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Momentum continues; raising FY22 estimates

1Spatial 28 April 2021 Update
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1Spatial

Momentum continues; raising FY22 estimates

FY21 results

Software & comp services

28 April 2021

Price

44.5p

Market cap

£51m

Net cash (£m) at end FY21

4.3

Diluted shares in issue

114m

Free float

93%

Code

SPA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.3)

58.9

111.9

Rel (local)

(8.7)

50.1

68.6

52-week high/low

51.0p

17.5p

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

AGM statement

July 2021

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

Reported results were comfortably above the baseline 1Spatial set out in its trading statement (see Ahead on all metrics). Given the COVID-19 backdrop, 1Spatial performed robustly in FY21 overall, particularly in H2, which saw growth return to Europe and US revenue accelerate to 45% y-o-y. Current trading is described as positive, with a growing pipeline and an ‘accelerated win rate’ evidenced by the recent slew of contract wins. We lift our FY22 EBITDA forecasts by 5%, resulting in a 20% rise in adjusted EPS, but see scope for further increases if the momentum continues.

Year end

Revenue (£m)

EBITDA* (£m)

EBIT*
(£m)

EPS*
(p)

EV/sales
(x)

EV/EBIT*
(x)

P/E*
(x)

01/20

23.4

3.2

1.0

0.6

2.0

46.2

76.2

01/21

24.6

3.6

0.4

0.2

1.9

104.8

251.5

01/22e

25.6

3.7

0.5

0.3

1.8

85.1

170.8

01/23e

27.2

4.2

0.9

0.5

1.7

50.7

83.8

Note: *EBITDA, EBIT and EPS exclude amortisation of acquired intangibles, exceptional items and share-based payments.

FY21: Headlines highlight H2 momentum

Reported revenue and adjusted EBITDA (£24.6m and £3.6m respectively) finished comfortably above the baseline set out in the trading statement (‘in excess of £24m and £3.2m, respectively’). Beyond P&L headlines that were better than expected, the improving trends in H2 were the highlight. After an 8% fall in organic year-on-year sales in H1, H2 saw 3% growth led by the US (12% of total sales), where growth accelerated to 45% and a return to growth (5% y-o-y) in Europe. H2 also saw gross margins reach 55% and EBITDA margins exceed 15%.

Encouraging outlook for FY22 (and beyond)

Current trading is described as positive, referencing a growing pipeline and an accelerated win-rate in recent months (see ENA, NGN, CalOES, Defra and Google deals). As the direct threat of COVID-19 recedes, 1Spatial appears to be converting this pipeline, with momentum particularly strong in the UK and the US. Looking longer term, infrastructure stimulus spending (eg Biden’s Jobs Plan) and the shift to net zero should provide structural tailwinds for the spatial data market, in our view.

Raising FY22 and introducing FY23 estimates

We raise our FY22 estimates to reflect positive commentary on current trading and H2 FY21 momentum. A relatively modest uplift to sales and EBITDA (2% and 5% respectively) lifts adjusted EPS 20% and FCF 1%. These forecasts are arguably conservative given they imply just 4% sales growth, essentially flat EBITDA margins year-on-year and management’s explicit intention to focus on lifting gross margins (53.5% in FY21). Our new FY23 forecast of adjusted EPS of 0.5p and FCF of £1.5m are premised on 6% sales growth and flat EBITDA margins.

Valuation: Growth opportunity and earnings upside

At 44.5p, 1Spatial’s share price is up 59% ytd. It has delivered on its three-year turnaround plan and weathered the COVID-19 pandemic to emerge in good shape. The focus is now on executing on the longer-term opportunity. We will set that out in a later note, but see scope for growth to accelerate given these structural trends. The structural growth and conservative forecasts justify the current rating (FY23e FCF yield 3%) in our view. A £1m FCF beat would raise this yield to 5%.

