Here’s why this leading broker has downgraded Nearmap Ltd (ASX:NEA) shares to a neutral rating this morning…
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In afternoon trade the aerial imagery technology and location data company’s shares are down 14% to $2.47.
Why is the Nearmap share price crashing lower?
Investors have been selling Nearmap’s shares on Friday after it announced the successful completion of its fully underwritten institutional placement.
Nearmap raised $72.1 million at a 4.2% discount of $2.77 and will now seek to raise a further $20 million via a share purchase plan.
Why is it raising funds?
Management advised that it launched the capital raising so that it can capitalise on the momentum of the business and the tailwinds in the industry.
It has identified a number of areas of investment. These include scaling its investment in sales and marketing, accelerating the roll out of the HyperCamera3 systems, and expanding its product solutions to high-value use cases.
Why have its shares fallen so hard?
Given that Nearmap’s capital raising was undertaken at a 4.2% discount, investors may be wondering why its shares have fallen a further 10% on top of this.
I suspect this decline could be the result of a broker note out of Goldman Sachs this morning. According to the note, the broker has downgraded its shares to neutral rating with a $2.95 price target.
Goldman commented: “While we remain attracted to the long-term potential of NEA (technology leadership, large market opportunity) and this capital raising should offer NEA a strong margin for safety (we forecast its Net Cash position to trough at A$81mn in FY22E), strong operating leverage is unlikely to be in evidence until FY23E. In order to return to a more positive stance, we would need to see ACV growth trending materially above our forecasts and driving stronger operating leverage than we currently assume.”
While I agree with Goldman Sachs on the above, I think the pullback in its share price today has created a buying opportunity. In light of this, I feel it could be a great buy and hold option at the current level.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.