Transition on track, EBITDA ‘at least in line’

1Spatial 7 March 2019 Update
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1Spatial

Transition on track, EBITDA ‘at least in line’

Trading statement

Software & comp services

7 March 2019

Price

32.9p

Market cap

£33m

Net cash (£m) (FY19e)

5.8

Shares in issue

99m

Free float

91%

Code

SPA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.5)

(10.8)

(7.0)

Rel (local)

(2.0)

(17.0)

(7.1)

52-week high/low

46.5p

28.0p

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

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 continues to make good progress on its transition plan. The final months of FY19 saw further large contract wins and growth accelerate. This was achieved despite the uncertainty created by the US government shutdown. Adjusted EBITDA ‘at least in line’ with market expectations suggests a minimum of £1.1m, over 12% ahead of our estimate, but we leave our forecasts unchanged for now. Executing the plan offers scope for a re-rating and further upgrades, in our view.

Year end

Revenue (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

EV/sales

(x)

EV/EBITDA

(x)

PE
(x)

01/18

16.9

0.4

(1.5)

(2.3)

1.6

66.3

N/A

01/19e

17.8

1.0

(1.0)

(1.2)

1.5

27.1

N/A

01/20e

18.8

1.7

0.5

0.4

1.4

16.1

74.8

01/21e

19.9

2.2

1.1

0.9

1.3

12.0

35.4

Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Good execution in a mixed environment

Phase two of 1Spatial’s transition plan aims to return the business to growth and profitability (see Spatial awareness). With the trading update highlighting in-line revenue and adjusted EBITDA ‘at least in line’ with market expectations, this plan looks firmly on track. The statement also emphasises significant customer traction since October. 1Spatial recently announced new deals with AIDU and PRA (worth at least £1.6m combined) and extended its Ordnance Survey contract. All this was achieved despite the uncertainty created by the prolonged US government shutdown that affected both US revenue and deal activity in January.

Reiterating forecasts

We leave our forecasts unchanged for now. In-line FY19 revenue suggests organic y-o-y growth accelerated to over 5% in H219 despite the US government shutdown. Adjusted EBITDA ‘at least in line’ with market consensus implies a minimum £1.1m, 12%+ ahead of our numbers and margins of 8%+ in H219. This guidance suggests good cost control even as investment in mobile, LMDM (Location Master Data Management) and 3D technologies increases. Contract wins, accelerating growth and rising margins bode well for our long-term numbers: our FY20 forecast implies 6% y-o-y growth and 9% EBITDA margin. At £6.4m, the year-end cash balance was ahead of our £5.8m estimate.

Valuation: Execution equals 50% upside

At 33p, 1Spatial trades at 1.3x FY21e EV/sales, a significant discount to both UK small-cap software peers and international GIS peers. Closing this discount is likely to require raising margins closer to sector averages and/or accelerating growth. The statement confirms initiatives are on track to deliver against these objectives but, as previously highlighted, they are likely to take time and will require further good execution. A sector average FY21e EV/sales multiple of 2.2x, which is possible if 1Spatial can reach sector average margins, would imply a share price of 50p, a 50% premium to the current price.

Exhibit 1: 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

17,800

18,793

19,933

Delivery costs

(7,715)

(6,868)

(7,994)

(8,090)

(8,179)

(8,571)

Gross Profit

10,585

8,265

8,944

9,710

10,614

11,363

EBITDA

 

 

2,902

(874)

403

985

1,661

2,230

Operating Profit (before amort. and except.)

 

 

1,584

(12,494)

(1,302)

(846)

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)

(1,396)

69

808

Net Interest

(27)

(25)

(151)

(161)

163

23

Other

(421)

(266)

0

0

0

0

Profit Before Tax (norm)

 

 

1,136

(12,785)

(1,453)

(1,007)

481

1,080

Profit Before Tax (FRS 3)

 

 

(1,121)

(15,941)

(1,956)

(1,557)

232

831

Tax

503

1,081

753

405

(46)

(166)

Profit After Tax (norm)

1,136

(12,785)

(1,453)

(1,007)

481

1,080

Profit After Tax (FRS 3)

(618)

(14,860)

(1,203)

(1,152)

185

665

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)

(1.15)

0.44

0.93

EPS - normalised fully diluted (p)

 

 

0.16

(1.75)

(2.30)

(1.15)

0.44

0.93

EPS - (IFRS) (p)

 

 

(0.09)

(2.04)

(1.90)

(1.32)

0.19

0.67

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

57.8

54.6

52.8

54.6

56.5

57.0

EBITDA Margin (%)

15.9

N/A

2.4

5.5

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

12,820

12,960

13,469

Stocks

0

0

0

0

0

0

Debtors

10,815

8,929

5,510

5,790

6,113

6,484

Cash

4,996

1,966

1,319

6,809

6,625

6,763

Other

391

547

221

221

221

221

Current Liabilities

 

 

(11,071)

(13,029)

(10,234)

(8,692)

(9,108)

(9,586)

Creditors & other

(11,071)

(12,348)

(9,183)

(7,641)

(8,057)

(8,535)

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

13,888

14,537

15,625

CASH FLOW

Operating Cash Flow

 

 

(722)

(1,061)

245

(1,137)

1,917

2,365

Net Interest

(31)

(166)

(167)

(161)

163

27

Tax

55

425

751

405

(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)

5,490

(184)

207

Opening net debt/(cash)

 

 

(8,250)

(4,996)

(604)

(268)

(5,758)

(5,574)

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)

(5,758)

(5,574)

(5,782)

Source: Company data, Edison Investment Research

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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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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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).

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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

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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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.

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.

United Kingdom

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

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

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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