key issue for

investors at the FY15 results. Out of UBN's

$10.2m reported FY15 revenue we estimate

only $3.8m was attributable to the FY2015

financial period. Instead of outright buying

clients UBN matched competitors mainenance

cash receipts to allow them to onboard 6 large

clients instantly onto their 'Job Cost' model.

They will recieve this $6.7m cash over FY16-

FY20 for these clients. NB: cash collection

should therefore be 'overstated' for these years.

Strong. CRZ get paid monthly by dealers and

collect payment from private network players as

soon as they list a vehicle. CRZ see strong

collection from advertising revenue.

Good. REA collect well. FY15 result saw a

working capital movement of -$10.3m on an

EBITDA of $285.8m

Network Cash collection

Generation 2.0

network/platform?

Size of market


Page 7

Infrastructure

Platform

Characteristics

UBN CRZ REA

Very high, locked in by the network effect. For

service providers, once you are on UBN's

accounting software, ERP systems and

customer interface you would not move from

that platform. Likewise for facilities managers:

once you are using their platform the software

would need to fail for you to decide to move.

High for car dealers, as CarsGuide don't have

anywhere near their level of market data. Low

for sub $15k car sellers, can use EBAY or

CarsGuide. High for car sellers with value

above $15k.

Low for real estate agents and house vendors,

Domain is a reasonable alternative.

Much stronger than CRZ and REA as it has

many layers of services. REA can add

vendors/buyers and real estate agents. CRZ can

add dealers and private vendors/buyers. But

UBN can add service providers and then people

who want to tap in/piggy back of those service

providers. E.g. ARA has technicians, but

painters and cleaners can pay ARA to access the

network through ARA. The increase in the

layers of the network multiplies the network

effect. On the flipside the occupant interaction

adds two layers, the building manager, the

building owner and the occupant. The network

effect is vastly increased with all 3 on board the

platform and tied in through the accounting,

order management, and ERP software.

Dealer data is a necessity for running a car

dealership in Australia now. There is a strong

network effect, each new dealer adds to their

superiority over CarsGuide and EBay, dealers

don't advertise on EBay.

Relatively weak network effect, most agents are

on Domain and on REA. Never was as strong a

network effect as CRZ.

Service providers no longer need expensive call

centre and order management desks. UBN

software subs were around 95% cheaper than

competitors FSI global and IBM's Tririga and

Maximo. Overall cost savings to service

providers are not yet known as that depends on

the size of the network and how many facilities

managers can be added to the network.

Implicit headline cost saving of zero. People still

sell their cars for free across the country. Was

$2 a word in classified print. However one can

sell it much quicker, and usually for a better

overall price with carsales. So on an efficacy

front it is a cheaper platform.

Headline figure given was print campaigns

would cost around $3-5k, and REA would

bring that down to ~$500. So lets call it a 70-

90% reduction in cost.

Vastly lower, service contractors pay between

$40-500 to acquire a new customer.

Network reduced dealers' cost of customer

acquisition, difficult to gauge as bundled in with

the immense benefits from live market data.

Network reduced cost of customer acquisition,

but it was always pretty low. People want to live

in a certain area and they look through available

property in that area by registering with estate

agents, its not like cars or building facility

maintenance.

Network effect of cost

of customer acquisition

Stickiness of network

players

Network effect

Cost savings on legacy

'ways of doing business'


Page 8

Infrastructure

Platform

Characteristics

UBN CRZ REA

Not as high as others. Anyone can use the

platform to order services from a provider who

is on the platform. Although we assume service

providers will aim to monopolise certain strata

of facilities managers. If you are a service

provider it is very easy to get on the network,

but you have to pay: similar to dealers and

letting agents for CRZ and REA.

Very high: if you want to sell a vehicle in

Australia for over $10k everyone goes straight

to carsales, and you can sign up and create the

add on your phone. For a dealer you have to pay

CRZ and be on the network, there is no other

reasonable choice.

Very high, if you want to sell/let a property in

Australia you put it on REA or Domain yourself

or your agent does. For a real estate agent one

has the choice between Domain and REA,

though to our understanding many are dual

listed.

