1Streetworks And NG9-1-1 SaaS Solutions Poised To Expand Market Presence

Key Takeaways

• Strategic focus on SaaS solutions and recurring revenue is expected to drive growth and improve earnings with high margins.
  
• Expansion in the U.S. and regulatory opportunities may increase market share and enhance new revenue streams.
  
• Transition to SaaS and investment in infrastructure may strain margins and disrupt cash flow, with contract dependency adding earnings risk.

Catalysts

Develops and provides IT software and related consultancy and support services in the United Kingdom, Ireland, rest of Europe, the United States, and Australia.

• The strategic focus on increasing recurring revenues and SaaS-based solutions such as 1Streetworks and NG9-1-1 is expected to drive significant revenue growth due to their higher margins (80-90%), positively impacting overall earnings.
  
• Expansion into the U.S. market, including recent contract wins and a growing presence in 21 states, is likely to bolster revenue growth and market share, with the goal of achieving £1 million ARR per state.
  
• The shift towards SaaS and term licenses from perpetual licenses is anticipated to enhance recurring revenue streams, improve profit margins, and provide more financial stability year over year.
  
• Regulatory developments, such as the mandatory FCC requirement for NENA adoption by 2024, present a new revenue opportunity in the commercial sector, potentially enhancing revenue streams from new customer segments.
  
• The continued development and sale of high-margin SaaS offerings, combined with a 40% reduction in road closures and improved customer satisfaction metrics from 1Streetworks solutions, are expected to strengthen cash flow and net margins.

1Spatial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming 1Spatial's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 9.2% in 3 years time.
• Analysts expect earnings to reach £4.3 million (and earnings per share of £0.04) by about February 2028, up from £1.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.4x on those 2028 earnings, down from 49.4x today. This future PE is greater than the current PE for the GB IT industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

1Spatial Future Earnings Per Share Growth

Risks

• The U.K. market experienced delays due to governmental changes and the purdah period, which could impact revenue consistency and growth prospects.
  
• Significant investment in sales execution and infrastructure, such as expanding the U.S. and SaaS offerings, may put pressure on net margins if these investments do not yield the expected returns.
  
• There is a reliance on contract wins and renewals in the second half of the year, which introduces a significant risk to earnings if these contracts do not materialize as expected.
  
• Increasing depreciation and amortization charges, associated with investments like the 1Streetworks product, could offset improvements in EBITDA and impact overall profitability.
  
• The shift from perpetual licenses to SaaS and term licenses, while strategically favorable, risks temporary disruptions in cash flow and earnings during the transition period.

Valuation

• The analysts have a consensus price target of £1.117 for 1Spatial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.4, and the most bearish reporting a price target of just £0.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £46.9 million, earnings will come to £4.3 million, and it would be trading on a PE ratio of 36.4x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of £0.66, the analyst price target of £1.12 is 40.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.