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Having undertaken a full strategic review, 1Spatial is moving towards a more client-led solutions provider model from its previous IP-centric one. A restructuring plan is also being executed to reduce overheads, create clear reporting lines and align the business to the new model. The extent of transition means visibility is low and hence we withdraw our estimates. Nevertheless, we believe there is substantial intrinsic value within the business which with a modicum of execution should be unlocked.
Written by
1Spatial |
Move to a client centric solutions model |
Restructuring |
Software & comp services |
9 March 2017 |
Share price performance
Business description
Next events
Analysts
1Spatial is a research client of Edison Investment Research Limited |
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Having undertaken a full strategic review, 1Spatial is moving towards a more client-led solutions provider model from its previous IP-centric one. A restructuring plan is also being executed to reduce overheads, create clear reporting lines and align the business to the new model. The extent of transition means visibility is low and hence we withdraw our estimates. Nevertheless, we believe there is substantial intrinsic value within the business which with a modicum of execution should be unlocked.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/Sales |
P/E |
01/15 |
19.6 |
1.8 |
0.3 |
0.0 |
0.7 |
5.8 |
01/16 |
20.7 |
2.0 |
0.3 |
0.0 |
0.7 |
5.8 |
01/17e |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
01/18e |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Management changes since profit warning
The strategic review follows the profit warning and departure of CEO Marcus Hanke in December. Andy Roberts has since taken over as executive chairman (previously non-executive chair) and will bring valuable experience from executing a similar turnaround as CEO of Innovation Group as well as chairman roles at Kewill, Civica and Vega before that. Claire Milverton has taken over as acting CEO and will be supported in her CFO role by Nicole Payne, previously group financial accountant, who joins the board as acting finance director.
Shift to client-facing solutions provider vs IP
Under the new strategy, 1Spatial is shifting to a more client-centric solutions provider model, as opposed to the previous IP-centric indirect channel strategy that was pursued previously. Under the new model, 1Spatial will integrate the company’s own software with third-party software and services to provide complete geospatial solutions to the company’s traditional customer base of heavy-duty GIS users. 1Spatial will continue to support its “open technology” partnerships with ESRI and HERE business, but investment in core IP will be focused on initiatives where there is good visibility of strong returns being made. The company retains a strong base of IP and has recently been awarded an important US patent for rules-based validation of database changes.
Valuation: Modicum of execution should drive upside
Once up and running, the new strategy should improve near-term financial performance, through reducing sales cycles and focusing investment while sacrificing some of the scalability potential that successful execution on the previous strategy would bring. Visibility is clearly low however and we withdraw our estimates for FY18. Nevertheless, the company has a robust IP position, partnerships with ESRI, HERE and the US Census Bureau and a customer base that includes some of the most intensive users of geospatial data globally. With a market capitalisation of just £13m and a FY16 EV/sales of 0.7x we believe that a modicum of good execution should deliver upside.
Exhibit 1: Financial summary
£000s |
2014 |
2015 |
2016 |
||
Year end 31 January |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||
Revenue |
|
|
17,266 |
19,598 |
20,738 |
Delivery costs |
(9,063) |
(8,804) |
(8,960) |
||
Gross Profit |
8,203 |
10,794 |
11,778 |
||
EBITDA |
|
|
2,134 |
3,052 |
3,677 |
Operating Profit (before amort. and except.) |
2,485 |
1,450 |
|||
Acquired Intangible Amortisation |
0 |
(255) |
(709) |
||
Exceptionals |
(1,787) |
(2,345) |
(1,140) |
||
Share based payments |
(601) |
(723) |
(977) |
||
Operating Profit |
(938) |
(1,466) |
(341) |
||
Net Interest |
(29) |
(56) |
(31) |
||
Other |
0 |
0 |
(421) |
||
Profit Before Tax (norm) |
|
|
1,421 |
1,801 |
2,033 |
Profit Before Tax (FRS 3) |
|
|
(1,187) |
(1,522) |
(793) |
Tax |
10 |
5 |
805 |
||
Profit After Tax (norm) |
1,421 |
1,801 |
2,033 |
||
Profit After Tax (FRS 3) |
(1,177) |
(1,517) |
12 |
||
Average Number of Shares Outstanding (m) |
541.9 |
650.4 |
|||
EPS - normalised (p) |
|
|
0.26 |
0.28 |
0.29 |
EPS - normalised fully diluted (p) |
|
|
0.25 |
0.27 |
0.29 |
EPS - (IFRS) (p) |
|
|
(0.22) |
(0.23) |
0.00 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
47.5 |
55.1 |
56.8 |
||
EBITDA Margin (%) |
12.4 |
15.6 |
17.7 |
||
Operating Margin (before GW and except.) (%) |
12.0 |
8.4 |
|||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
15,731 |
15,781 |
22,074 |
Intangible Assets |
14,019 |
14,729 |
18,859 |
||
Tangible Assets |
1,712 |
552 |
1,638 |
||
Investments |
0 |
500 |
1,577 |
||
Current Assets |
|
|
18,083 |
16,831 |
16,202 |
Stocks |
15 |
0 |
0 |
||
Debtors |
6,861 |
7,453 |
10,815 |
||
Cash |
11,165 |
8,250 |
4,996 |
||
Other |
42 |
1,128 |
391 |
||
Current Liabilities |
|
|
(9,664) |
(9,716) |
(11,030) |
Creditors |
(9,612) |
(9,474) |
(11,030) |
||
Short term borrowings |
(52) |
(242) |
0 |
||
Long Term Liabilities |
|
|
(2,032) |
(1,888) |
(1,579) |
Long term borrowings |
(268) |
(191) |
0 |
||
Other long term liabilities |
(1,764) |
(1,697) |
(1,579) |
||
Net Assets |
|
|
22,118 |
21,008 |
25,667 |
CASH FLOW |
|||||
Operating Cash Flow |
|
|
(2,231) |
353 |
(771) |
Net Interest |
(29) |
(56) |
179 |
||
Tax |
10 |
5 |
(105) |
||
Capex |
(2,292) |
(2,621) |
(3,800) |
||
Acquisitions/disposals |
(3,875) |
(500) |
(1,498) |
||
Financing |
16,095 |
(209) |
3,092 |
||
Dividends |
0 |
0 |
0 |
||
Net Cash Flow |
7,678 |
(3,028) |
(2,903) |
||
Opening net debt/(cash) |
|
|
(3,167) |
(10,845) |
(7,817) |
HP finance leases initiated |
0 |
0 |
0 |
||
Other |
0 |
0 |
82 |
||
Closing net debt/(cash) |
|
|
(10,845) |
(7,817) |
(4,996) |
Source: 1Spatial accounts, Edison Investment Research estimates
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