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SMALL CAP IDEAS: Will IQGeo shares rise further after 130% jump in the last year?


Some companies can be summed up in a word or two.

As a provider of geospatial network management software, IQGeo it requires a few more, but the value proposition of the fast-growing AIM component makes it worth understanding.

In essence, IQGeo’s software-as-a-service (SaaS) technology stack makes it easier, cheaper and more efficient to deploy fiber broadband networks.

It does so through a concept that is very much at the forefront of the software industry: digital twins.

IQGeo’s software-as-a-service (SaaS) technology stack makes it easier, cheaper and more efficient to deploy fiber broadband networks

By accurately replicating a customer’s fiber and electrical network infrastructure in the digital sphere, IQGeo can run models, automatically plan new networks, and manage operational workflows and network expansions.

If that sounds familiar, it may be because Nvidia, the world’s newest trillion-dollar company, is pouring an extraordinary amount of capital into creating its own digital twin technology.

As one of the most capex-intensive industries in the world, few industries have the same level of SaaS sales potential as telecommunications.

To get an idea of ​​the market this product is targeting, more than 60% of households in IQGeo’s core market, the US, are not yet connected to fiber broadband.

The United States lags woefully behind the rest of the developed world on this front. To that end, the Biden administration has dedicated nearly $130 billion in federal, state, and local grants to a variety of broadband initiatives to support urban, rural, and low-income areas.

In a recent interview, IQGeo CEO Richard Petti says there’s “something of a feeding frenzy in that market.”

Here in the UK, fiber broadband is almost universal. However, ultra-fast full fiber broadband (defined as 1 Gbps or faster) covers less than half of urban facilities and barely a third of rural households, according to Ofcom data.

Full fiber is a high growth sector for UK telecoms and the number of alternative networks competing for market share is constantly increasing.

Petti predicted that the “spending wave that is happening now” in the global telecom infrastructure industry “will continue for a few years.”

Clearly, the markets that IQGeo is targeting in both the US and the UK are huge. Also, while fiber deployment is IQGeo’s bread and butter, its tech stack is versatile.

Utility companies in the electric and gas sectors can and do use IQGeo software for their own implementation needs.

In the here and now, IQGeo has shown considerable aptitude for winning and retaining customers.

Most recently, IQGeo secured expanded contracts with a major German broadband operator and a top-tier US telecommunications provider, both using IQGeo’s Network Manager Telecom software for network growth and management.

The German contract, worth more than 2 million euros (£1.7 million) per year for three years, will support the deployment of fiber broadband to 800,000 homes per year for six years.

Under the US $2 million (£1.57 million) contract, IQGeo’s software will be used to update the client’s geographic information system.

In July, IQGeo expanded its agreement with one of Japan’s leading electricity service providers to help improve the efficiency of emergency response.

Petti touts IQGoe’s sticky and expanding customer base.

In fiscal 2022, the group added 64 new customers, which combined with the €1 million acquisition of continental Europe-focused design and automation software group Comsoft in August of that year, translated into growth of 84 percent on recurring revenue.

A fair vindication of Petti’s ‘land and expand’ software sales model then.

In the most recent interim reports released in mid-July, recurring revenue (ARR) increased 73% year-over-year.

This translated into positive EBITDA (underlying profit) six months to the tune of £2.5m, compared to less than £1m for the full fiscal year 2022.

High growth, as seen with IQGeo, can be a double-edged sword, something any potential investor should be aware of, with cash flow stress being the main concerns.

On IQGeo’s side, Petti noted that much of the new sales is with existing logos, which keeps cost of sales considerably low and keeps organic growth sustainable.

As of June 30, IQGeo’s cash position was £11.1m, down around 8% year-on-year, without any external debt burden.

This prudent expansion strategy has seen IQGeo shares jump more than 130 percent to 299 pence in the past 12 months.

Does that make IQGeo overbought? Maybe a little, but not necessarily a lot.

What analysts say

FinnCap analysts still have 17 percent upside potential in their price forecasts, and that’s just for the next year.

FinnCap recently increased its revenue forecast to £40.2m by the end of the year, 22% higher than previous estimates. By 2024, finnCap increased the figure by 14% over previous guidance, predicting revenue to reach £43m.

Gross profit could well hit £24m and £27m respectively in 2023 and 2024, analysts forecast, marking an increase of around 10 per cent on previous estimates.

“We expect the platform’s economies of scale to drive strong growth in pre-tax earnings and free cash flow in 2023 and beyond,” the brokers explained.

If IQGeo can continue to deliver on its growth strategy while keeping costs in check, it could be an AIM stock to watch for the long term.

To read more lower case, go to Proactive Investor Website.

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Merry C. Vega is a highly respected and accomplished news author. She began her career as a journalist, covering local news for a small-town newspaper. She quickly gained a reputation for her thorough reporting and ability to uncover the truth.

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