VOXTUR – 500% growth in 2022/2023.
- · Triple-digit growth, year after year. With a lot of runway still to come. Expected margins will increase to 75% by mid-2023.
- · Trading at 1.5 P/S 2022 estimates when similar companies trade at 20x multiples.
- · What is the street missing? Growth is mispriced because they trade in the TSX Exchange, and the company is hard to understand. The catalyst is that they are moving to Nasdaq next year.
Investment Thesis
We'll analyze Voxtur
and why I think it is mispriced through this article. I'll argue that it
deserves a much better valuation once you can put the multiple moving parts of
mergers and acquisitions in context.
Voxtur trades in the TSX
Venture exchange witch is ignored by most investors, creating an opportunity
due to the lack of popularity on the stock. This is why Management plans to
list on Nasdaq in the next couple of quarters. This would bring more eyes and
popularity to this stock, which deserves a much higher valuation.
The opportunity comes
because the short-term growth is currently mispriced due to a lack of
understanding of the company's growth sustainability.
https://app.hubspot.com/documents/19575479/view/260355706?accessId=2c4da7
What is Voxtur?
"One-stop shop for efficient access to
real estate data and the entire real estate process."
"With
the largest verified database in real estate, our workflow platforms
efficiently appraise assets, originate and service loans, securitize
portfolios, and evaluate tax assessments with verifiable proof. " - https://www.voxtur.com/
Originally started and
listed in Canada, over 90% of their revenues are now generated in the U.S.
What does Voxtur do:
Voxtur can be better
explained in the context of 4 different macro services inside the real estate
industry. Here they are with a summary of their competitive advantage:
1.
Valuation
of real estate properties. They
have a product that can make appraisals
20% cheaper in half of the time.
2.
Tax
Assessment. They access more
than 65% of U.S. tax collectors in a database, allowing them to create and sell
a $20 service to homeowners directly to analyze if their taxes are high or low
compared to other comparable properties.
3.
Settlement
services – Tittle, closing, title insurance. With the development of automated and instant "Attorney Opinion
Letters" Voxtur can create a cheap alternative to title insurance based on
their proprietary data. They can bring the cost from $1500 down to $250 and
keep 70% margins.
4.
Data
insights. Important for future
product developments. Notice that Voxtur is not a SAAS but a DAAS (data as a
service) with better business economics. But for simplification of this report,
I'll refer to it as a SAAS.
"Once we've got all of these
platforms that we own and built, each business is a minimum of a half a billion
dollars… as far as revenue, each! "- Gary Yeoman
I'll develop these
points later in depth. First, we need to understand Voxtur history.
Summary of Voxtur history:
It all
starts with Gary Yeoman, current executive chair. Is the founder and former CEO of Altus Group
(TSX: AIF), a real estate software, data, and analytics company. He has a deep
domain expertise in building a similar multinational.
He partnered
with Bank of Montreal for funding to finance acquisitions. For this negotiation
not only did the bank get to make the loans but they also invested in the
company and are the sponsor's for Voxtur to list in Nasdaq.
Once
the funding was in place Gary goes out and starts buying and merging
strategically with companies for:
·
Their
existing revenue
·
Their
licenses and clients
·
To
cross-sell similar non-competing products to the same clients.
·
To create
a "One-stop shop for efficient access to real estate data and the entire
real estate process."
Management has stated
that every merger or acquisition must be in real estate technology,
synergistic, create value, and accept cash and stock as payment.
What problem do they solve?
If you ever have
bought or sold a house, you know this:
You need a real estate
agent to promote it (not always), you want a professional appraisal to
determine what the house is worth for the bank loan, you need to pay the taxes,
look for the title and see that it is "clean" (meaning no-one is
suing you) and then you can transfer it.
For some reason, this
is a very inefficient procedure; it takes 30 to 90 days.
Voxtur is speeding all
that by putting data together of the companies it has acquired and substantially
lowering the cost.
