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IQGeo: A growing subscription business with attractive investor returns

  • Its platform ingests data to create a digital twin of a telecoms or utility network that can be used by thousands of employees
  • The business is growing rapidly 
  • 5G roll-out and green initiatives provide long-term drivers for the business 
IQGeo: A growing a subscription business with attractive investor returns

The roll-out of 5G networks across the globe has the potential to be transformational, taking to another level global interconnectedness.

Developed economies, meanwhile, have pledged to become carbon neutral over the coming decades.

Two opportunities, one challenge: overhauling the infrastructure to supports those ambitions.

“Network operators are facing some very complicated decisions of having to invest in and upgrade their assets,” says Richard Petti of IQGeo Group Plc (LON:IQG), a geospatial technology specialist at the forefront of this change.

His business works with telecoms and utility companies to help them digitise their operational processes and capture their network assets.

Very simply, the firm's system ingests data to create a geospatially correct digital twin of a network that can be used by thousands of employees.

Not only that, but its functionality is also such that the mobile-first system can be used by maintenance technicians, sales, and even the accounts department.

Productivity and collaboration 

Crucially, AI-driven systems help improve productivity and collaboration.

This means IQGeo’s platform fast becomes an integral part of its customers’ day to day operations.

It has 50 telecoms and utility clients in Europe, North America and Japan, which may not sound a lot until you realise that this translates to 50,000 global users.

Included on its roster are telecoms operators such as Bell and Cox in North America, and the Tokyo Electric Power Company. So, it’s a blue-chip client base.

That said, there are a number of smaller businesses that are converts to IQGeo’s platform too.

There is competition out there, notably from Esri, a mapping software company used by the likes of NASA, the US Department of Defense and the MoD here in the UK.

But as CEO Petti points out, mapping the surface of Mars is very different to digitally re-imagining New York’s fibre network.

Unique challenges

Both have their unique challenges. And while Esri is equipped to do the former, it is not a specialist in the intricacies of the latter.

And, as Esri and technologies like it are ostensibly cartography tools, they can be “clunky” for telecoms and utilities to use, and often require a layer of expensive integration.

IQGeo, by contrast, is designed specifically for the industries it serves, and comes with optimised functionality. Being cloud-based, meanwhile, obviates a layer of the integration challenges and provides clear operational and financial benefits.

Petti says, fundamentally, the software exists to answer three questions:

  • Where should I invest and how much will it cost me?
  • How do I reduce construction times and accelerate time to revenue?
  • How do I maintain customer loyalty and increase my wallet share?

“These are existential problems that customers face and we help solve them,” says the IQGeo CEO.

On almost every metric the business is achieving strong growth. Own product orders were up 122% in 2019; revenues were ahead 17%; while recurring sales grew by 78%. The gross margin fell, but this was in part a function of its stellar recent performance that is now reversing itself.

Financially, it is in a strong position with around £11mln on the balance sheet as of June 30, 2020, which is more than enough to get the business along the runway to break-even, analysts reckon.

Well-articulated digital strategy 

IQGeo has a well-articulated digital strategy of knowing the 1,200 companies and 10,000 contacts in its industries as it builds the business.

The company has relied on direct sales to date, although it is “rapidly evolving a channel model, including in Japan where we've had huge success”, says Petti.

So, the business will evolve and expand as it adds more ‘logos’ (businesses) to its client list; however, the current customer base provides a significant opportunity too.

“We are growing a subscription business with attractive investor returns,” says CEO Petti.

“Our market lends itself well to that. We have proven that customers continuously extend their usage of the product and we aim to sign up 50% of the employees at a utility or telecoms company as users.”

Long-term fundamentals look good

And, of course, we have the key long-term drivers for the industries with which IQGeo works: 5G roll-out and the overhaul to the electricity grid driven by green initiatives.

In North America, for example, 5G coverage is forecast to grow at a compound annual rate of 127% over the next five years.

Put another way, that’s tens of billions of dollars being invested in just one of IQGeo’s territories in the relatively near-term. The picture is similar across the developed world.

Recent studies put compound annual growth in smart electricity grids at around 16%.

These, too, are strong market fundamentals.

And of course, the company is likely pushing at an open door with its safety, risk and compliance functionality, which feeds a growing requirement.

“All of this means systems like ours are becoming mission-critical,” says Petti. “And the light is being shone on those older-generation geospatial systems that can’t cope; that aren’t up to the job.”

Quick facts: IQGeo Group Plc

Price: 72.1 GBX

AIM:IQG
Market: AIM
Market Cap: £35.76 m
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IQGeo says orders are up 120% and a 'substantial increase in subscriptions'...

IQGeo Group Plc's (LON:IQG) Richard Petti discusses with Proactive London's Katie Pilbeam their interim results for the six months to June 2020. Petti explains how the company's orders are up 120% with over 90% of orders taken as multi-year subscriptions. He also notes IQGeo's product revenue...

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