1Spatial — Investing in the transformational SaaS opportunity

1Spatial is a provider of geospatial software and solutions, with a core competence in location master data management, enabling organisations globally to consolidate, integrate and unlock value from their geospatial and non-geospatial datasets. The company is based in Cambridge, UK, and operates across Western Europe, Australia and the US.

The company’s enterprise platform comprises a suite of geospatial data products, which automate workflows for managing geospatial datasets, from collection and integration to management and analytics. 1Spatial sells these solutions to organisations, which typically have large, complex physical footprints (transport, utilities, manufacturing, etc), enabling them to integrate and optimise the value of their geospatial data. These enterprise solutions have been the primary driver of growth (CAGR) over the past five years.

Over the same period, 1Spatial has invested significantly in developing SaaS-based applications, leveraging the core platform to solve specific business problems for enterprise clients. The most advanced of these are 1Streetworks, for automated traffic management planning, and Next Generation 911 (NG9-1-1), for supporting US public safety organisations with their data readiness.

Commercial adoption of these products is still at a nascent stage, but they significantly expand 1Spatial’s addressable market and have the potential to drive a transformative acceleration in growth and margin expansion.

The company has a three-pronged growth strategy:

The underlying market dynamics look supportive. The group serves a £10–12bn geospatial market growing at a healthy double-digit pace, driven by surging data volumes, policy evolution and uptake in new verticals, while the strategic initiatives above give 1Spatial the potential to significantly outgrow the market.

The enterprise solutions have been the primary driver of 1Spatial’s growth over the past five years and we expect robust performance to continue, with the potential for an acceleration on the back of additional investment being put into sales teams in the US and Europe, as well as further development of the company’s partnership network.

Growth in the US market is one of management’s main areas of focus and investment. The company has been growing in the region, with revenues up 10% to £4.7m and recurring revenues growing 23%. The company now has 18 state-level organisations as customers, each of which has significant expansion potential, with management’s longer-term goal being to build revenues to $1m in each state. The company secured its first contract with the state of Oregon in FY24 and follow-on or expanded contracts with Caltrans (through a partnership with Rizing), Federal Highway Administration and Google’s Real Estate & Workplace Services.

However, 1Spatial remains underrepresented in the region and, having demonstrated its ability to win business from both government and commercial customers, management is now investing in expanding its US sales operations to deliver on this potential. In addition to the pending hire of a head of sales, the company is expanding its sector-based account management team and hiring a specialist in NG9-1-1 solutions to drive sales of this product.

The company saw growth in all regions during FY24 except for Europe, which has been transitioning from legacy software. However, 1Spatial’s investment in this transition and in business development appears to be bearing fruit, with several contract wins secured towards the end of the year. The most notable of these was a contract with a Belgian distribution network operator, announced in January, worth a total of €9.1m, of which €4.9m will be delivered by offshore partners.

1Streetworks is 1Spatial’s flagship SaaS application in the UK and the individual product with the most potential to transform the company’s growth and margin profile. The product automates the production and submission of traffic management plans, diversion routing and asset inventory lists, which are now required for obtaining a roadwork permit in the UK.

The addressable market for 1Streetworks is significant. Management estimates that for the UK’s low-speed roads alone, the market opportunity is c £400m per annum, a calculation based on 4m plans per annum at £100 per plan. Management aims to grow 1Streetworks’ recurring SaaS revenue to £40m within five years, equating to 10% of this market opportunity.

The company signed a landmark client for 1Streetworks with UK Power Networks in February 2024. This contract has a minimum value of £0.34m over 12 months, with deployment covering one department (small connections) in Kent and Surrey. We believe this contract value has the potential to expand significantly with good surveyor uptake and adoption in additional regions or departments. 

UK Power Networks has been a strong advocate of the platform, with its proof-of-concept trial indicating that the average time from starting a plan to completing the quote was more than halved, down to two days from five to six using the traditional approach. This time-saving extended to a five-day reduction in the time to connect a customer, which fell to 15 days from 20 days (SDSW23 UK Power Networks traffic management). 1Spatial’s management estimates this equates to a saving of around £1,000 per plan.

UK Power Networks notwithstanding, commercial progress with 1Streetworks has taken longer than initially anticipated. We believe this is due to the complex contracting environment, with responsibility for traffic management plans spread across multiple departments, and the challenges of disrupting deeply embedded workflows. Given the strong return on investment and lack of any competition that we are aware of, we believe there is a high probability that 1Streetworks will achieve significant adoption in the UK market. 1Spatial is investing in additional sales, customer success and technology support resource to accelerate this process. We also believe that the barriers to adoption will significantly reduce as the company grows its reference customer base.

At year-end, 1Spatial had four ongoing trials for 1Streetworks, with an additional 10 expected to start in H125, which have potential ARR of between £100k and £3m, depending on the size of the deployment.

NG9-1-1 is 1Spatial’s solution for supporting US public safety entities with their data readiness needs. Management estimates the total addressable market for this product to be $350m, although, unlike 1Streetworks, direct competitors do exist. 1Spatial launched the cloud version of NG9-1-1 in FY24 and signed up five new clients for the product, with another five trials underway.

