Rivals a big risk to Eroad
Eroad chief executive Steven Newman says one of the biggest risks facing the company is others might move in on the "global opportunity" it helped create.
The Auckland software firm has issued a prospectus for its sharemarket float, that will value it between $180 million and $228m.
Eroad employs 115 staff and makes telemetric systems that can be used to monitor commercial vehicles and pay road-user charges electronically. Its technology can also be used to record drivers' hours, replacing paper logbooks.
Newman said now was the right time for Eroad to list because it had proved its business model in New Zealand and launched into the United States and Australian markets.
"One of the bigger risks in our business is now we have created this global opportunity, that other companies may come into that space," he said.
"We have a three-to-five year advantage. For us it is about growing quickly and being able to scale-up."
The prospectus said the condition of roads in the United States was deteriorating, in part because of fracking in the oil and gas industry which was putting "significant pressure on roads", Newman said this was both through fracking itself and increased truck movements on rural roads.
At the same time, the prospectus said the appeal of road-user charges as a means to fund transport infrastructure was increasing globally.
The key risks the company identified in its prospectus included the costs of expanding in US, the possibility its competitive position might deteriorate, and the chance it might be forced to defend patent claims.
"Servicing the road transport industry may attract competition, possibly from major technology companies with greater resources," it said.
However, Newman said Eroad had not seen any increase in competitive activity in its core market or faced any challenges from patent trolls to date.
Existing investors in Eroad will sell up to 5.1 per cent of the company's shares that were already on issue, but Newman, who owns 35 per cent of the company, said he and his fellow directors would not be reducing their shareholdings.
Eroad is among several small-cap technology firms that have or are expected to list on the NZX this year.
Many analysts believe Xero's sharemarket success helped pave the wave for the listings, although Xero shares were today trading down 4.4 per cent at $23.42, near their nine-month low, in mid-afternoon trading.
Eroad made a profit of $2.9m on revenues of $10m in the year to March, helped by a $1.9m tax benefit.
It forecast a loss of $1m on revenues of $19m this financial year because of the $2m cost of listing, and a profit of $5.5m on revenues of $34m in 2015-16.
Most of the growth would come from its existing markets in New Zealand and Oregon, Newman said.
The company said it did not expect to pay a dividend during that period as it would reinvest any profit to grow the business. Newman said its dividend policy after that would depend on the size of the opportunity in front of it.
"If we ran out of opportunities we would of course then be paying a dividend," he said.
The final price for its shares will be set following a book-build on July 29 and it expects to list on the NZX on August 15.
The Dominion Post