1Spatial |
Turnaround plan on track in H1 |
Interim results |
Software & comp services |
11 October 2017 |
Share price performance
Business description
Next events
Analysts
1Spatial is a research client of Edison Investment Research Limited |
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1Spatial’s interim results indicate that it is on track with its recovery plan and well set to deliver on our full year estimates. The turnaround is still in its early stages, but we believe it could yield good results in a relatively short time frame. Progress in the US, the largest GIS software market and one where 1Spatial has historically been underrepresented, is promising.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/sales |
P/E |
01/16 |
18.3 |
1.1 |
0.16 |
0.0 |
1.5 |
22 |
01/17 |
22.1 |
(2.4) |
(0.33) |
0.0 |
1.3 |
N/A |
01/18e |
23.8 |
(0.6) |
(0.08) |
0.0 |
1.2 |
N/A |
01/19e |
25.6 |
(0.2) |
(0.03) |
0.0 |
1.1 |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Good progress in migration to a client-centric model
1Spatial made good progress on a number of fronts in H1 as it migrates to a client-centric solutions model. In Europe, Geospatial secured several new customers, particularly in the utilities market. Recent wins in the US, particularly with the US Federal Highways (USFH), are promising, given the size of opportunity in the US and the potential for this relationship to be a platform for sales to other US Government Agencies. Claire Milverton, CEO, and Nicole Payne, CFO, have been appointed in permanent roles from interim, while Andy Roberts will move to a non-executive chairman role from executive chairman in January next year.
Financial performance on track
Group revenues increased by 2% to £12.2m in H118, with the core geospatial business growing by 19% y-o-y to £8.6m – albeit on a weak comparator. Revenues in IT managed services dropped back to £3.6m from £4.7m last year, but this was due to an intentional drop in lower-margin hardware sales. Adjusted EBITDA (company definition) improved from a £0.4m loss to a £0.3m profit. Cash burn fell to £0.3m compared to £2.6m last year, reflecting cost base reductions (£1.1m across opex and capitalised development) and a £0.8m working capital inflow. We forecast a return to modest cash generation in H2. The net cash balance was £0.3m and the company renewed a £3m overdraft facility in May, giving comfort that it does not require further cash to meet its funding requirements. We leave our estimates unchanged, but we believe there is potential scope for upside.
Valuation: Intrinsic value
We believe there is substantial intrinsic value in the business which, with continued execution, should be unlocked. In our view, 1Spatial has the customer base, technology and expertise to capitalise on the large GIS technology market, which is growing at a double-digit rate. If the geospatial business continues to show growth and margin expansion, we believe that a 2x EV/sales ratio (implying 4.7p a share) would be justifiable. Valuing Enables IT at 5-7x EBITDA (0.3-0.4p a share) suggests a c 5p total value for the group. Further progress, particularly the US, could justify a re-rating upwards to more growth-oriented multiples.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018e |
2019e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
18,300 |
22,065 |
23,812 |
25,577 |
Delivery costs |
(7,715) |
(12,386) |
(13,461) |
(14,376) |
||
Gross Profit |
10,585 |
9,679 |
10,351 |
11,201 |
||
EBITDA |
|
|
2,902 |
(407) |
720 |
1,160 |
Operating Profit (before amort. and except.) |
1,584 |
(2,071) |
(542) |
(78) |
||
Acquired Intangible Amortisation |
(200) |
(825) |
(400) |
(400) |
||
Exceptionals |
(1,081) |
(11,988) |
0 |
0 |
||
Share-based payments |
(976) |
(566) |
(750) |
(750) |
||
Operating Profit |
(673) |
(15,450) |
(1,692) |
(1,228) |
||
Net Interest |
(27) |
(32) |
(42) |
(161) |
||
Other |
(421) |
(266) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
1,136 |
(2,369) |
(585) |
(240) |
Profit Before Tax (FRS 3) |
|
|
(1,121) |
(15,748) |
(1,735) |
(1,390) |
Tax |
503 |
988 |
347 |
278 |
||
Profit After Tax (norm) |
1,136 |
(2,369) |
(585) |
(240) |
||
Profit After Tax (FRS 3) |
(618) |
(14,760) |
(1,388) |
(1,112) |
||
Average Number of Shares Outstanding (m) |
691.3 |
728.9 |
747.7 |
760.5 |
||
EPS - normalised (p) |
|
|
0.16 |
(0.33) |
(0.08) |
(0.03) |
EPS - normalised fully diluted (p) |
|
|
0.16 |
(0.33) |
(0.08) |
(0.03) |
EPS - (IFRS) (p) |
|
|
(0.09) |
(2.02) |
(0.19) |
(0.15) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
57.8 |
43.9 |
43.5 |
43.8 |
||
EBITDA Margin (%) |
15.9 |
N/A |
3.0 |
4.5 |
||
Operating Margin (before GW and except.) (%) |
8.7 |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
22,115 |
13,025 |
12,413 |
11,980 |
Intangible Assets |
18,900 |
11,968 |
11,558 |
11,308 |
||
Tangible Assets |
1,638 |
1,057 |
855 |
672 |
||
Investments |
1,577 |
0 |
0 |
0 |
||
Current Assets |
|
|
16,202 |
10,761 |
12,254 |
12,591 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
10,815 |
8,929 |
8,870 |
9,527 |
||
Cash |
4,996 |
1,285 |
2,837 |
2,516 |
||
Other |
391 |
547 |
547 |
547 |
||
Current Liabilities |
|
|
(11,071) |
(13,029) |
(14,147) |
(14,013) |
Creditors & other |
(11,071) |
(12,348) |
(11,966) |
(12,832) |
||
Short term borrowings |
0 |
(681) |
(2,181) |
(1,181) |
||
Long Term Liabilities |
|
|
(1,579) |
(1,535) |
(1,088) |
(1,088) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(1,579) |
(1,535) |
(1,088) |
(1,088) |
||
Net Assets |
|
|
25,667 |
9,222 |
9,431 |
9,469 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(722) |
(1,061) |
397 |
1,369 |
Net Interest |
(31) |
(166) |
(42) |
(161) |
||
Tax |
55 |
425 |
347 |
278 |
||
Capex |
(3,800) |
(4,042) |
(750) |
(806) |
||
Acquisitions/disposals |
(1,033) |
(900) |
100 |
0 |
||
Financing |
1,940 |
896 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,342) |
(4,848) |
52 |
680 |
||
Opening net debt/(cash) |
|
|
(8,250) |
(4,996) |
(604) |
(656) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
88 |
456 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(4,996) |
(604) |
(656) |
(1,335) |
Source: 1Spatial reports, Edison Investment Research. Note: Net losses on discontinued businesses in FY17 of £3.5m are not shown in the exhibit above.
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