Fixing France - further evidence of execution

1Spatial 8 May 2019 Update
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1Spatial

Fixing France - further evidence of execution

Acquisition

Software & comp services

8 May 2019

Price

32.1p

Market cap

£32m

Estimated net cash (£m) at end FY19

5.8

Shares in issue
(pre equity raise)

99m

Free float

91%

Code

SPA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.5

(1.5)

13.8

Rel (local)

8.7

(4.0)

18.8

52-week high/low

46.5p

29.0p

Business description

1Spatial’s core technology validates, rectifies and enhances customers’ geospatial data. The combination of its software and advisory services reduces the need for costly manual checking and correcting of data.

Next events

Final results

14 May 2019

Analysts

Dan Gardiner

+44 (0) 20 3077 5700

Dan Ridsdale

+44 (0) 20 3077 5729

1Spatial is a research client of Edison Investment Research Limited

1Spatial’s agreed €7m acquisition of Geomap-Imagis (GI) provides further evidence that it is executing on its transition plan. Aside from enhancing its capability, market presence and scale, it also addresses the challenges it faces in France and Belgium. Combining its Elyx product with GI’s Esri platform here should stabilise performance and enable greater focus on sector-specific solutions. We will revisit forecasts for the combined entity more thoroughly after results next week but expect the deal to be significantly earnings accretive.

Year end

Revenue (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

EV/Sales
(x)

EV/EBITDA
(x)

P/E
(x)

01/18

16.9

0.4

(1.5)

(2.3)

1.5

63.9

N/A

01/19e

17.6

1.2

(0.8)

(0.9)

1.5

20.9

N/A

01/20e

18.8

1.7

0.5

0.4

1.4

15.5

72.9

01/21e

19.9

2.2

1.1

0.9

1.3

11.6

34.4

Note: *EBITDA, PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Forecasts do not include any impact of Geomap-Imagis at this point

Acquisition of Geomap-Imagis for €7m

Based in Nimes, France, GI provides geospatial solutions in four verticals (transportation, government, utilities and facilities) primarily based on Esri’s ArcGIS platform. In 2018 it reported €7.7m revenue (up 3% y-o-y) and an adjusted EBITDA margin of 10%. 1Spatial is paying €7m to acquire the business, €5.8m in cash and €1.2m in shares. Adjusting for GI’s €1.9m in net cash, the EV of €5.1m (£4.3m) implies a 0.7x sales and 6.4x EBITDA multiple. 1Spatial’s existing customers in France and Belgium, which currently use its proprietary Elyx GIS (Geographic Information System), will have the option to migrate onto the ArcGIS platform.

Strategic significance: Fixing France

Aside from enhancing its technical capability, market presence and scale, this deal aims to address the challenges 1Spatial faces in France and Belgium. Elyx struggled to compete with ArcGIS and, after the decision was taken in FY17 to shift to focus on GIS-agnostic, sector-specific solutions, the business was no longer strategically aligned with the wider group. Careful integration should ensure 1Spatial stabilises its customer base.

Impact on forecasts: significantly earnings accretive

We update FY19 numbers to reflect disclosed headlines but ahead of results next week (14-May), our forecasts are unchanged. GI should increase revenues by over 30% and be significantly earnings accretive even without any large cost savings.

Valuation: Rating yet to reflect execution

We believe this transaction streamlines 1Spatial’s strategic focus and tackles a big drag on its growth. Currently, at 1.3x FY21e EV/sales, the rating is yet to reflect growing evidence of execution in our view. If it can deliver a sector average margin, we believe a share price of 50p, a 56% premium to the current price, is achievable.

Geomap-Imagis (GI): Profitable and an aligned sector focus

GI is a geospatial solutions provider based in based in Nimes, France with around 125 employees more-or-less split evenly between France and Tunisia. Its solutions include proprietary software licences, services and consultancy but are often based on Esri’s ArcGIS platform. It is an Esri Gold Partner and has significant expertise delivering tailored solutions based on this platform. It has over 500 customers spread across four verticals: government (38%), transportation (28%), utilities (20%) and facilities management (14%). As Exhibit 1 highlights, the business has been profitable and cash generative since FY17 (GI’s financial year end is 31 December), and delivered 3% y-o-y revenue growth and a 10% EBITDA margin in FY18.