FY21: Solid execution in a tough year

FY21 saw 1Spatial weather the COVID-19 storm to emerge in good shape. There was some effect on growth, particularly on H1 sales in Europe, which meant FY21 reported sales only grew 5% y-o-y (a 2% decline on an organic basis) and, largely due to increased amortisation charges, adjusted EPS fell by 0.4p (from 0.6p to 0.2p). However, the business remained profitable and reported its first full year of positive FCF (£0.9m), completing the final ‘to-do’ item of the three-year turnaround plan instigated by Claire Milverton (CEO) in 2017, despite the challenging circumstances.

Momentum in H2: Revenues and margins improve

H2 financials are arguably a better guide to 1Spatial’s prospects. Revenue stepped up £1.1m sequentially, rebounding from an 8% organic decline in H1 to 3% y-o-y growth in H2. This recovery was led by the US (12% of total sales) where growth accelerated from 12% y-o-y in H1 to 45% as the company began to recognise sales from its State of Michigan contract. Europe also returned to growth (5% y-o-y). During FY21, 1Spatial started migrating its existing European customers to the Esri-based platform that was part of the Geomap-Imagis (GI) acquisition in FY20. The growth in Europe in H2 is the first evidence that GI is helping to improve financial performance here.

Also encouraging was the sequential improvement in profitability. H2 saw gross margins reach 55% and adjusted EBITDA margins exceed 15%, with the result that 1Spatial delivered £2.0m of adjusted EBITDA and £0.6m of FCF.

A product refresh and growing recurring revenue

FY21 saw 1Spatial formally launch its 1Data Gateway product and refresh its core 1Integrate platform. 1Data Gateway enables 1Integrate to be accessed as a configurable, hosted software as a service (SaaS) solution. It has already gained traction with clients (see Exhibit 1) and the company is accelerating development of a multi-tenancy solution. Following the full integration of GI, 1Spatial may be able to invest more here without significantly growing cash costs. We believe the ability to address multiple clients without substantial cost increases will improve 1Spatial’s ability to scale, enabling growth to accelerate and generate higer margins over time. The company is explicitly targeting raising gross margins.

As 1Spatial begins its transition to SaaS-based delivery, it is also focusing on growing its recurring revenue base. Recurring revenue (43% of sales) grew 10% y-o-y in FY21 and the company published its ACV (Annualised Contract Value) for the first time (£11.2m, up 10% y-o-y and 46% of sales). The successful transition to a higher margin business with greater revenue visibility has the potential to significantly enhance shareholder value over time in our view.

An accelerating win rate

Based on announced contracts, momentum in the business appears to be improving, particularly in the last few months (see Exhibit 1). 1Spatial has highlighted a growing pipeline for over a year but attributed a lengthening sales cycle in FY21 to the impact of COVID-19. As the direct threat of COVID-19 recedes, that pipeline appears to be converting and the company is referring to an ‘accelerated win-rate’.

Recent contract wins could have a particularly meaningful impact on the US business. 1Spatial has signed contracts valued at over $3.7m (£2.7m) in the last year in the region. While the precise timing and level of contribution to annual sales is unclear, set against FY21 revenues of £2.9m, they could drive a meaningful further uplift in revenue.

Exhibit 1: US and UK contract wins in the last 12 months

Customer

Date

Value

Region

Comments

Google Real Estate and Workplace Services

Apr-21

$0.5, $0.2m term license

US

Extension contract using 1Integrate and 1DataGateway to ingest and cleanse facilities management data

Department of Environment, Food and Rural Affairs (Defra)

Apr-21

£0.9m+

UK

Five-year contract to use 1Integrate to verify land use data

Energy Networks Association (ENA)

Feb-21

N/A

UK

Partner with OS to provide a proof of concept using 1Integrate and 1Data Gateway to provide a digital energy system map

Northern Gas Networks (NGN)

Feb-21

£1m+, £0.2m recurring

UK

Migrate gas network data to Esri's ArcGIS

California Office of Emergency Services (CalOES)

Jan-21

$0.6m, $0.1m recurring

US

New customer. Supporting implementation of the Next Generation 911 programme, using 1Integrate and 1Data Gateway

US Geological Survey (USGS)