Imagine that you go to
a fast-food restaurant to get a hamburger, to another one to get a coke, and
yet to another one to get potatoes. That's the real estate business for you in
a nutshell.
Here is Voxtur's road map:
Gary starts with
Ilookabout. An image database company. This is important because you want
updated pictures in appraisals fast to review the appraiser's work.
Then acquires
Clarocity Corporation. A provider of real estate valuation services through its
data and analytics capabilities. This also opens the door to cross-sell Freddie
Mac and Fannie Mae, saving years of pre-qualifications to Ilookabout to do
business with them.
The Apex acquisition
follows. This is the most popular sketching software for appraisers; they have a
presence in over 2100 counties. This becomes a strategic acquisition that also
allows for cross-selling different products.
Voxtur, originally a Title
business, was acquired, and Jim Albertelli became CEO.
Next comes the ANOW.com
acquisition. This is the appraisal side of the system, they charge a transactional
fee to the lender, and appraisers (AMC = appraisal manager companies) pay a
monthly fee.
They use the software
to validate that the images were taken by appraisers, inspectors, and even
owners coincide with images in their database.
They use machine
learning to match to analyze images with MLS data.
Next comes the Xomesolutions.com
acquisition, formerly owned by mrcooper.com, one of the top 5 mortgage
servicers in the U.S. Mr. Cooper couldn't offer the service to
competitors effectively until they made it independent.
Not only did they acquire
AMC clients (appraisal manager companies) with some of the top 10 lenders of
the U.S. They have also accumulated over 98.2% of all MLS data.
Most real estate
agents use MLS to get certain information and list properties. It is limited to
professionals only. I see it as a virtual monopoly in Us and Canada.
Notice that acquiring
Xome lowered the margins in the financial statements, but this is just
momentarily. Management expects margins of 60% by the end of 2022 and 70% to
75% hallway of 2023
Finally, the last acquisition
was Benutech, one of the largest real-time real estate data repositories in the
United States, enabling title professionals and real estate agents to access
real estate data from multiple public and private data sources.
Team (note: Management ownership is approximately 40%)
Understanding Voxtur 4 macro services
at a high level:
Voxtur has very
specific niches within the real estate industry in North America:
Presentation: https://app.hubspot.com/documents/19575479/view/260355706?accessId=2c4da7
And as we mentioned
before, these Macro services are categorized like this:
1.
Valuation
of real estate properties.
2.
Tax
Assessment.
3.
Settlement
services – Tittle, closing, title insurance.
4.
Data
insights.
Tax business:
Voxtur has focused on "b2g"
business-to-government in this niche. Governments, municipalities, counties,
provinces, states to provide analytical services on property tax, currently,
about 11 million dollars a year, to be about to be 15 million dollars a year
with a new contract that they're getting with the province of Ontario.
"In Ontario
alone, the government pays 75 million dollars a year just to fight assessment
appeals we can mitigate a good portion of that by enabling them to deliver
proper fair, equitable assessments and taxes…" - Gary Yeoman
There are two parts to
the assessment on property tax business:
1)
Provide
imagery, desktop valuation services, mobile applications to provide assessment
services to counties and municipalities.
2)
Provide
real property tax analytics. Use to confirm assessment or to create reports
with a predictive analytics tool to tell you whether your property taxes are
too high or too low and by how much. They are currently in 50 major cities and
gaining speed.
Market size: 150
million residential properties in the U.S. alone with margins north of 90% once
it's running at full force
They also serve b2b customers
within the tax services, like lenders.
"no one is
doing this …that we know of. Our
proprietary algorithms coupled with the data that we're getting… of the MLS
data from Mr. Cooper and Xome… core logics data that we're getting with the
acquisition of Benutech, that should close any day …we think that WE HAVE
THE MOST COMPREHENSIVE DATABASE YOU KNOW IN NORTH AMERICA. "– Gary
Yeoman
Valuation business:
"Our overall
goal is to fully populate those appraisal cards, to roll out an insurance
wrapper around those to guarantee the value to the lender. Today it takes 50
days versus the one a day they're doing now. "– Gary Yeoman
The technology that is
offered in today's appraisals business is almost non-existent.