None at present. Customer service providers,

e.g. ARA, who have developed their own

networks are migrating to Urbanise's network as

it's better for them.

The dealer data that CRZ provides is standout,

excellent and unmatched. On the private vendor

side: EBay provides very strong competition in

the sub $15,000 car segment and has dampened

CRZ's ability to raise prices, CarsGuide has had

a very limited effect on price rises. On the dealer

side CarsGuide and EBay are not competitive.

Domain is a competitive network, particularly

on the Rental market and in Sydney. We believe

it hampers REA's ability to put through price

rises.

Legacy service providers and FM client

relationships.Print Advertising, word of mouth. Print Advertising, word of mouth.

Similar models to Urbanise will surely start, and

are already existing in smaller forms, e.g.

amalgamated service providers set up their own

networks to help each other- but don't

necessarily have the scalable software. Can

Menulog- type players translate customers and

data to providing these services? Yes, Menulog

has probably considered trying to add cleaners

etc. to their network, but they don't have the

embedded ERP & accounting software with

their clients. They do have the client interaction

software, but that is not enough in our eyes.

Market is an effective oligopoly, no rational

reason to start competitive network.

Market is an effective duopoly. Already is a

competitive network in Domain.

Accessibility of

Network

Current competitive

platform networks

Competing industry

verticals

Future competitive

networks


Page 9

Infrastructure

Platform

Characteristics

UBN CRZ REA

Not high, most of their technology was acquired

as a module and patched into existing software.

There are a plethora of software providers for

the Facilities Management industry.

High, no one can match their dealer data. It's not

so much the cost as the many years CRZ have

spent working with dealers to understand the

market and analyse it.

Not that high, many real estate sites around the

world have similar technology.

All facilities management service providers,

technical trades, utilities monitoring &

management, and hospitality services.

Dealer market data, cars, financing, vehicles,

boats, tyres, advertising.

Private, commercial, agricultural real estate,

insurance, utilities, advertising.

Multitude for services and facilities managers.1 per Public network player, a multitude for car

dealers.

1 per Public network player, around 3.5m per

year for real estate agents.

Immaterial at present, immense amounts of

upside.

Reaching maturity in home market, looking for

expansion overseas

Reaching maturity in home market, looking for

expansion overseas

Already have some implicit depth pricing, depth

pricing is a key part of transaction take business

models for platforms and we would expect it to

continue in the future.

Reasonably strong for CRZ, it should continue,

but we believe we have seen most of the

marginal benefits from depth products for CRZ.

Reasonably strong for REA, it should continue,

but we believe we have seen most of the

marginal benefits from depth products for REA.

No of transactions per

year per network player

% take of network TTV

& future increase

possibility

Depth Pricing

Cost of developing

competing Technology

Range of Applicable

Services


Page 10

Corporate roadmap is about land grab

Difficult to get industry averages for $’s spent per sq. meter

We believe our forecasts for platform possibilities are conservative

$100m Revenue achievable within 5 years

Strong top line, all about the land grab

This corporate and investment roadmap is about land grab for this platform. To create value for shareholders Urbanise should clearly aim to sign up as many service providers and building managers as possible whilst maintaining commercially viable terms.

We believe commercial trials happening across Australia and Europe will translate into arrangements in the near term, and these will be the catalyst for the share price to reclaim some of its lost ground. We believe investors should focus on the $ value of building maintenance services provided to the building managers that sign up in due course.

Urbanise detail a clear targeting of the top three players in Eastern Hemisphere markets of Europe, South Africa, Middle East, S.E Asia and Australia. Executing on half of the current contracted client portfolios would deliver 12k buildings should deliver between 6m to 12m call outs and jobs a year.


To put it another way what value should the stock trade at if they signed up 6000 buildings in 2015? A level below “blue sky’ estimates in our eyes. However one should note it is very difficult to handicap a ‘typical $ amount | per sq. metre | per type of building use’ spent on maintenance services. Management and service providers we have spoken to will not be drawn into simplifying their businesses to such a degree, we believe they can’t arrive at such an average figure as their clients are so variable.

We believe we have conservative growth forecasts based on management’s commentary on being comfortable with 100% annual revenue growth over the near term. It is difficult to back out a fair number of average callouts per month. As mentioned above UBN has 3 main contract models, but given the complexity we try to forecast on the basis of $ value of jobs and call outs per building per month.

