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Research: TMT
1Spatial’s (SPA) FY22 trading statement suggests the momentum we recently highlighted continues. Management expects revenues to grow at least 7% for FY22 and exceed £26.4m, and recurring revenues to enjoy double-digit growth. This growth is driven by several recent record contract wins, the accelerating pace of new business and what we estimate is the transition to a higher-margin SaaS business. In our view, this progress demonstrates the benefits of 1Spatial’s ‘Land and Expand’ strategy and the long-term potential of the geospatial industry. While the company trades at a sizable discount to its software peers, we see opportunities for the gap to be reduced if it continues to execute on its growth strategy.
Written by
1Spatial |
Record contract wins fuel recurring revenue |
Trading update |
Software & comp services |
3 March 2022 |
Share price performance
Business description
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1Spatial is a research client of Edison Investment Research Limited |
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1Spatial’s (SPA) FY22 trading statement suggests the momentum we recently highlighted continues. Management expects revenues to grow at least 7% for FY22 and exceed £26.4m, and recurring revenues to enjoy double-digit growth. This growth is driven by several recent record contract wins, the accelerating pace of new business and what we estimate is the transition to a higher-margin SaaS business. In our view, this progress demonstrates the benefits of 1Spatial’s ‘Land and Expand’ strategy and the long-term potential of the geospatial industry. While the company trades at a sizable discount to its software peers, we see opportunities for the gap to be reduced if it continues to execute on its growth strategy.
Year end |
Revenue (£m) |
EBITDA* |
EBIT* |
EPS* |
P/revenue |
EV/EBITDA |
P/E |
01/20 |
23.4 |
3.2 |
1.0 |
0.6 |
2.0 |
13.9 |
73.7 |
01/21 |
24.6 |
3.6 |
0.4 |
0.2 |
1.9 |
12.3 |
247.9 |
01/22e |
26.4 |
3.8 |
0.6 |
0.3 |
1.8 |
11.7 |
146.2 |
01/23e |
27.5 |
4.3 |
1.1 |
0.6 |
1.7 |
10.3 |
67.4 |
Note: *EBITDA, EBIT and EPS exclude amortisation of acquired intangibles, exceptional items and share-based payments.
FY22e: Double-digit growth in recurring revenue
In its recent trading update, 1Spatial reported that it expects FY22 revenues to exceed £26.4m, up at least 7% from FY21. It also anticipates double-digit growth in recurring revenue, driven by several recent large contract wins as it continues its transition to a higher-margin SaaS business. Adjusted EBITDA is expected to be at least £3.8m, up about £0.2m from FY21. Net cash is also predicted to reach c £3.2m, up from FY21’s £2.8m, although this is less than was expected as the recent large contracts required more working capital and because of the investments in expanding the sales and delivery team, and in cloud technology.
Slight tweak to FY22 forecast, FY23e unchanged
We tweak our FY22 estimates in line with the expected results. While free cash flow is lower than expected due to the greater cash usage, we believe the underlying investments will continue to fuel 1Spatial’s growth. We leave our FY23 forecasts essentially unchanged at this point, although they now appear conservative on a year-on-year basis. Our prior FY23 sales forecast reflected 5.1% growth, which now resets to 4.2% given the company’s FY22 sales expectation.
Valuation: Gradually reducing the gap
1Spatial continues to trade at a significant discount to its software peers, at 11.7x FY22e EV/EBITDA. Applying a peer multiple of 27.7x implies a share price of 98p, about 127% above the current price. While much of the discount reflects SPA’s current lower growth and margins, if the pace of contract wins and growth of recurring revenue is maintained and 1Spatial continues to execute on its land and expand strategy, we expect that there could be a reduction in this valuation gap.
