1Spatial |
Core GIS business robust/disposal of Enables |
Trading update/disposal |
Software & comp services |
15 March 2018 |
Share price performance
Business description
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1Spatial is a research client of Edison Investment Research Limited |
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1Spatial’s trading update flags that group performance is expected to be in line with expectations. The core GIS business traded better than expected at both the revenue and EBITDA levels, but a deterioration in prospects for the non-core Enables business has prompted a disposal of 80.1% of this business to management for a £1. While the low consideration is underwhelming, our investment case has always been predicated on the growth and recovery prospects for GIS. It is encouraging that GIS performance is tracking ahead and greater focus on this business should support both prospects and the investment case.
Year end |
Revenue (£m) |
EBITDA* |
PBT |
EPS* |
DPS |
EV/Sales |
01/16 |
18.3 |
2.9 |
1.1 |
0.16 |
0.0 |
1.4 |
01/17 |
22.1 |
(0.4) |
(2.4) |
(0.33) |
0.0 |
1.2 |
01/18e |
23.8 |
0.7 |
(0.6) |
(0.08) |
0.0 |
1.1 |
01/19e |
25.6 |
1.2 |
(0.2) |
(0.03) |
0.0 |
1.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Core GIS business outperforming expectations
The underlying positive news is that the core GIS business traded better than expected at both the revenue (Edison £16.5m +9% y-o-y) and EBITDA level (Edison £1.8m +24% y-o-y, excl central costs). Previous newsflow has indicated the business has been making good progress on a number of fronts, particularly in Europe within the utilities market, and now in the key US market with government agencies, supported by the ESRI partnership.
Deteriorating prospects at Enables prompts disposal
Enables IT also performed reasonably well with EBITDA of £0.5m (Edison £0.4m), but a major customer recently decided to insource these services. Weighing up the increased risk to revenues/cashflows, the decision has been made to dispose of all but a 19.9% stake to management for £1 supplemented with a £150k contribution and £85k interest free loan to support Enables’ working capital.
Focused business and investment case
We are not changing our estimates at this stage, pending more information. By a process of elimination, the EBITDA gains in GIS/Enables were offset by higher central operating costs but we do not believe this is recurring. If robust trading in GIS continues, we believe there is a good chance it can significantly offset the £430k FY19 EBITDA contribution we had forecast from Enables.
Valuation: Greater focus enhances upside potential
While the consideration for Enables is underwhelming, we believe that both prospects and the investment case should be enhanced by focusing on GIS. The GIS technology market is large (est $9bn) and growing at a double-digit rate. In our view, 1Spatial has the customer base, technology and expertise to generate robust sustainable growth and margins. With the recovery tracking ahead, we believe an FY19 2x EV/Sales multiple of 2.0x (vs 1.5x for GIS on current forecasts) is easily justifiable for this business, which would imply a value of at least 4.7p per share.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018e |
2019e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
18,300 |
22,065 |
23,812 |
25,577 |
Delivery costs |
(7,715) |
(12,386) |
(13,461) |
(14,376) |
||
Gross Profit |
10,585 |
9,679 |
10,351 |
11,201 |
||
EBITDA |
|
|
2,902 |
(407) |
720 |
1,160 |
Operating Profit (before amort. and except.) |
1,584 |
(2,071) |
(542) |
(78) |
||
Acquired Intangible Amortisation |
(200) |
(825) |
(400) |
(400) |
||
Exceptionals |
(1,081) |
(11,988) |
0 |
0 |
||
Share based payments |
(976) |
(566) |
(750) |
(750) |
||
Operating Profit |
(673) |
(15,450) |
(1,692) |
(1,228) |
||
Net Interest |
(27) |
(32) |
(42) |
(161) |
||
Other |
(421) |
(266) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
1,136 |
(2,369) |
(585) |
(240) |
Profit Before Tax (FRS 3) |
|
|
(1,121) |
(15,748) |
(1,735) |
(1,390) |
Tax |
503 |
988 |
347 |
278 |
||
Profit After Tax (norm) |
1,136 |
(2,369) |
(585) |
(240) |
||
Profit After Tax (FRS 3) |
(618) |
(14,760) |
(1,388) |
(1,112) |
||
Average Number of Shares Outstanding (m) |
691.3 |
728.9 |
747.7 |
760.5 |
||
EPS - normalised (p) |
|
|
0.16 |
(0.33) |
(0.08) |
(0.03) |
EPS - normalised fully diluted (p) |
|
|
0.16 |
(0.33) |
(0.08) |
(0.03) |
EPS - (IFRS) (p) |
|
|
(0.09) |
(2.02) |
(0.19) |
(0.15) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
57.8 |
43.9 |
43.5 |
43.8 |
||
EBITDA Margin (%) |
15.9 |
N/A |
3.0 |
4.5 |
||
Operating Margin (before GW and except.) (%) |
8.7 |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
22,115 |
13,025 |
12,413 |
11,980 |
Intangible Assets |
18,900 |
11,968 |
11,558 |
11,308 |
||
Tangible Assets |
1,638 |
1,057 |
855 |
672 |
||
Investments |
1,577 |
0 |
0 |
0 |
||
Current Assets |
|
|
16,202 |
10,761 |
12,254 |
12,591 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
10,815 |
8,929 |
8,870 |
9,527 |
||
Cash |
4,996 |
1,285 |
2,837 |
2,516 |
||
Other |
391 |
547 |
547 |
547 |
||
Current Liabilities |
|
|
(11,071) |
(13,029) |
(14,147) |
(14,013) |
Creditors & other |
(11,071) |
(12,348) |
(11,966) |
(12,832) |
||
Short term borrowings |
0 |
(681) |
(2,181) |
(1,181) |
||
Long Term Liabilities |
|
|
(1,579) |
(1,535) |
(1,088) |
(1,088) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(1,579) |
(1,535) |
(1,088) |
(1,088) |
||
Net Assets |
|
|
25,667 |
9,222 |
9,431 |
9,469 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(722) |
(1,061) |
397 |
1,369 |
Net Interest |
(31) |
(166) |
(42) |
(161) |
||
Tax |
55 |
425 |
347 |
278 |
||
Capex |
(3,800) |
(4,042) |
(750) |
(806) |
||
Acquisitions/disposals |
(1,033) |
(900) |
100 |
0 |
||
Financing |
1,940 |
896 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,342) |
(4,848) |
52 |
680 |
||
Opening net debt/(cash) |
|
|
(8,250) |
(4,996) |
(604) |
(656) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
88 |
456 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(4,996) |
(604) |
(656) |
(1,335) |
Source: 1Spatial reports, Edison Investment Research. Note: Net losses on discontinued businesses in FY17 of £3.5m are not shown in the exhibit above. Forecasts do not take into account the proposed disposal of Enables.
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