We assume that each building would require between 200-1000 callouts a year. All buildings are different: security system callouts to an ANZ branch will be a lot less annually that building services maintenance call outs to a 100 flat strata. By way of example ARA Group, the current showcase


Page 11

Our FY2016 target is easily reachable if one assumes our building number forecasts and average call out rate

We adjust our numbers back from a USD rate per building

Urbanise customer, provides many services including security based facilities maintenance. They currently have the nationwide contract on all ANZ and CBA branches. ARA receives 6k calls a month for 4K ANZ branches nationwide for purely security services. This doesn’t include fire & electrical services, interior design services or the plethora of other building maintenance services a building requires.

We believe that the average call out is ~$170 in Australia, and is a similar value in the UK, although slightly cheaper in the Middle East. As such we don’t see the $10 take figure as unreasonable given service provider clients are happy to sign up to it, as the platform saves them ~25% costs on job call outs. We believe ARA currently gives away around $12 a call out/transaction.

Investors will take their own view on this, but the below basic sensitivity tables show what assumptions have to be met by Urbanise to deliver the revenue we forecast purely on a ‘PAYG’ model. As highlighted below we believe they will hit $25m of group FY16 revenue which one could justify from over 2000 buildings and a take which is somewhere between $10-15 per call out.

No of Job Callouts

Group

Revenue $m

$ take per call

$2 $5 $10 $15

$25 12,500,000 5,000,000 2,500,000 1,666,667

$50 25,000,000 10,000,000 5,000,000 3,333,333

$75 37,500,000 15,000,000 7,500,000 5,000,000

$100 50,000,000 20,000,000 10,000,000 6,666,667

No. of callouts

per building

per year

No. of Buildings served

1,000 2,000 4,000 8,000

250 250,000 500,000 1,000,000 2,000,000

500 500,000 1,000,000 2,000,000 4,000,000

750 750,000 1,500,000 3,000,000 6,000,000

1,000 1,000,000 2,000,000 4,000,000 8,000,000

2,000 2,000,000 4,000,000 8,000,000 16,000,000

In short we do not view their targets as overly fanciful based on the above assumptions.

Our forecasts flow from assumptions on USD take per building per month and No. of buildings; we adjust back for the AUD, in the near term around 70c and gradually moving back to a longer term average of 75c.

We have lowered the USD$ take per building per month down to USD$557 based on our own research and assumptions and with regards to the revenue talking point from the FY15 results. That would equate to 56 call outs a month at a $10 take per call out.


Page 12

We rate new buildings to come on a $250 USD a month

With the below USD revenue per building forecasts once can see we have assumed that new buildings come on at a take of only $250 a month for Urbanise to reflect some conservatism and more that we believe the style of the ‘average’ building will change for the group going towards a smaller strata building of around 20-30 flats.

We are more comfortable with the $ take per job cost transaction being around $10-15, than we are with number of call outs per average building- which we see as very difficult to handicap.


Page 13

The above assumptions flow through to our below forecast Urbanise P&L.


Page 14

Urbanise will mostly compete against legacy ways of doing business

Similar platforms are undoubtedly under development in rest of world, though we have not managed to find one

Incumbent facilities management software products suite a different ‘end of town’ we don’t see much competition between them

Global Leader FSI is more suitable for complex industrial and commercial assets

FSI Global do not see UBN as a threat

Attractive competitive landscape

We believe the competitive landscape for Urbanise is mostly legacy systems at Strata’s and service providers, in many cases replacing hand written notes from telephone calls and booking forms. The implicit cost savings and improvement of customer experience are obvious. We don’t believe they will have to seriously compete against the current main global players in facilities management software because they are clearly for different ends of town. The functionality and cost of the legacy systems are designed for complex industrial assets, not strata apartments and office blocks. Indeed we believe commercial office real estate provides the best area of opportunity for Urbanise to take contracts off FSI global and IBM.

We believe the biggest threat to Urbanise’s platform will come from copycat platforms that are most likely already being developed. We believe investors should assume that a replica, or improved, network is being rolled out on a small basis in the US; although despite extensive research we have not found one. The closest peer we have found in the US is listed, focused on residential houses, and is called Alarm.com (listed 2015).