Exhibit 1: Financial summary
£'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year ending 31 January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
17,624 |
23,385 |
24,600 |
26,400 |
27,500 |
Delivery costs |
(8,449) |
(11,123) |
(11,451) |
(12,144) |
(12,375) |
||
Gross Profit |
9,175 |
12,262 |
13,149 |
14,256 |
15,125 |
||
Adjusted EBITDA |
|
|
1,188 |
3,226 |
3,632 |
3,806 |
4,325 |
Operating Profit (before amort. and except.) |
(306) |
1,000 |
436 |
592 |
1,066 |
||
Acquired Intangible Amortisation |
(432) |
(972) |
(917) |
(950) |
(1,000) |
||
Exceptionals |
(672) |
(1,167) |
(492) |
0 |
0 |
||
Share based payments |
(218) |
(398) |
(272) |
(360) |
(360) |
||
Operating Profit |
(1,628) |
(1,537) |
(1,245) |
(718) |
(294) |
||
Net Interest |
(191) |
(195) |
(187) |
(170) |
(151) |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(497) |
804 |
248 |
421 |
914 |
Profit Before Tax (FRS 3) |
|
|
(1,819) |
(1,733) |
(1,433) |
(889) |
(446) |
Tax |
389 |
248 |
308 |
20 |
20 |
||
Profit After Tax (norm) |
(497) |
643 |
198 |
337 |
731 |
||
Profit After Tax (FRS 3) |
(1,430) |
(1,485) |
(1,125) |
(869) |
(426) |
||
Average Number of Shares Outstanding (m) |
87.4 |
110.2 |
114.4 |
114.5 |
114.5 |
||
EPS - normalised (p) |
|
|
(0.57) |
0.58 |
0.17 |
0.29 |
0.64 |
EPS - normalised fully diluted (p) |
|
|
(0.57) |
0.58 |
0.17 |
0.29 |
0.64 |
EPS - (IFRS) (p) |
|
|
(1.64) |
(1.35) |
(0.98) |
(0.76) |
(0.37) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
52.1 |
52.4 |
53.5 |
54.0 |
55.0 |
||
EBITDA Margin (%) |
6.7 |
13.8 |
14.8 |
14.4 |
15.7 |
||
Operating Margin (before GW and except.) (%) |
(1.7) |
4.3 |
1.8 |
2.2 |
3.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
10,479 |
19,206 |
18,273 |
18,578 |
18,978 |
Intangible Assets |
10,194 |
15,560 |
15,187 |
15,492 |
15,892 |
||
Tangible Assets |
285 |
374 |
392 |
392 |
392 |
||
Investments |
0 |
3,272 |
2,694 |
2,694 |
2,694 |
||
Current Assets |
|
|
11,481 |
14,985 |
18,332 |
16,675 |
17,249 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
4,998 |
9,644 |
10,890 |
10,300 |
10,300 |
||
Cash |
6,358 |
5,108 |
7,278 |
6,096 |
6,670 |
||
Other |
125 |
233 |
164 |
279 |
279 |
||
Current Liabilities |
|
|
(8,578) |
(12,844) |
(14,813) |
(15,512) |
(16,338) |
Creditors & other |
(8,578) |
(12,709) |
(14,343) |
(15,042) |
(15,868) |
||
Short term borrowings |
0 |
(135) |
(470) |
(470) |
(470) |
||
Long Term Liabilities |
|
|
(192) |
(5,892) |
(7,057) |
(5,875) |
(6,449) |
Long term borrowings |
0 |
(1,086) |
(2,542) |
(2,542) |
(2,542) |
||
Other long term liabilities |
(192) |
(4,806) |
(4,515) |
(3,333) |
(3,907) |
||
Net Assets |
|
|
13,190 |
15,455 |
14,735 |
13,866 |
13,440 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(749) |
572 |
3,983 |
2,478 |
4,325 |
Net Interest |
(175) |
(144) |
(179) |
(170) |
(151) |
||
Tax |
410 |
313 |
484 |
20 |
20 |
||
Capex |
(1,394) |
(2,320) |
(2,312) |
(2,410) |
(2,520) |
||
Acquisitions/disposals |
0 |
(2,151) |
(585) |
0 |
0 |
||
Financing |
7,996 |
2,805 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(254) |
(1,069) |
(1,100) |
(1,100) |
||
Net Cash Flow |
6,088 |
(1,179) |
322 |
(1,182) |
574 |
||
Opening net debt/(cash) |
|
|
(268) |
(6,358) |
(3,886) |
(4,266) |
(3,221) |
HP finance leases initiated |
0 |
(1,221) |
0 |
0 |
0 |
||
Other |
2 |
(72) |
58 |
137 |
0 |
||
Closing net debt/(cash) |
|
|
(6,358) |
(3,886) |
(4,266) |
(3,221) |
(3,795) |
Source: Company accounts, Edison Investment Research
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Research: TMT
Osirium’s update on trading year to date confirms that it is seeing a return to pre-COVID levels of ordering. Nine new customers so far in Q1 at higher average contract values than a year ago mean that order intake is ahead of this period a year ago. We have upgraded our bookings and revenue forecasts for FY22 and incorporate the recent conditional £1m fund-raise.