1Spatial |
Delays and disposals |
Profit warning |
Software & comp services |
21 December 2016 |
Share price performance
Business description
Next events
Analysts
1Spatial is a research client of Edison Investment Research Limited |
1Spatial’s pipeline has not converted as expected thus far in H2, and given the shift to a subscription weighted model, such deals which do come in between now and the end of January are unlikely to contribute significantly to the P&L. As a result the company expects to be marginally loss-making at the EBITDA level versus our £3.7m profit previously. We welcome the exit from the non-core Avisen and Storage Fusion businesses in the name of improving focus. We still believe that the company’s core strategy of building the GIS business around higher-margin and recurring revenue lines is sound, although – as is often the case – the transition is proving more protracted and painful than initially anticipated.
Year end |
Revenue (£m) |
PBT* (£m) |
EPS* (p) |
DPS (p) |
EV/Sales (x) |
P/E (x) |
01/15 |
19.6 |
1.8 |
0.27 |
0.0 |
0.8 |
7.2 |
01/16 |
20.7 |
2.0 |
0.29 |
0.0 |
0.7 |
6.7 |
01/17e |
23.9 |
(2.4) |
(0.33) |
0.0 |
0.6 |
N/A |
01/18e |
23.7 |
(0.7) |
(0.09) |
0.0 |
0.6 |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
The shortfall is attributed to a number of factors including delays in closing high-margin licensing deals and the migration towards a recurring subscription model at the expense of licensing revenues. While the Esri partnership remains potentially transformative, it is taking longer than anticipated to convert this relationship into an effective sales channel. The company maintains that the pipeline remains robust, with over 50 deals of various sizes.
The company has disposed of Avisen (FY16 revenue £1.4m, £0.3m EBIT, but broadly break-even thus far this year) for £0.1m to management. Storage Fusion (FY16 revenue £0.2m, £0.3m EBIT) has been closed. This leaves just Enables IT, a provider of hosted/cloud-based managed services, which is seen as complementary to the GIS operations in the company’s Cloud Services division. Other opportunities for reducing costs are also being explored.
We have reduced our FY17e revenues by 15% to £23.9m, with EBITDA dropping to a £0.3m loss from a £3.7m profit previously. We now forecast a year-end net debt position of £1m versus £1m net cash previously. 1Spatial has a £3m facility. Visibility for FY18 is clearly limited but, taking a cautious stance, we reduce our revenue and EBITDA by 19% and 58% respectively (detailed overleaf).
We believe that management’s strategy of growing the GIS business around higher-margin and recurring revenue streams is sound. The FY17e EV/Sales rating of 0.6x is also low for a product-based software business, but evidence of a turning point in financial performance will be required before this discount starts to close.
Our estimate changes are shown below. The profit warning stems from a recent pipeline review and while there are still large deals which could close between now and year-end (Jan) the shift towards a more subscription weighted model will mean that such deals will not contribute significantly to this year’s P&L.
We have reduced our FY18 operating costs forecasts for the GIS business slightly although there may be scope for further reductions.
We believe that the key forward indicators of a sustainable recovery in financial performance will be 1) growth in bookings, especially through the company’s GIS partners Esri and Here and 2) further progress in the US, 3) uptake of other recurring business lines, such as Managed GIS services and 4) extension of the company’s GIS partner base.