Sep-20

N/A

US

No details provided

US State of Michigan (USSoM)

Jun-20

$2.6m, $0.2m recurring

US

Five-year contract covering a variety of state-wide digital base map initiatives including Next Generation 911

Source: Edison Investment Research adapted from company press releases

An improving market

We will set out the longer-term trends driving demand for geospatial data and the location master data management (LMDM) segment specifically targeted by 1Spatial, in a forthcoming note. However, it is clear accurate geospatial data lie at the heart of some of the major policy priorities for post COVID-19 economies. Efficiently directing stimulus spending on transport infrastructure or energy networks requires a better understanding of what assets are located where. This stimulus spending and the shift to net zero in general should provide structural tailwinds for the geospatial data market, in our view.

Raising FY22 and introducing FY23 estimates

In Ahead on All Metrics we highlighted the potential for FY22 estimates to rise. A relatively modest uplift to sales and EBITDA (2% and 5% respectively) raises adjusted EPS 20% (from 0.2p to 0.3p) and FCF 1%. These forecasts are arguably conservative given they imply just 4% sales growth (including a relatively easy comparison in H1), essentially flat EBITDA margins year-on-year and management’s explicit intention to focus on lifting gross margins (53.5% in FY21). However, just three months into the financial year and with COVID-19 still affecting some of the companies in European markets, we prefer to be conservative at this stage. Our new FY23 forecast of adjusted EPS of 0.5p and FCF of £1.5m is premised on 6% sales growth and flat EBITDA margins (15%).

Exhibit 2: Raising headline FY22 forecasts, introducing FY23

FY21

Change

FY22e

Change

FY23e

£m, y/e Jan

Old

New

Abs

%

Old

New

Abs

%

 

Revenue

24.0

24.6

0.6

2.5

25.1

25.6

0.6

2.3

27.2

Implied growth (%)

2.6

5.2

4.4

4.2

6.0

Adjusted EBITDA

3.2

3.6

0.4

13.0

3.6

3.7

0.2

4.7

4.2

EBITDA margin (%)

13.4

14.8

14.3

14.6

15.3

Adjusted diluted EPS* (p)

0.0

0.2

0.2

N/M

0.2

0.3

0.0

20.3

0.5

Reported diluted EPS (p)

(1.2)

(1.0)

(1.0)

(0.8)

(0.5)

Movement in net cash

0.4

0.4

1.4

1.4

1.5

Acquisitions, equity, fx

(0.6)

(0.5)

0.0

0.0

0.0

Underlying FCF

1.0

0.9

1.4

1.4

0.0

1.2

1.5

y/e net debt balance

(4.3)

(4.3)

(5.7)

(5.7)

(7.2)

Source: 1Spatial, Edison Investment Research forecasts. Note: *Adjusted EPS excludes share-based payments, impairments of intangibles, amortisation of acquired intangibles and exceptionals.

Valuation: Execution of LMDM strategy could deliver upside

At 44.5p, 1Spatial’s share price is up 59% ytd and 65% since January 20 (pre-COVID-19). The company has delivered on its three-year turnaround plan and weathered COVID-19 to emerge in good shape. The focus is now on executing on the longer-term growth opportunity in geospatial data and the LMDS market specifically. We will set out this opportunity in a forthcoming note, but see scope for growth to accelerate given these structural trends. This structural growth and conservative forecasts justify the current rating (FY23e FCF yield 3%) in our view. A £1m FCF beat would raise this yield to 5%.

Exhibit 3: Financial summary

£000s

FY18

FY19

FY20

FY21

FY22e

FY23e

Year end 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

16,938

17,624

23,385

24,600

25,644

27,182

Delivery costs

(7,994)

(8,449)

(11,123)

(11,451)

(11,796)

(12,232)

Gross Profit

8,944

9,175

12,262

13,149

13,847

14,950

Adjusted EBITDA

 

 

403

1,188

3,226

3,637

3,747

4,150

Operating Profit (before amort. and except.)

