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Research: TMT
Soon after reporting two large multiyear contract wins, 1Spatial’s H122 results did not disappoint. Headline revenue grew 8% y-o-y to £12.6m, with all global regions contributing, while adjusted EBITDA was up 10% to £1.8m, with relatively steady margins. We have raised our FY22 and FY23 revenue and earnings forecasts to reflect these recent contracts and trends from H122 performance. We remain encouraged by the long-term potential of the geospatial market, recent contract momentum and growth of recurring higher margin licence revenue, and see scope for further acceleration.
Written by
1Spatial |
H122 results complement recent contract wins |
H122 results |
Software & comp services |
29 September 2021 |
Share price performance
Business description
Next events
Analysts
1Spatial is a research client of Edison Investment Research Limited |
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Soon after reporting two large multiyear contract wins, 1Spatial’s H122 results did not disappoint. Headline revenue grew 8% y-o-y to £12.6m, with all global regions contributing, while adjusted EBITDA was up 10% to £1.8m, with relatively steady margins. We have raised our FY22 and FY23 revenue and earnings forecasts to reflect these recent contracts and trends from H122 performance. We remain encouraged by the long-term potential of the geospatial market, recent contract momentum and growth of recurring higher margin licence revenue, and see scope for further acceleration.
Year end |
Revenue (£m) |
EBITDA* |
EBIT* |
EPS |
EV/sales |
EV/EBIT |
PE (x) |
01/20 |
23.4 |
3.2 |
1.0 |
0.6 |
2.0 |
47.6 |
75.4 |
01/21 |
24.6 |
3.6 |
0.4 |
0.2 |
1.9 |
109.2 |
253.7 |
01/22e |
26.0 |
3.8 |
0.6 |
0.3 |
1.8 |
86.5 |
140.5 |
01/23e |
28.5 |
4.5 |
1.1 |
0.8 |
1.7 |
43.1 |
55.3 |
Note: *EBITDA, EBIT and EPS exclude amortisation of acquired intangibles, exceptional items and share-based payments
H122: Growth across the globe
1Spatial has continued to execute its three-year growth plan, generating a 12% increase in total annualised recurring revenue (ARR), with term licence ARR rising 63% and the key US region increasing revenues 34%. 1Spatial’s ‘Land and expand’ strategy has generated growth from existing and new customers across the globe, including HM Land Registry in the UK, VINCI Highways in France and several in the US. Adjusted EBITDA margins were up slightly at 14.5%, despite ongoing by investments in sales and delivery to sustain growth and in R&D to support the release of 1Integrate’s 3D version.
Recent large contract wins potentially worth £14.5m
In the past few weeks, 1Spatial won what we believe are the two largest contracts in company history. In early September, it signed a contract with a total potential value of £6.5m (NUAR contract win) and earlier this week signed a £8m contract with a department of the UK government (UK contract win). The contracts are weighted towards higher margin licence revenue in the later years, which should boost margins in the medium term and continue the company’s transition to a SaaS company focused on recurring, high-margin licence revenue, rather than one primarily with a geospatial software and services model. Furthermore, a key part of 1Spatial’s growth strategy is collaborating with select partners in bidding on contracts like these, as both wins followed competitive tenders and portray the benefits of SPA’s approach.
Recurring revenue and margins should drive upside
Trading at 44p, 1Spatial’s share price has risen 51% in the year to date. The FY23e P/E of 55x reflects modest margins while the company’s EV/sales of c 1.7x is well below most software and services companies. We continue to see scope for growth to accelerate, especially in recurring revenue, and for margins to expand, potentially driving further upside in the share price.
Positive momentum, improving model
Estimate changes
We are upgrading our underlying estimates to reflect the recent £8m multiyear contract with an unnamed department of the UK government, which was announced on 27 September. As this deal was structured as a term licence after initial services work this year, the upside affects FY23 and FY24 (not yet forecast), then beyond with renewals.