The biggest differentiator of the Urbanise model is their occupancy interaction. It is what sets them apart from the current incumbent FM software providers in IBM and FSI Global. It is also the main characteristic that is driving service providers onto their platform. Implicitly there is a saving of around 10-25% on each job owing to the lack of need for human intervention to log the specifics of a call and manage a job through to completion. ARA group for example will no longer need to employ such a large call desk to manage jobs. The occupant client does most of the ‘front end work’ on a job, describing the job and entering it into the system.

The Urbanise software platform was around 95% cheaper than the incumbent software when they installed it for clients, before the company made more of a move towards the job cost model. The main reason was that the UBN offering only contains around 10-20% of the functionality of Maximo and FSI Global’s ‘Concept’ offering.

In short we believe Global FM software leader FSI Global and IBM’s two products, Tririga and Maximo, are serving a different market to Urbanise. They are complex pieces of software built on 30 years of experience in facilities management and their client lists point to their different client base. They are used for Hospitals, Transport for London, ABB throughout Europe and government/defence installations. They are much more suitable than Urbanise to provide a solution to large scale complex industrial and commercial assets. Urbanise is much better at dealing with commercial and residential tower blocks and the fragmented industry that currently manages them. We view housing Strata’s as the most suitable market for Urbanise.

We have researched the global leader in Facilities management software, FSI Global, and spoken to their MD of Asia Pac; they do not view Urbanise as a threat and see UBN as focused on small apartment and tower blocks, not into their main area of clients.

We present some facts about FSI Global and their software product Concepttm

FSI global is a ‘public’ company, but privately owned and not listed. They turned the company public on 9th April 2013, which should normally be seen as a clear intention to list. FSI Global was founded and is managed by Patrick Brian Curran in the UK and serves the UK, Middle East and Australian markets. Mr Curran also owns and manages a security systems service provider and one for fire and other risks.

FSI global is over 30years old and their client list evidences how they are embedded in the Industry, see above comments on clients. http://www.fsi.co.uk/client-list.html FSI global operates using Oracle modules and uses Microsoft Azure and VMware, as well as private hosting. UBN uses Cisco and AWS. FSI’s cloud division has grown 43% over 2014 up to ~$1.5m AUD equivalent.


Page 15

A high growth concept platform stock like UBN is hard to value at this point in its life cycle

US peers provide a reasonable valuation matrix

We expect it to trade on 10x revenue should they execute on plans and deliver $25m of revenue attributable to the FY2016 year

UBN’s youthfulness has made it a valuation outlier

FSI GLOBAL plc

conv. to AUD m

SALES $16.52 $19.28

Net s ales $11.20 $13.12

EBITDA $1.09 $1.27

PBT $1.12 $1.30

NET INCOME $1.05 $1.37

Cash on Ba lance sheet $4.95 $5.82

FY Oct

2013

FY Oct

2014

Source: FSI Global Tax Filings, Companies House UK

Valuation $1.15

US listed SaaS peers trade on a multiple of EV/Revenue adjusted for earnings growth. The average for our universe of scalable similar peer businesses is 7.8x EV/Revenue. If one adjusted that EV/Revenue multiple for Urbanise’s >100% revenue growth one could expect >20x. Peer group below.

Company Ticker

Market Cap (in

M)

Revenue

Growth

2016F

2016

EV/Revenue

Urbanise.com Ltd [AUD] UBN 174.4 149.07%

6.40

Alarm.com Holdings Inc ALRM

715 17.24%

2.69

salesforce.com inc CRM

45,974 22.95%

6.81

Workday Inc WDAY

13,492 46.78%

11.10

ServiceNow Inc NOW

11,242 45.94%

11.30

NetSuite Inc N

6,879 30.16%

9.11

Ultimate Software Group Inc ULTI

5,117 21.51%

8.32

athenahealth Inc ATHN

5,208 21.49%

5.86

Veeva Systems Inc VEEV

3,343 26.98%

8.12

Paycom Software Inc PAYC

2,238 29.30%

10.80

Fleetmatics Group PLC FLTX

1,708 20.73%

5.84

Zendesk Inc ZEN

1,813 37.54%

7.61

Source: PAC Partners & Bloomberg estimates

On a FY15 forecast revenue of $25m 20x EV/Revenue would give UBN an EV of $488m (cash $12m) and an implied share price of $2.10

We believe Urbanise will re-rate towards 11x EV/Revenue as we move towards 2H and investors get a better feel for near term cash flows and contracts signed.

