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1Spatial
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== Summary == 1Spatial (SPA) announced a three-year contract worth c $0.8m with the State of Montana for its Next Generation 911 solution. The Montana contract, along with recent large contract wins, the accelerating pace of new business, the transition to a higher-margin SaaS business, increased collaboration among data users and success with the ‘Land and Expand’ strategy should support a c 6% CAGR through FY23 and improved margins. We remain encouraged by the long-term potential of the geospatial industry and see scope for further acceleration. While it does trade at a sizable discount to its software peers in terms of price/revenue and EV/EBITDA multiples, we see opportunities for the gap to be reduced, and now is the time for SPA to capitalise on them. '''Recent contract wins and transition to SaaS model''' 1Spatial has announced a three-year contract worth c $0.8m with Montana to implement its Next Generation 911 solution. This Montana win, the seventh US state to choose the 911 solution, recent large multi-year contract wins and solid sales growth of 8% y-o-y in H122 point to SPA’s successful execution of its three-year transition plan. We forecast steady revenue growth of 5% to £25.8m in FY22e and 6% to £27.5m in FY23e. We see gross and EBITDA margins improving over FY22 and FY23 as SPA continues its transition to a SaaS model focused on high-margin recurring licence revenue. '''LMDM: Opportunity in growing market''' As technologies like smartphones and digital mapping continue to advance, their dependency on spatial information for physical assets, buildings and so on has increased the need for precise and correct location data. Combined with the trend of increased collaboration between firms, the rapidly transforming geospatial industry is expected by Markets and Markets to enjoy c 12% growth in the medium term, providing a significant opportunity for SPA’s Location Master Data Management (LMDM) business, where it is considered a market leader. '''Valuation: Gradually reducing the gap''' 1Spatial trades at 12.4x FY22e EV/EBITDA, a significant discount to its software peers, and using a peer multiple of 27.7x implies a share price of 99p, about 117% above the current price. While much of the discount reflects SPA’s current lower growth and margins, if the pace of contract wins is maintained and 1Spatial continues to execute on its land and expand strategy, we anticipate there could be a reduction in this valuation gap.
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