1Spatial recently held its first capital markets day for a number of years. We see this as a positive signal that, following a substantial transformation programme, management is confident in its strategy and prospects. The recovery programme has been based on three fundamental principles – get the strategy right, assemble a strong team and build closer customer relationships. The capital markets day indicated that the company has made good progress on all three fronts.
1Spatial’s core competence is in ensuring that geospatial data are reliable, a capability that is underpinned by the company’s proprietary geospatial rules-based engine. The investor day demonstrated why the company’s 1Integrate platform achieves this so effectively, why traditional non-geospatial platforms fall down in this area and why this capability is so valuable to the business and its clients (see page 2). The complexity and volumes of geospatial data are growing exponentially, as is the reliance that customers place upon these data.
We believe the business is now putting in place the commercial model to convert the strength of its technology and expertise into robust operationally geared growth. The direct sales, solutions-driven model instigated as the start of the transformation process now appears to be converting into larger, multi-faceted engagements with the customer base. Customer Northern Gas Networks presented at the event and described how an initial project has grown to six ongoing schemes, with scope for more to come. The ability to replicate solutions provided across different customers will be a key factor in enhancing competitiveness and driving operational leverage.
1Spatial has identified good growth opportunities across the UK, Europe and the US, while it remains focused on the core government, utilities and transport sectors. The progress made in the US is notable, where 1Spatial’s customer base has moved from three clients in 2015 to 19 in 2018. The customer acquisition rate is expected to remain on a similar trajectory this year.
Our near-term forecasts appear well underpinned. New contract wins could prompt upgrades while the company’s strong IP base and value proposition should support a healthy, long-term growth trajectory. We maintain our view that an FY19e EV/sales multiple of 2.0x (vs 1.7x on current forecasts) is justifiable, implying a value of c 5p per share, with plenty of scope for further growth from there.