UBN is clearly an outlier when compared with the current trading multiples of the aforementioned US peers, who plot on the left of the graph. The US peers are larger and have demonstrated their business model for longer to the market and delivered at results, as such we clearly don’t expect UBN to gain such a similar growth adjusted multiple this early in its listed life.


Page 16

US Peers valuation vs Urbanise

Source: PAC Partners & Bloomberg estimates

We have a target price of $1.15 based on 11xEV/Revenu e FY2016E using our forecast of $25.3m.

No of shares outstanding m 232.5

No options outstanding m 43.9

fully diluted m 276.5

FY2016E Revenue $m 25.3

EV/Revenue 11x $m 266.3

Target price 11x EV/Rev $1.15

Fully Diluted $0.96

UBN expected

UBN

0

2

4

6

8

10

12

14

0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% 160.00%

2016 EV/Reve

n

u

e

2016E Revenue Growth


Page 17

COMPANY SUMMARY Urbanise.Com Ltd UBN.AX Price Information Price ($/share) 0.75 Mkt Cap ($m) 164 Enterprise Value ($) 158 Share Price & Volume Chart

FINANCIAL SUMMARY Year End - Jun FY13A FY14A FY15A FY16F FY17F FY18F KEY METRICS EPS Growth (%) 221 58 PER (x) 50.3 15.7 9.9 PEG (x) 0.1 0.2 P/Free CFPS (x) 26 12 9 Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 EV/EBITDA (x) na na na 30.8 9.0 5.1 EV/EBIT (x) 0 43.4 9.9 5.4 ROE (%) 4.2 7.3 20.9 26.4 ROA (%) 5.0 9.4 30.7 45.6 ROIC (%) 0.0 6.8 33.9 53.4 PROFIT & LOSS (AUD $m) Revenue 0 5 10 25 57 73 EBITDA 0 0 1 5 16 26 Depreciation & Amortisation 0 0 1 1 1 2 EBIT 0 0 0 4 15 24 Net Interest Expense 0 0 0 0 0 0 Income Tax Expense 0 0 -1 -5 -8 NPAT Reported 0 0 0 2 10 17 Sign. Items & Other 0 0 1 1 1 1 NPAT Adjusted 0 0 1 3 11 18 PER SHARE DATA (cps) Shares on Issue (m) 0 0 0 233 233 233 EPS Reported 1 4 7 EPS Adjusted 1 5 8 DPS 0 0 0 0 0 0 Free CFPS 3 6 8 BALANCE SHEET (AUD $m) Cash 0 0 12 17 29 44 Debtors & Inventory 0 0 3 0 0 2 PP&E 0 0 1 3 6 9 Intangibles 0 0 26 25 24 23 Other Assets 0 0 8 8 8 8 Total Assets 0 0 51 52 66 84 Borrowings 0 0 0 0 0 0 Creditors 0 0 2 0 0 0 Other Liabilities 0 0 2 4 7 9 Total Liabilities 0 0 4 4 7 9 Net Assets 0 0 46 48 58 75 BALANCE SHEETS RATIOS Gearing - Debt/Equity (%) -27 -35 -50 -59 Interest Cover (x) na na na na na na Leverage (x) -12.7 -3.3 -1.8 -1.7 NTA per Share (cps) 10.1 14.9 22.5

CASH FLOW (AUD $m) EBITDA 0 0 1 5 16 26 Interest & Tax 0 0 0 -1 -5 -8 Working Capital Change 0 -2.2 -6.8 1 0 -2 Operating Cash Flow 0 1 7 15 18 Maintenance Capex 0 0 0 0 0 0 Free Cash Flow 0 1 1 7 15 18 Expansion Capex 0 0 -1 -2 -3 -3 Dividends 0 0 0 0 0 Equity Issues / (Buy Backs) 0 0 21 0 0 0 Proceeds from Borrowings 0 0 0 0 0 0 Other 0 -1 -1 0 0 0 Net Cash Flow 0 0 5 12 15


