Move to a client centric solutions model

1Spatial 9 March 2017 Update (1-4pgs)
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1Spatial

Move to a client centric solutions model

Restructuring

Software & comp services

9 March 2017

Price

1.75p

Market cap

£13m

Estimated net debt (£m) at end FY17

1.0

Shares in issue

738.1m

Free float

83%

Code

SPA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

(26.3)

(67.4)

Rel (local)

(1.9)

(30.5)

(72.6)

52-week high/low

5.4p

1.6p

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

FY results

May 2017

Analysts

Dan Ridsdale

+44 (0)20 3077 5729

Bridie Barrett

+44 (0)20 3077 5700

1Spatial is a research client of Edison Investment Research Limited

Having undertaken a full strategic review, 1Spatial is moving towards a more client-led solutions provider model from its previous IP-centric one. A restructuring plan is also being executed to reduce overheads, create clear reporting lines and align the business to the new model. The extent of transition means visibility is low and hence we withdraw our estimates. Nevertheless, we believe there is substantial intrinsic value within the business which with a modicum of execution should be unlocked.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/Sales
(x)

P/E
(x)

01/15

19.6

1.8

0.3

0.0

0.7

5.8

01/16

20.7

2.0

0.3

0.0

0.7

5.8

01/17e

N/A

N/A

N/A

N/A

N/A

N/A

01/18e

N/A

N/A

N/A

N/A

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Management changes since profit warning

The strategic review follows the profit warning and departure of CEO Marcus Hanke in December. Andy Roberts has since taken over as executive chairman (previously non-executive chair) and will bring valuable experience from executing a similar turnaround as CEO of Innovation Group as well as chairman roles at Kewill, Civica and Vega before that. Claire Milverton has taken over as acting CEO and will be supported in her CFO role by Nicole Payne, previously group financial accountant, who joins the board as acting finance director.

Shift to client-facing solutions provider vs IP

Under the new strategy, 1Spatial is shifting to a more client-centric solutions provider model, as opposed to the previous IP-centric indirect channel strategy that was pursued previously. Under the new model, 1Spatial will integrate the company’s own software with third-party software and services to provide complete geospatial solutions to the company’s traditional customer base of heavy-duty GIS users. 1Spatial will continue to support its “open technology” partnerships with ESRI and HERE business, but investment in core IP will be focused on initiatives where there is good visibility of strong returns being made. The company retains a strong base of IP and has recently been awarded an important US patent for rules-based validation of database changes.

Valuation: Modicum of execution should drive upside

Once up and running, the new strategy should improve near-term financial performance, through reducing sales cycles and focusing investment while sacrificing some of the scalability potential that successful execution on the previous strategy would bring. Visibility is clearly low however and we withdraw our estimates for FY18. Nevertheless, the company has a robust IP position, partnerships with ESRI, HERE and the US Census Bureau and a customer base that includes some of the most intensive users of geospatial data globally. With a market capitalisation of just £13m and a FY16 EV/sales of 0.7x we believe that a modicum of good execution should deliver upside.

Exhibit 1: Financial summary

£000s

2014

2015

2016

Year end 31 January

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

17,266

19,598

20,738

Delivery costs

(9,063)

(8,804)

(8,960)

Gross Profit

8,203

10,794

11,778

EBITDA

 

 

2,134

3,052

3,677

Operating Profit (before amort. and except.)

2,485

1,450

Acquired Intangible Amortisation

0

(255)

(709)

Exceptionals

(1,787)

(2,345)

(1,140)

Share based payments

(601)

(723)

(977)

Operating Profit

(938)

(1,466)

(341)

Net Interest

(29)

(56)

(31)

Other

0

0

(421)

Profit Before Tax (norm)

 

 

1,421

1,801

2,033

Profit Before Tax (FRS 3)

 

 

(1,187)

(1,522)

(793)

Tax

10

5

805

Profit After Tax (norm)

1,421

1,801

2,033

Profit After Tax (FRS 3)

(1,177)

(1,517)

12

Average Number of Shares Outstanding (m)

541.9

650.4

EPS - normalised (p)

 

 

0.26

0.28

0.29

EPS - normalised fully diluted (p)

 

 

0.25

0.27

0.29

EPS - (IFRS) (p)

 

 

(0.22)

(0.23)

0.00

Dividend per share (p)

0.0

0.0

0.0

Gross Margin (%)

47.5

55.1

56.8

EBITDA Margin (%)

12.4

15.6

17.7

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

12.0

8.4

BALANCE SHEET

Fixed Assets

 

 

15,731

15,781

22,074

Intangible Assets

14,019

14,729

18,859

Tangible Assets

1,712

552

1,638

Investments

0

500

1,577

Current Assets

 

 

18,083

16,831

16,202

Stocks

15

0

0

Debtors

6,861

7,453

10,815

Cash

11,165

8,250

4,996

Other

42

1,128

391

Current Liabilities

 

 

(9,664)

(9,716)

(11,030)

Creditors

(9,612)

(9,474)

(11,030)

Short term borrowings

(52)

(242)

0

Long Term Liabilities

 

 

(2,032)

(1,888)

(1,579)

Long term borrowings

(268)

(191)

0

Other long term liabilities

(1,764)

(1,697)

(1,579)

Net Assets

 

 

22,118

21,008

25,667

CASH FLOW

Operating Cash Flow

 

 

(2,231)

353

(771)

Net Interest

(29)

(56)

179

Tax

10

5

(105)

Capex

(2,292)

(2,621)

(3,800)

Acquisitions/disposals

(3,875)

(500)

(1,498)

Financing

16,095

(209)

3,092

Dividends

0

0

0

Net Cash Flow

7,678

(3,028)

(2,903)

Opening net debt/(cash)

 

 

(3,167)

(10,845)

(7,817)

HP finance leases initiated

0

0

0

Other

0

0

82

Closing net debt/(cash)

 

 

(10,845)

(7,817)

(4,996)

Source: 1Spatial accounts, Edison Investment Research estimates

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 1Spatial and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by 1Spatial and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

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