In order for a bank to
apply for a mortgage, it costs eight hundred dollars and up to 20 days, and the
lender must get access to title insurance after that.
Anow.com is the only
fully digitized A.I. encrypted appraisal platform in North America. They just
landed their first major client with United Wholesale doing 70 000 transactions
a month.
Not only is this
platform five times quicker and cheaper. It is a business with 30% margins that
they expect to turn into a 70% margin business.
The appraisal market
alone is 4 billion. On top of that, Voxtur will get increased demand with
default, foreclosures, and refinancing once the governmental moratorium is
lifted.
Settlement services – Title, closing,
and title insurance.
As mentioned before.
Once the seller gets an appraisal and everyone is ready to register the title,
the buyer needs to get "title insurance." This insurance will cover the
cost if there are issues with the title in the future. And all of this is
needed because our legal system is archaic, and there could be pending lawsuits
that may not have been found in the "title search."
The average cost in
the U.S. is $1500. They can take it down in cost substantially. I'd heard they
would price this anywhere from $500 to $250. The Title businesses can have
margins between 45% to 55%, but with the improvements, they expect to take it
up to 60% by the end of 2022.
Data insights:
I won't develop much
on this point because I want to stick to facts. I want to mention that many of
these services are done by repurposing existing assets. In this aspect, Voxtur
resembles a "data-as-a-service" business model, which is better than
a "Software-as-a-Service." Daas companies have better economic than
Saas companies.
Their development cost
is strictly marketing and programming to test, develop and deploy new products
in their networks, easily done by cross-selling to existing clients in
different niches.
Valuation:
Management recently
mentioned that they have over 300 master services agreements already in place.
Their clients don't like to be used to promote other stocks, which makes sense,
so every time they get a new client, they don't come out with a press release. You
must remember this are big clients sometimes like Mr. Cooper, Fannie Mae, etc.
Only last month, investors in internet chatrooms found that United Wholesales
is one of the new customers; this is one of the 4 top lenders in the U.S. The
company never made a press announcement, so that you won't find it in your due
diligence.
The best way to value
a growing company in this stage is to use a fair multiple over revenues of
comparable SAAS companies with similar margins and growth.
I'll use as a starting
point a Valuation from iA Capital Markets. Notice that the valuation you are about to
see is, in my opinion, conservative.
When you look at these
numbers closely, please notice that Management commented about this same report
on an interview, saying
that they didn't think the revenue forecast here where high and that the
multiples assigned were still conservative. They trust they can do even better
than these projections.
Multiple on sales
Let me show you today's
market multiples of the five fastest-growing SAAS companies that I could find.
-
Bill.com
54x P/S, growth rate 151.9%
-
Snowflake
79.5x P/S, growth rate 109.5%
-
Sprout
social 11.1x P/S, growth rate 96.1%
-
Datadog
50.4x P/S, growth rate 74.9%%
-
Asana
34.4x P/S, growth rate 70.3%
Assuming a 10X P/S
multiple is conservative, in my opinion, because those are similar business
models to Voxtur. But they are not growing as fast; they are already too big.
I am considering 2022
Revenue estimates of $273M, which is in line with current management
projections.
That's a future market
cap of 2.73 billion vs. today's $500M. Or 546% higher.
$0.81 * 546% = $4.42/share
Conclusion
Voxtur has created
through Mergers and Acquisitions a series of products needed in the real estate
market. As they transition to Nasdaq in the next year, I suspect the market
will come to realize that their extraordinary growth and margins are
sustainable for some time to come. Giving them a more realistic multiple will
raise their valuation by five times higher than today.
If you are interested
in learning more, I suggest a video series explaining the company valuation by Mariusz Skonieczny.