Page 18

Contact Information

Head Office: Level 12, 15 William St Melbourne VIC 3000 Australia. Tel: +61 3 8633 9831

PAC Partners – Executive Team PhillipCapital – Institutional Sales Team

CRAIG STRANGER Managing Director

+613 8633 9832

[email protected]

SEAN KENNEDY Corporate Finance

+613 8633 9836

[email protected]

ANTHONY STANI Corporate Finance

+613 8633 8251

[email protected]

JAMES WILSON

Head of Institutional Dealing

+61 2 9233 9607

[email protected]

MARK PASHLEY

Head of Trading

+61 2 9233 9641

[email protected]

BRENDAN FOGARTY Corporate Sales

+613 8633 9866

[email protected]

TOM FAIRCHILD Corporate Sales

+613 8633 8255

[email protected]

EDWIN BULESCO Corporate Sales - Perth

+61 (0)431 567 550

[email protected]

RICHARD CLOSE

Institutional Dealing

+61 3 8633 9883

[email protected]

BROOKE PICKEN Equity Capital Markets +613 8633 9831

[email protected]

PAUL JENSZ Director, Senior Industrial Analyst +613 8633 9864

[email protected]

ANDREW SHEARER Senior Analyst +613 8633 9862

[email protected]

Recommendation Criteria

Investment View

PAC Partners Investment View is based on an absolute 1-year total return equal to capital appreciation plus yield.

Buy Hold Sell

>20% 20% – 5% <5%

A Speculative recommendation is when a company has limited experience from which to derive a fundamental investment view.

Risk Rating PAC Partners has a four tier Risk Rating System consisting of: Very High, High, Medium and Low. The Risk Rating is a subjective rating based on: Management Track Record, Forecasting Risk, Industry Risk and Financial Risk including cash flow analysis.

Disclosure of Economic Interests The views expressed in this research report accurately reflect the personal views of the author about the subject issuer and its securities. No part of the analyst's compensation was, is or will be directly or indirectly related to any recommendation or view expressed in this report.

The following person(s) do not hold an economic interest in the securities covered in this report or other securities issued by the subject issuer which may influence this report:

• the author of this report

• a member of the immediate family of the author of this report

Disclaimer PAC Partners Pty Ltd. (“PAC Partners ” or “PAC”) is a Corporate Authorised Representative of PAC Asset Management Pty Ltd holder of an Australian Financial Services Licence (AFSL No. 335 374). PAC Partners is a business partner of Phillip Capital Limited (“PhillipCapital ”) (AFSL 246 827).

The information contained in this report is provide d by PAC Partners to Wholesale Investors only . Retail investor and third party recipients should not rely, directly or indirectly, on this report. Users of this research report should not act on any content or recommendation without first seeking professional advice. Whilst the report has been prepared with all reasonable care from sources which we believe are reliable, no responsibility or liability is accepted by PAC Partners, for any errors or omissions or misstatements however caused. Any opinions, forecasts or recommendations reflect our judgement and assumptions at the date of publication or broadcast and may change without notice. This report is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This publication contains general securities advice. In preparing our Content it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual user. Access of this report does not create a client relationship between PAC Partners and the user. Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation. PAC and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication. PAC believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by PAC or any of its directors, employees or agents. Any content is not for public circulation or reproduction, whether in whole or in part and is not to be disclosed to any person other than the intended user, without the prior written consent of PAC Partners.

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ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the research reports.

Within the previous 24 months PAC Partners has not carried out work on behalf of the Company described in this report. PAC Partners and/or their associates may own securities of the Company described in this report. PAC Partners does and seeks to do business with companies covered in the research. PAC has received commissions from dealing in securities. As a result, investors should be aware that PAC Partners may have a conflict of interest that could affect the objectivity of this report.

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Documents

Urbanise.Com (UBN) 16 November 20152015/11/16 · We don’t believe Freelancer should be considered in this comparison as their network is not sticky and because there are so many