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1Spatial – Positive Trading Update; Recommendation of buy

1Spatial, an industry leader for the provision of solutions management tools for business critical location data, has this morning released an upbeat trading update that reaffirmed our expectations for full year numbers. Interim results for the 9-months trading period ended 31 December 2010 will be released on 22 March 2011.

1Spatial is a well-managed, acquisitive business that has been consistently profitable since its 2003 MBO. The company returned to the equity market last October through the reverse takeover of the AIM listed shell, IQ Holdings plc. The listing enables 1Spatial to participate more actively in the consolidation of the fast growing geospatial market while strengthening its technical capabilities and extending geographic boundaries. The geospatial market between 2006 and 2010 grew at 38.4% CAGR to US$2.65 billion.

The company’s trading update confirmed that spending by UK Government departments and other Agencies had been constrained from the election and until the completion of the Coalition’s ‘Comprehensive Spending Review’ and Pre-Budget Report, which suggests the company may not have been fully recovering overheads for several months. However, since then, business has returned to more normal levels of activity and ‘ … revenue for the period is ahead of management’s expectations and 1Spatial remains firmly on track in the run up to the year end. Over the last three months the Company has secured a number of contracts in the National Mapping Agency arena and the public and private sectors….’ Indeed, on 12th January 2011, Ordnance Survey awarded the company a ‘ground-breaking’ Framework Agreement, which is testament to both its market leading software and service offering as well as its strategy. Consequently, we are not changing our existing annualised forecasts (before exceptional items) for the 15-month trading period ending 30^th June 2011.

1Spatial has a strong management team with a good track record and started its public or quoted life with net cash on the balance sheet. The company remains fundamentally cash generative and on an earnings growth track despite the difficult UK and global economies. In recognition of the persistently but well documented difficult macro-economic environment, we have maintained our forecasts but trimmed our 2012 EV/EBITDA valuation multiple from 10 to 7.5 times, which is broadly equivalent to a 50% discount to the FTSE Technology P/E multiple of 24.9 times and indicates target price of 100p. With the shares trading at 45p and with a target price of 100p, we re-iterate our recommendation of Buy.

Forecast Table

Notes:

¹ Annual results for the 15-month trading period ending 30 June 2011 will be released at the year end.