The shift to a recurring model significantly improves visibility and means estimate changes tend to be progressive, but note this upgrade follows previous nudges upwards in March and September this year. Given 1Spatial’s improving execution and the robust structural drivers for both geospatial and master data management solutions (1Spatial operates at the intersection of both), we believe there is good potential for this momentum to continue.
While margins are low, profitability estimates are highly sensitive to adjustments to revenues and costs, we expect operational leverage to drive margin expansion, enabled by the shift towards a recurring, software business model.
Net cash at period-end was £2.8m versus £3.9m at H1 end last year, mainly due to investment in sales and delivery capacity and non-recurring items (eg, prior year restructuring costs). We have reflected this in our forecasts, but note cash generation typically improves in H2 and we expect the improving revenue model and margins to be reflected in positive cash flows.
Exhibit 1: Estimate changes
£m |
FY20 |
FY21 |
FY22e |
FY23e |
||||
Old |
New |
Change (%) |
Old |
New |
Change (%) |
|||
Revenue |
23.4 |
24.6 |
25.8 |
26.0 |
0.6 |
27.5 |
28.5 |
3.9 |
% growth |
- |
5.2% |
5.1% |
5.7% |
0.6 |
6.3% |
9.8% |
9.2 |
Adjusted EBITDA |
3.2 |
3.6 |
3.8 |
3.8 |
(1.8) |
4.3 |
4.5 |
3.2 |
% margin |
13.8% |
14.8% |
14.9% |
14.5% |
15.7% |
15.6% |
x |
|
Normalised operating profit |
1.00 |
0.44 |
0.6 |
0.5 |
(12.2) |
1.0 |
1.1 |
4.6 |
% margin |
4.3% |
1.8% |
2.4% |
2.1% |
N/A |
3.8% |
3.9% |
N/A |
Normalised profit before taxes |
0.8 |
0.2 |
0.5 |
0.4 |
(21.1) |
0.9 |
0.9 |
1.0 |
Reported profit before taxes |
(1.7) |
(1.4) |
(0.9) |
(0.9) |
8.9 |
(0.5) |
(0.4) |
(6.4) |
Normalised basic and diluted EPS (p) |
0.58 |
0.17 |
0.32 |
0.31 |
(1.7) |
0.63 |
0.80 |
25.8 |
Reported basic EPS (p) |
(1.35) |
(0.98) |
(0.73) |
(0.76) |
4.0 |
(0.38) |
(0.35) |
(8.6) |
Net cash/(debt) |
3.9 |
4.3 |
5.7 |
4.6 |
(19.7) |
7.3 |
5.5 |
(24.8) |
Source: 1Spatial, Edison Investment Research
Exhibit 2: Financial summary
£'000s |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
16,938 |
17,624 |
23,385 |
24,600 |
25,997 |
28,545 |
Delivery costs |
(7,994) |
(8,449) |
(11,123) |
(11,451) |
(12,218) |
(13,131) |
||
Gross Profit |
8,944 |
9,175 |
12,262 |
13,149 |
13,778 |
15,415 |
||
Adjusted EBITDA |
|
|
403 |
1,188 |
3,226 |
3,632 |
3,769 |
4,453 |
Operating Profit (before amort. and except.) |
(967) |
(306) |
1,000 |
436 |
550 |
1,104 |
||
Acquired Intangible Amortisation |
(335) |
(432) |
(972) |
(917) |
(970) |
(1,020) |
||
Exceptionals |
(1,041) |
(672) |
(1,167) |
(492) |
0 |
0 |
||
Share based payments |
538 |
(218) |
(398) |
(272) |
(320) |
(320) |
||
Operating Profit |
(1,805) |
(1,628) |
(1,537) |
(1,245) |
(740) |
(236) |
||
Net Interest |
(151) |
(191) |
(195) |
(187) |
(190) |
(190) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
(1,118) |
(497) |
804 |
248 |
359 |
913 |
|
Profit Before Tax (FRS 3) |
|
(1,956) |
(1,819) |
