The month of October ended with AIM listed business technology company 1Spatial (LSE:SPA) releasing its numbers for the six months to 31st July which – as has become the norm here – are mangled by all sorts of one offs. Having urged people to buy the shares at 2p on September 12th, am I still rating the stock as a buy at 3.75p post the numbers? Can you see the wood for the trees?
During the half year sales from continuing operations raced ahead by 146% to £6.4 million. Normalised EBITDA was just £20,000 (down from £600,000) and the overall post tax loss was £1.1 million versus a profit of £800,000. That does not look good does it?
However, at least the company sat on net cash at the half year of £3.1, up by £400,000 during the period. As ever 1Spatial says that this was a period of change with significant costs taken out at what is now the main division (1Spatial) – across the group annualised costs of £700,000 were taken out and the loss making Dutch unit of Avisen was shut. The non-core Storage Fusion unit broke even on revenues of £200,000.
Post period end the company announced a very large US Contract win and that it had preferred bidder status on a potentially transformational contract with Ordnance Survey. That contract will be massive as you can read here
On the back of the interims I am not altering my forecasts. For this year ( to 31st January 2013) I am still looking for the group to report underlying EBITDA of c£2million and to end the year with net cash of £4 million ( assuming that the noncore Storage Fusion business is not sold). Next year is when the real kicker comes in with the 1Spatial unit (rather than the Avisen business) driving the growth. If SF is retained within the group I would see 1Spatial reporting a Pre-Tax profit of at least £3 million (with a zero tax charge thanks to past losses) and ending the year with net cash of at least £5 million. If SF is sold (and CEO Marcus Hanke insists that it is worth £10 million) then net cash is £5 million + SF proceeds and pre-tax comes back to c£2.5 million.
So what is the company worth? A PE of 8 + cash gives a target price of 8p with SF or potentially up to 9.5p if SF is sold. Is such a rating generous? For a business that is clearly growing fast, generating cash and has a strong balance sheet it strikes me as rather mean. But given 1Spatial’s track record of not hitting forecasts and of producing results mangled by one offs it will do for now. As the company delivers there is material scope for a re-rating and as such 8p is very much a first target price. Clearly, at 3.75p the shares are still a buy.
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
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Hi Tom, Please do not evade this question:
The spread on spa is huge (it was 25% one day last week)! Doesn’t that mean that your recomendation pushes up the price and it makes it difficult to make profit?
James
Thanks Mark for pointing me to your blog. I can see already there is a lot of useful informaiton here.
If Hanke is still insisting that a business which has just had a half year of static revenue at £200k, and which just about breaks even, is worth £10m he’s seriously delusional !
If Tom, as is implied from your figures, you believe Storage Fusion ( which has just had a half year of static revenue at £200k ) is going to make £500k profit in 2013 then I think you are seriously delusional !
I’d re-do the figures with Storage Fusion’s value at £1m max until proven different, and you might get a truer picture of the Company’s actual value.
more Islam are you paid by advfn/TW to post here?
Fantastic post man, keep the good function, just shared this with my friendz