Steven Newman, EROAD
Cloud accounting software provider Xero is one of New Zealand’s most successful companies. It expanded from its Auckland roots, listed on ASX and, after rapid global expansion, now has a $22 billion market cap.
Now, another New Zealand technology company, EROAD, is following in Xero’s footsteps. EROAD, which is also listed in New Zealand, provides scalable fleet technology solutions. It has also listed its shares on ASX to enhance liquidity, attract institutional investors and access capital to expand.
The company is run by a Kiwi entrepreneur, Steven Newman. He co- founded Navman, a successful marine electronics and GPS device maker. In 2007 Newman invested in EROAD, which was launched in 2000 to modernise and automate New Zealand’s paper-based road-user charging system – a tax to fund public roads – for big trucks. He became chief executive and has driven a rapid expansion of the business.
“We ended up being the ultimate app for heavy transport,” Newman says, adding that from 2009 the company collected more than $NZ4 billion for the New Zealand government. EROAD has leveraged its strong product base and skills across data security, simple user interfaces and proactive customer support into new product areas, particularly at the enterprise level.
“We’ve seen our customer base, which was originally very much small to medium businesses, comprise an increasing proportion of enterprises,” Newman says. At the group level, around 42 per cent of its business is from enterprises.
EROAD has also expanded into Australia and the United States, where it has benefited from regulatory change in transport to improve safety. EROAD now services around 35,000 vehicles in North America.
Newman says with COVID accelerating digital transformation, EROAD is expecting compound annual growth rates in its core markets of 20 per cent for the next five years. “No market can grow infinitely at 20 per cent, so now is the time to scale up and get the largest share of that opportunity we can,” he says.
The company listed on New Zealand’s stock exchange in late 2013. In 2019, it also listed on ASX, which has helped significantly increase institutional ownership of the company, with its shares now split fifty fifty between institutions and retail investors.
“We have had a real focus on increasing the depth of our institutional investor base,” Newman says. “We have had some very loyal institutional investors prior to listing on ASX. But we were probably maxing out some of the microcap funds. So, we wanted to get some more capability for further capital raisings.”
The ASX listing has also helped boost analyst coverage, with four analysts now covering the company and providing equity market research for the business.
EROAD raised $NZ50 million when it listed on ASX. “That was to achieve three things,” Newman says. Around $NZ20 million to $NZ25 million was to accelerate development of the next generation of its technology. Another $NZ20 million was seed capital for acquisitions and some funds were used to strengthen the balance sheet to better handle unpredictable events such as COVID.
EROAD studied its competitors to find out how their businesses were expanded to provide services to 250,000 vehicles. It discovered the growth came primarily through acquisitions. A real focus over the last few years has been to look for target acquisitions.
In 2021, EROAD announced it would acquire Kiwi telematics company Coretex for $NZ188.3 million, which Newman says will accelerate the company’s development by two years. To fund the purchase, EROAD launched a $NZ64.4 million placement. It also completed a $NZ20 million share purchase plan.
The company is now in a strong position. It has a $500 million market cap, a healthy balance sheet, significant growth opportunities across products and its three core markets and scale. EROAD will now service more than 185,000 vehicles with the acquisition of Coretex. The market has recognised its growth potential and the share price on ASX has more than doubled in the past two years to $6.00, with the consensus target price above $6.00 a share.
Newman says for now, EROAD plans to continue its existing investor relations strategy. Two-and-a-half-years ago, the company brought in Auckland-based IR consulting outfit Merlin Consulting to help with investor relations, which has turned into a semi-full time engagement across the two capital raisings and Australian listing.
“We’re going to have a point at which we need to re-evaluate our approach, but how we have operated up to this point has worked extremely well,” Newman says. He notes two capital raises in less than a year is unusual. “We’re not likely to do that again in the next 12 months. Now, it’s about having a bit of a breather. Most probably we would look at our IR model in a year’s time. But we’re incredibly well served with our existing model in the short to medium-term.”
Newman says the company will continue its physical trips to meet up with institutional investors. Although that will be challenging with COVID constraints. “We were able to sneak across the ditch to Sydney for the year-end results announcement,” he says. “So we did get to meet some of the new instos that had come on the register.” Newman notes the company’s face-to face meetings were seen as unique. “People seem to be very much all-virtual now,” he says, adding he believes eyeballing investors is worth the time and effort.
Another benefit of the ASX listing is more US investors buying into the stock. “The ASX listing has done a really good job in terms of us being included in a lot of US insto mandates,” he says. Newman expects the Coretex acquisition, which increases the company’s presence in the US, will help attract more investors from this market. “The combined business gets us to an important milestone from a North American perspective, certainly for enterprise customers of 100,000 vehicles in that market. “The Americans don’t really care about how good you are in any other market. It’s all about North America. The Coretex acquisition gives us more presence in the US market, so we will expect to attract more interest from North American instos.” As to whether EROAD would consider a US listing, Newman demurs. “We’re not listing over there.”