Johan Widmark | Date: 2021-04-28
The majority has only connected a small part of the property portfolio
According to the UN, buildings account for 39% of global energy consumption. Here, everyone agrees that so-called proptech, i.e. tools for digitization of properties and processes linked to property management, have an important role to play both to streamline property management, reduce energy consumption and improve sustainability. According to a survey among Swedish decision-makers in the real estate sector, as many as 55% believe that smart, connected properties will be the norm within 3-5 years. At the same time, as many as 67% of those surveyed answer that they have connected less than a quarter of their property portfolio today.
– When Nuuka was founded in 2013, the founders saw that there were large energy gains to be made by applying technologies as had been done in other industries, but that the real estate industry was far behind. And that is still the case in many places, says Susanne Hedblom, Managing Director of Nuuka in Sweden.
Nuuka is a Nordic software company that offers a hardware-independent platform with automated real-time solutions to optimize operation and maintenance of properties. Nuuka’s services use AI and machine learning to create self-optimizing buildings that adapt to different situations, such as the number of people in the building, the weather and the quality of the air inside and outside, to adapt the automation and ventilation systems in the property. The result is adaptable properties with optimal and safe indoor conditions, while the systems’ energy consumption can be reduced by as much as 15-40%, or even 50%.
Well-known customers such as H&M, ICA, Edge Technologies and the City of Helsinki
Although the development in prop tech is rapid, the market is still immature and highly fragmented.
– Nuuka differs mainly in that we do not sell any consulting hours or hardware. Nuuka collects data from existing hardware, which is often located in different silos. We do not deal with meeting room booking and access, but only operation and function, heating, cooling, ventilation, indoor climate and energy consumption. Already today we have 100 ready-made integrations with the systems out there. Implementing Nuuka does not require any special hardware, we can handle all programming languages and protocols and can quickly take a holistic approach, says Susanne Hedblom.
Today, Nuuka’s platform collects data from over 1 million meters and sensors in approximately 3,000 properties. The company’s large Swedish prestige customer is ICA Fastigheter, where Nuuka’s solution manages the indoor environment in all its own ICA Maxi stores. Now the next step is to expand to the smaller stores and optimize the properties with the company’s AI. The Dutch property developer Edge Technologies, which is responsible for some of the world’s most sustainable and advanced office properties, and the city of Helsinki, with over 1000 properties, are other important customers, as well as a project to improve stores’ indoor climate and energy efficiency with clothing giant H&M.
Read about Loudspring’s Eagle Filters here
Other well-known owners in addition to Loudspring, which owns 42% of the shares, are YIT Ventures, the multinational Finnish construction company YIT’s venture capital alarm, which is also an indication of the strength and quality of Nuuka’s solution.
Revenue model with the goal of doubling sales
The revenue model is based on monthly subscription fees for the service, although there may be some start-up costs in the beginning. As an example, a medium-sized office property or school can cost around SEK 30,000 – 100,000 for installation with a recurring cost of SEK 4,000 – 7,000 per month. There is a large spread that depends entirely on the customer’s existing system and needs. The simplest properties have a few measuring points to over 25,000 in the most advanced.
The company’s MRR (Monthly Recurring Revenue) amounted to EUR 140,000 in the first quarter, and has historically grown by approximately 3% per month.
Important driver for value creation in Loudspring’s portfolio
Some delays in decision-making on new projects in the real estate industry as a result of the corona pandemic pressured revenue growth for Nuuka in 2020, and it is still uncertain what effect the pandemic will have on the industry in the long term. But Nuuka believes the effect of the pandemic to be twofold. On the one hand it has delayed signing of contracts but on the other hand it seem to have awaken the real estate industry to the need for digitalization. So in the long run it may turn out to have been a positive driver for Nuuka.
The company itself has a high ambition to double revenues annually, and Loudspring presents its expectations for the company in a range, which was recently revised down to between EUR 2.05 million and EUR 2.75 million for 2021. Based on a somewhat weak momentum as the effects of covid-19 lingers, we expect Nuuka to reach the lower end of Loudspring’s expected interval in 2021.
The closest comparable listed companies are American AppFolio and RealPage, as well as Finnish Admicom, which all deliver software and platform solutions to the real estate sector, which are largely cloud-based. These had an average growth in 2020 of 26% and are valued at 15.8x trailing 12 months sales on average. With a discount for lower growth (17% 2020), lower size and that Nuuka has not yet reached profitability, we see a multiple of 10x sales as justified for Nuuka. This corresponds to a value for Loudspring’s holding of 42% of the shares, of EUR 5.5 million. Should Nuuka deliver a turnover near the lower end of Loudspring’s expected range, this would translate to a value for Loudspring of 9 MEUR 2021. This makes Nuuka Loudspring’s second largest holding after Eagle Filters (read our analysis of Eagle here) and a significant driving force for Loudspring’s NAV going forward.