1Spatial |
Transition on track, EBITDA ‘at least in line’ |
Trading statement |
Software & comp services |
7 March 2019 |
Share price performance
Business description
Next events
Analysts
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* |
PBT* |
EPS* |
EV/sales (x) |
EV/EBITDA (x) |
PE |
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
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