Exhibit 1: Geomap-Imagis financials

€m

FY16

FY17

FY18

Revenue

7.2

7.5

7.7

- Growth (%)

4.2

2.7

Gross Profit

3.1

3.5

3.7

- Gross Margin (%)

43.1

46.7

48.1

Opex

(2.8)

(3.0)

(2.9)

EBITDA

0.3

0.5

0.8

- EBITDA Margin (%)

4.2

6.7

10.4

Cash opex

(3.0)

(3.0)

(3.1)

Cash EBITDA*

0.1

0.5

0.6

- Cash EBITDA Margin (%)

(1.4)

6.7

7.8

Net Income

(0.3)

0.1

0.6

FCF

(0.8)

0.7

0.4

Source: 1Spatial. Note: *Including capitalised development costs.

Terms of the deal

1Spatial is paying €7m to acquire GI, being €5.8m in cash and €1.2m in shares. This is in phases – a total of €5.4m is payable immediately (of which €0.7m is in shares). Further payments will be phased: €0.4m cash held in escrow until the first anniversary of completion; €0.7m cash no later than 13 months after completion; and €0.4m in shares in 2023. To fund the acquisition, the group is raising £3.1m (€3.6m) through a placing of 9.9m shares at 31.5p, with an additional 1.9m issued direct to the seller (11.8m additional shares in total). Excluding the €1.9m in net cash on GI’s balance sheet, the EV of €5.1m (£4.3m) implies acquisition multiples of 0.7x sales and 6.4x EBITDA.

The integration plan

1Spatial plans to integrate GI with its existing business based in France and Belgium. This will give its existing customers on its proprietary Elyx GIS product the option to migrate to the Esri ArcGIS platform over time. Any migration will take place gradually and will be supported by Esri providing training to 1Spatial’s existing staff. Aside from GI’s CFO and CTO, who plan to retire after a six-month handover is complete, no explicit cost saving measures or targets have been announced at this point.

Significant cross-selling opportunities between the two entities should be deliverable over time. Aside from the technical expertise in ArcGIS, GI enhances 1Spatial’s capability in new sectors like facilities management and telecoms, and the Tunisia presence expands development resources. 1Spatial also has the opportunity to sell its 1Integrate and emerging location master data management (LMDM) solutions to the GI customer base.

The financial impact: significantly earnings accretive

1Spatial has also updated the commentary provided in its March trading update (see our note, Transition on track, EBITDA ‘at least in line’, published on 7 March). Ahead of the release of FY19 results on 14 May, we adjust FY19 numbers to reflect these stated figures. Revenue of £17.6m was £0.2m below our forecast, reflecting a £0.2m adjustment for IFRS 15, but EBITDA of £1.2m was marginally ahead of our £1.0m. We leave our underlying forecasts unchanged for the moment. Adding GI could boost FY21 revenue (the first full year of consolidation) by over 30% and substantially increase EBITDA even before considering the impact of cost synergies. We expect the deal to be significantly earnings accretive.

Further evidence of execution

We see this transaction as a significant step forward for 1Spatial as it executes on its three-phase transition plan. Aside from broadening its technical capability and market presence, it has acquired a profit stream at a substantial discount to its current multiple (even without large cost savings). More significantly, it sharpens its strategic focus and tackles a big drag on its recent financial performance. Based on our existing forecasts, 1Spatial trades at 1.3x FY21e EV/sales, a substantial discount to both its small-cap UK software peers and international GIS providers. In our view, the rating is yet to reflect growing evidence of execution and improving strategic focus. Assuming the company can deliver a sector average margin, we believe a share price of 50p (based on a sector average 2.2x EV/Sales multiple) is justifiable. We will revisit our forecasts on release of final results on 14 May 2019.

Exhibit 2: Financial summary

£'000s

2016

2017

2018

2019e

2020e

2021e

31-January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

18,300

15,133

16,938

17,600

18,793

19,933

Delivery costs

(7,715)

(6,868)

(7,994)

(8,380)

(8,179)

(8,570)

Gross Profit

10,585

8,265

8,944

9,220

10,614

11,363

EBITDA

 

 

2,902

(874)

403

1,235

1,661

2,230

Operating Profit (before amort. and except.)

