Edison Investment Research Limited: Edison issues outlook on 1Spatial (SPA)

London, UK, 14 September 2017

Edison issues outlook on 1Spatial (SPA)

1Spatial's restructured management team has made brisk progress in reducing overheads and realigning the business to deliver on the client-centric solutions model. The turnaround is still in its early stages, but we believe it could yield good results in a relatively short timeframe. The market for GIS technology is large and growing at a double-digit rate and we believe that 1Spatial has the customer base, technology and expertise to capitalise on this. Recent contract wins in the UK and the US indicate the turnaround is on track. We believe there is substantial intrinsic value within the business, which with continued execution should be unlocked.

We reinstate forecasts at a cautious level (8% FY18 revenue growth), mindful that recoveries following substantial restructuring are often not smooth. However, if deal flow remains robust we could see upside and with the business forecast to trade close to break-even, any upside should gear strongly into earnings - particularly licensing income. In the medium term, we believe that the core GIS business should be able to achieve mid-teens operating margins. If the Geospatial business continues to show that it is on a growth and margin expansion trajectory, we believe that a 2x EV/sales ratio (implying 4.7p a share) would be readily justifiable. Valuing Enables IT at 5-7x EBITDA (0.3-0.4p a share) would suggest a 5p value for the group. Click here to view the full report.

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