Exhibit 1: Estimate changes
2015 |
2016 |
2017e |
2018e |
|||||
£000s |
Actual |
Actual |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
Recurring subscription income from partners |
0 |
0 |
400 |
300 |
(25) |
1,050 |
900 |
(14) |
Other geospatial |
0 |
15,957 |
17,457 |
14,106 |
(19) |
18,679 |
15,234 |
(18) |
Geospatial |
17,934 |
15,957 |
17,857 |
14,406 |
(19) |
19,729 |
16,135 |
(18) |
Cloud services/other |
1664 |
4,781 |
10,194 |
9,500 |
(7) |
9,684 |
7,600 |
(22) |
Group revenue |
19,598 |
20,738 |
28,051 |
23,906 |
(15) |
29,413 |
23,735 |
(19) |
Cost of goods sold |
(8,804) |
(8,960) |
(14,718) |
(15,957) |
8% |
(14,617) |
(13,317) |
9 |
Gross profit |
10,794 |
11,778 |
13,333 |
7,949 |
(40) |
14,796 |
10,417 |
(30) |
% gross profit margin |
55% |
57% |
48% |
33% |
50% |
44% |
||
EBITDA |
3,052 |
3,677 |
3,713 |
(283) |
N/M |
4,640 |
1,962 |
(58) |
Operating profit (before GW and except.) |
1,857 |
2,485 |
1,713 |
(2,283) |
N/M |
2,211 |
(467) |
N/M |
EPS - normalised fully diluted (p) |
0.27 |
0.29 |
0.22 |
(0.33) |
N/M |
0.27 |
(0.09) |
N/M |
Net debt/(cash) |
(7,817) |
(4,996) |
(1,001) |
1,046 |
N/M |
(1,016) |
3,097 |
N/M |
Source: Company data, Edison Investment Research estimates
Exhibit 2: Financial summary
£'000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 January |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
19,598 |
20,738 |
23,906 |
23,735 |
Delivery costs |
(8,804) |
(8,960) |
(15,957) |
(13,317) |
||
Gross Profit |
10,794 |
11,778 |
7,949 |
10,417 |
||
EBITDA |
|
|
3,052 |
3,677 |
(283) |
1,962 |
Operating Profit (before amort. and except.) |
1,857 |
2,485 |
(2,283) |
(467) |
||
Acquired Intangible Amortisation |
(255) |
(709) |
(1,000) |
(1,000) |
||
Exceptionals |
(2,345) |
(1,140) |
(500) |
0 |
||
Share based payments |
(723) |
(977) |
(977) |
(977) |
||
Operating Profit |
(1,466) |
(341) |
(4,760) |
(2,444) |
||
Net Interest |
(56) |
(31) |
74 |
(15) |
||
Other |
0 |
(421) |
(200) |
(200) |
||
Profit Before Tax (norm) |
|
|
1,801 |
2,033 |
(2,409) |
(682) |
Profit Before Tax (FRS 3) |
|
|
(1,522) |
(793) |
(4,886) |
(2,659) |
Tax |
5 |
805 |
977 |
532 |
||
Profit After Tax (norm) |
1,801 |
2,033 |
(2,409) |
(682) |
||
Profit After Tax (FRS 3) |
(1,517) |
12 |
(3,909) |
(2,127) |
||
Average Number of Shares Outstanding (m) |
650.4 |
691.3 |
729.5 |
739.5 |
||
EPS - normalised (p) |
|
|
0.28 |
0.29 |
(0.33) |
(0.09) |
EPS - normalised fully diluted (p) |
|
|
0.27 |
0.29 |
(0.33) |
(0.09) |
EPS - (IFRS) (p) |
|
|
(0.23) |
0.00 |
(0.54) |
(0.29) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
55.1 |
56.8 |
33.3 |
43.9 |
||
EBITDA Margin (%) |
15.6 |
17.7 |
N/A |
8.3 |
||
Operating Margin (before GW and except.) (%) |
9.5 |
12.0 |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
15,781 |
22,074 |
24,603 |
25,027 |
Intangible Assets |
14,729 |
18,859 |
21,588 |
23,789 |
||
Tangible Assets |
552 |
1,638 |
1,438 |
1,238 |
||
Investments |
500 |
1,577 |
1,577 |
0 |
||
Current Assets |
|
|
16,831 |
16,202 |
12,306 |
12,306 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
7,453 |
10,815 |
11,915 |
11,915 |
||
Cash |
8,250 |
4,996 |
0 |
0 |
||
Other |
1,128 |
391 |
391 |
391 |
||
Current Liabilities |
|
|
(9,716) |
(11,030) |
(11,190) |
(13,841) |
Creditors |
(9,474) |
(11,030) |
(10,144) |
(10,744) |
||
Short term borrowings |
(242) |
0 |
(1,046) |
(3,097) |
||
Long Term Liabilities |
|
|
(1,888) |
(1,579) |
(1,579) |
(1,579) |
Long term borrowings |
(191) |
0 |
0 |
0 |
||
Other long term liabilities |
(1,697) |
(1,579) |
(1,579) |
(1,579) |
||
Net Assets |
|
|
21,008 |
25,667 |
24,140 |
21,913 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
353 |
(771) |
(3,469) |
1,862 |
Net Interest |
(56) |
179 |
74 |
(15) |
||
Tax |
5 |
(105) |
977 |
532 |
||
Capex |
(2,621) |
(3,800) |
(3,601) |
(3,601) |
||
Acquisitions/disposals |
(500) |
(1,498) |
(928) |
(828) |
||
Financing |
(209) |
3,092 |
905 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,028) |
(2,903) |
(6,042) |
(2,051) |
||
Opening net debt/(cash) |
|
|
(10,845) |
(7,817) |
(4,996) |
1,046 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
82 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(7,817) |
(4,996) |
1,046 |
3,097 |
Source: Company data, Edison Investment Research
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