(1,733) |
(1,433) |
(931) |
(427) |
|
Tax |
753 |
389 |
248 |
308 |
61 |
28 |
||
Profit After Tax (norm) |
(1,118) |
(497) |
643 |
198 |
359 |
911 |
||
Profit After Tax (FRS 3) |
(1,203) |
(1,430) |
(1,485) |
(1,125) |
(870) |
(399) |
||
Average Number of Shares Outstanding (m) |
63.3 |
87.4 |
110.2 |
114.4 |
114.5 |
114.5 |
||
EPS - normalised (p) |
|
|
(1.77) |
(0.57) |
0.58 |
0.17 |
0.31 |
0.80 |
EPS - normalised fully diluted (p) |
(1.77) |
(0.57) |
0.58 |
0.17 |
0.31 |
0.80 |
||
EPS - (IFRS) (p) |
|
|
(1.90) |
(1.64) |
(1.35) |
(0.98) |
(0.76) |
(0.35) |
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 |
53.0 |
54.0 |
||
EBITDA Margin (%) |
2.4 |
6.7 |
13.8 |
14.8 |
14.5 |
15.6 |
||
Operating Margin (before GW and except.) (%) |
(5.7) |
(1.7) |
4.3 |
1.8 |
2.1 |
3.9 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
10,873 |
10,479 |
19,206 |
18,273 |
18,543 |
18,893 |
Intangible Assets |
10,540 |
10,194 |
15,560 |
15,187 |
15,467 |
15,847 |
||
Tangible Assets |
333 |
285 |
374 |
392 |
382 |
352 |
||
Investments |
0 |
0 |
3,272 |
2,694 |
2,694 |
2,694 |
||
Current Assets |
|
|
7,050 |
11,481 |
14,985 |
18,332 |
18,996 |
20,787 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
5,510 |
4,998 |
9,644 |
10,890 |
11,199 |
12,072 |
||
Cash |
1,319 |
6,358 |
5,108 |
7,278 |
7,632 |
8,550 |
||
Other |
221 |
125 |
233 |
164 |
165 |
165 |
||
Current Liabilities |
|
|
(10,234) |
(8,578) |
(12,844) |
(14,813) |
(16,263) |
(17,885) |
Creditors & other |
(9,183) |
(8,578) |
(12,709) |
(14,343) |
(15,793) |
(17,415) |
||
Short term borrowings |
(1,051) |
0 |
(135) |
(470) |
(470) |
(470) |
||
Long Term Liabilities |
|
|
(899) |
(192) |
(5,892) |
(7,057) |
(7,411) |
(8,329) |
Long term borrowings |
0 |
0 |
(1,086) |
(2,542) |
(2,542) |
(2,542) |
||
Other long term liabilities |
(899) |
(192) |
(4,806) |
(4,515) |
(4,869) |
(5,787) |
||
Net Assets |
|
|
6,790 |
13,190 |
15,455 |
14,735 |
13,865 |
13,467 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
245 |
(749) |
572 |
3,983 |
3,963 |
4,679 |
Net Interest |
(167) |
(175) |
(144) |
(179) |
(190) |
(190) |
||
Tax |
751 |
410 |
313 |
484 |
61 |
28 |
||
Capex |
(1,035) |
(1,394) |
(2,320) |
(2,312) |
(2,380) |
(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 |
||
Other |
0 |
0 |
(254) |
(1,069) |
(1,100) |
(1,100) |
||
Net Cash Flow |
(91) |
6,088 |
(1,179) |
322 |
354 |
917 |
||
Opening net debt/(cash) |
|
(604) |
(268) |
(6,358) |
(3,886) |
(4,266) |
(4,620) |
|
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) |
(4,620) |
(5,538) |
|
Source: 1Spatial, Edison Investment Research
|
|
Research: TMT
As flagged in its July trading update, Trackwise Designs’ H121 group revenues increased by 71% y-o-y to £4.1m, reflecting the acquisition of Stevenage Circuits in March 2020 and a doubling of IHT revenues, while adjusted EBITDA quadrupled to £0.5m. Management notes the group remains on track to meet market FY21 expectations despite supply chain disruption, so we leave our FY21 and FY22 estimates broadly unchanged.