Again, management is investing to accelerate uptake of this product. 1Spatial has recruited an NG9-1-1 specialist salesperson and is working with Esri (the world’s largest geospatial software provider and an existing partner of 1Spatial) to integrate NG9-1-1 into Esri’s product suite and to promote it to Esri’s customer base.

1Spatial’s financial performance over the past five years reflects good progress migrating the business from a bespoke solutions provider to a scalable software model, while also bearing the cost of developing cloud and SaaS products. FY24 saw a continuation of this trend, with robust momentum for the company’s enterprise business and continued improvement in the revenue mix. Revenues grew by 8% y-o-y, while recurring revenues increased by 22% to £18.1m (56% of sales). This includes £0.2m from the recently launched SaaS products. Perpetual licence revenues declined by 23% to £1.27m. Gross profit increased by 15%, with gross margin expanding by 300bp to 55%, reflecting the improving weighting towards product sales over services.

Operating costs and cash flows reflect the company’s reinvestment into sales and sales support staff, development of the SaaS products to drive growth and cost inflation. EBITDA increased by 10% to £5.5m (a 30bp increase in margin) but free cash flow declined to a £1.9m outflow (vs £0.2m inflow in FY23), reflecting increased capitalised development costs (£5.3m vs £3.8m in FY23). As a result, year-end net cash reduced to £1.1m from £3.1m in FY23. While this investment phase is compressing nearterm margins and cash flows, we believe it is key to unlocking the potential of 1Spatial’s products and establishing a foundation for an acceleration in high-quality, scalable growth.

We upgrade our FY25 revenue and gross profit estimates to reflect the robust revenue momentum, the impact of new sales hires and the improving revenue mix. EBITDA is brought back by 11% due to the company’s investment in the sales team across the UK and the US, but also due to the allocation of more technical staff costs to P&L expenses rather than being capitalised as a result of staff being deployed to support customers instead of core product development. The reduction in our EBIT and EPS forecasts reflects rising software amortisation charges from the company’s investment in SaaS product development.

Our FY26 estimates are new, with uptake of SaaS driving growth and further improvements in revenue mix towards high-margin recurring subscriptions. We expect operating margins to expand again as operational leverage comes through.

Looking beyond our forecast period, 1Spatial’s enterprise and SaaS growth initiatives should drive an acceleration in growth and substantial margin expansion. Management has communicated its ambition of generating ARR of £40m for 1Streetworks within five years, while investment into other SaaS products, partnerships and business development could accelerate growth and margin expansion in the enterprise business. In Exhibit 5 we demonstrate what revenues and cash EBITDA (EBITDA minus capitalised development costs) could look like on a five-year basis under varying scenarios for the SaaS and enterprise businesses.

To help contextualise the scenario analysis above, the average EBITDA margin of enterprise software businesses focusing on infrastructure-based markets is 29%. The EBITDA of SaaS businesses varies significantly. However, companies with dominant market positions and strong return on income can achieve very strong margins of up to 50%.

It is important to note that 1Spatial currently has a cost base in place to drive significant growth. If growth does not materialise then we would expect cost rationalisations to drive improved profitability and cash generation. Equally, it is reasonable to expect some reinvestment back into the business if growth initiatives really take off, which we reflect in our analysis.

As discussed, 1Spatial has undergone a significant investment phase to drive global enterprise growth and to launch its scalable SaaS business applications. The margin expansion potential from this is not captured in our forecast period.

1Spatial is trading at a discount to its peers on an EV/sales basis (1.8.0x vs 2.5x on a two-year forward basis) but at a premium on P/E (25x vs 22x), reflecting 1Spatial’s lower margins through this investment phase. We believe that the upside from successfully executing a SaaS-oriented growth strategy is significant. This can be illustrated by the rating of IQGeo, a UK-listed provider of SaaS geospatial solutions focused on telecoms and now a utility network operator. IQGeo grew revenues at 40% in FY23, with EBITDA margins expanding to 30% from 12.5% the year before. The business is being rewarded for this with a rating of 4.8x forward sales and 52x P/E, versus respective multiples of 1.6x and 45x for 1Spatial.

We have performed a DCF sensitivity analysis looking at varying revenue growth rates and EBITDA margin assumptions, assuming consistent growth rates from 2026 to 2029 (then a gradual fade), with EBITDA margins expanding in a straight line from our FY26 21% estimate to the target figure in FY29. We use a 10% WACC assumption.

This indicates that some degree of revenue and margin expansion is being priced in, but success in delivering operationally leveraged growth should deliver substantial upside. For example, delivering on the £40m five-year ARR target for 1Streetworks, together with mid-teens growth for the enterprise business, returns a fair value of over 270p/share. Achieving £20m of SaaS sales, while sustaining enterprise growth at 8%, would deliver value of around 130p.

We also stress that a scenario where 1Spatial delivers no acceleration in growth or margin expansion should be unlikely, as management has the option to reduce costs to improve margin performance if growth looks less likely to come through. The company could also be a strategically valuable asset to a trade buyer or interesting to private equity building a position in this field. We believe these factors provide a good level of downside protection.