 

 

(967)

(306)

1,000

441

543

911

Acquired Intangible Amortisation

(335)

(432)

(972)

(917)

(950)

(1,000)

Exceptionals

(1,041)

(672)

(1,167)

(497)

0

0

Share based payments

538

(218)

(398)

(272)

(360)

(360)

Operating Profit

(1,805)

(1,628)

(1,537)

(1,245)

(767)

(449)

Net Interest

(151)

(191)

(195)

(187)

(170)

(151)

Other

0

0

0

0

0

0

Profit Before Tax (norm)

 

 

(1,118)

(497)

804

253

372

759

Profit Before Tax (FRS 3)

 

 

(1,956)

(1,819)

(1,732)

(1,433)

(938)

(601)

Tax

753

389

248

308

20

20

Profit After Tax (norm)

(1,118)

(497)

643

202

298

607

Profit After Tax (FRS 3)

(1,203)

(1,430)

(1,484)

(1,125)

(918)

(581)

Average Number of Shares Outstanding (m)

63.3

87.4

110.2

114.4

114.4

114.4

EPS - normalised (p)

 

 

(1.77)

(0.57)

0.58

0.18

0.26

0.53

EPS - normalised fully diluted (p)

 

 

(1.77)

(0.57)

0.58

0.18

0.26

0.53

EPS - (IFRS) (p)

 

 

(1.90)

(1.64)

(1.35)

(0.98)

(0.80)

(0.51)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

52.8

52.1

52.4

53.5

54.0

55.0

EBITDA Margin (%)

2.4

6.7

13.8

14.8

14.6

15.3

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

(5.7)

(1.7)

4.3

1.8

2.1

3.4

BALANCE SHEET

Fixed Assets

 

 

10,873

10,479

19,206

18,273

18,578

18,978

Intangible Assets

10,540

10,194

15,560

15,187

15,492

15,892

Tangible Assets

333

285

374

392

392

392

Investments

0

0

3,272

2,694

2,694

2,694

Current Assets

 

 

7,050

11,481

14,985

18,332

18,955

19,866

Stocks

0

0

0

0

0

0

Debtors

5,510

4,998

9,644

10,890

9,960

9,700

Cash

1,319

6,358

5,108

7,278

8,687

10,166

Other

221

125

233

164

308

0

Current Liabilities

 

 

(10,234)

(8,578)

(12,844)

(14,813)

(15,250)

(15,663)

Creditors & other

(9,183)

(8,578)

(12,709)

(14,343)

(14,780)

(15,193)

Short term borrowings

(1,051)

0

(135)

(470)

(470)

(470)

Long Term Liabilities

 

 

(899)

(192)

(5,892)

(7,057)

(8,466)

(9,945)

Long term borrowings

0

0

(1,086)

(2,542)

(2,542)

(2,542)

Other long-term liabilities

(899)

(192)

(4,806)

(4,515)

(5,924)

(7,403)

Net Assets

 

 

6,790

13,190

15,455

14,735

13,817

13,236

CASH FLOW

Operating Cash Flow

 

 

245

(749)

572

3,983

5,059

5,210

Net Interest

(167)

(175)

(144)

(179)

(170)

(151)

Tax

751

410

313

484

20

20

Capex

(1,035)

(1,394)

(2,320)

(2,312)

(2,400)

(2,500)

Acquisitions/disposals

115

0

(2,151)

(585)

0

0

Financing

0

7,996

2,805

0

0

0

Dividends

0

0

0

0

0

0

Net Cash Flow

(91)

6,088

(1,179)

322

1,409

1,479

Opening net debt/(cash)

 

 

(604)

(268)

(6,358)

(3,886)

(4,266)

(5,675)

HP finance leases initiated

0

0

(1,221)

0

0

0

Other

(245)

2

(72)

58

0

0

Closing net debt/(cash)

 

 

(268)

(6,358)

(3,886)

(4,266)

(5,675)

(7,154)

Source: Company data, Edison Investment Research. Note: Forecasts include the acquisition of GI from May 2019.

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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 research department of Edison 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.

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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 research department of Edison 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.

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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 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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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.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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.

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