 

 

1,584

(12,494)

(1,302)

(596)

319

1,058

Acquired Intangible Amortisation

(200)

0

0

0

0

0

Exceptionals

(1,081)

(2,590)

(1,041)

(300)

0

0

Share based payments

(976)

(566)

538

(250)

(250)

(250)

Operating Profit

(673)

(15,650)

(1,805)

(1,146)

69

808

Net Interest

(27)

(25)

(151)

(161)

163

29

Other

(421)

(266)

0

0

0

0

Profit Before Tax (norm)

 

 

1,136

(12,785)

(1,453)

(757)

481

1,086

Profit Before Tax (FRS 3)

 

 

(1,121)

(15,941)

(1,956)

(1,307)

232

837

Tax

503

1,081

753

261

(46)

(167)

Profit After Tax (norm)

1,136

(12,785)

(1,453)

(757)

434

919

Profit After Tax (FRS 3)

(618)

(14,860)

(1,203)

(1,045)

185

669

Average Number of Shares Outstanding (m)

691.3

728.9

63.3

87.4

98.7

98.7

EPS - normalised (p)

 

 

0.16

(1.75)

(2.30)

(0.87)

0.44

0.93

EPS - normalised fully diluted (p)

 

 

0.16

(1.75)

(2.30)

(0.87)

0.44

0.93

EPS - (IFRS) (p)

 

 

(0.09)

(2.04)

(1.90)

(1.20)

0.19

0.68

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

57.8

54.6

52.8

52.4

56.5

57.0

EBITDA Margin (%)

15.9

N/A

2.4

7.0

8.8

11.2

Operating Margin (before GW and except.) (%)

8.7

N/A

N/A

N/A

1.7

5.3

BALANCE SHEET

Fixed Assets

 

 

22,115

13,025

10,873

10,659

11,585

12,642

Intangible Assets

18,900

11,968

10,540

10,540

11,466

12,523

Tangible Assets

1,638

1,057

333

119

119

119

Investments

1,577

0

0

0

0

0

Current Assets

 

 

16,202

11,442

7,050

12,821

13,043

13,761

Stocks

0

0

0

0

0

0

Debtors

10,815

8,929

5,510

5,725

6,114

6,484

Cash

4,996

1,966

1,319

6,875

6,708

7,055

Other

391

547

221

221

221

221

Current Liabilities

 

 

(11,071)

(13,029)

(10,234)

(8,586)

(9,084)

(9,561)

Creditors & other

(11,071)

(12,348)

(9,183)

(7,535)

(8,033)

(8,510)

Short term borrowings

0

(681)

(1,051)

(1,051)

(1,051)

(1,051)

Long Term Liabilities

 

 

(1,579)

(1,535)

(899)

(899)

(899)

(899)

Long term borrowings

0

0

0

0

0

0

Other long-term liabilities

(1,579)

(1,535)

(899)

(899)

(899)

(899)

Net Assets

 

 

25,667

9,903

6,790

13,995

14,644

15,943

CASH FLOW

Operating Cash Flow

 

 

(722)

(1,061)

245

(929)

1,934

2,365

Net Interest

(31)

(166)

(167)

(161)

163

29

Tax

55

425

751

261

(46)

(167)

Capex

(3,800)

(4,042)

(1,035)

(1,617)

(2,217)

(2,018)

Acquisitions/disposals

(1,033)

(900)

115

0

0

0

Financing

1,940

896

0

8,000

0

0

Dividends

0

0

0

0

0

0

Net Cash Flow

(3,342)

(4,848)

(91)

5,556

(166)

209

Opening net debt/(cash)

 

 

(8,250)

(4,996)

(604)

(268)

(5,824)

(5,657)

HP finance leases initiated

0

0

0

0

0

0

Other

88

456

(245)

0

0

0

Closing net debt/(cash)

 

 

(4,996)

(604)

(268)

(5,824)

(5,657)

(5,866)

Source: Company data, Edison Investment Research. Note: forecasts do not include the proposed acquisition and equity raise announced 8 May 2019.

General disclaimer and copyright

This report has been commissioned by 1Spatial and prepared and issued by Edison, in consideration of a fee payable by 1Spatial. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by 1Spatial and prepared and issued by Edison, in consideration of a fee payable by 1Spatial. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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