Government Delays Will Limit Geospatial Progress While Optimism Persists

Key Takeaways

• Long government procurement cycles and cautious public spending hinder revenue growth, profitability, and earnings visibility despite rising demand for geospatial solutions.
  
• Competitive threats and slow SaaS adoption challenge margin expansion, while heavy reliance on government clients creates concentration risk and limits diversified growth opportunities.
  
• Heavy reliance on government contracts, rising competitive pressure, and slower SaaS adoption threaten revenue growth, profitability, and margins despite ongoing investment and partnership strategies.

Catalysts

Engages in the development and distribution of software solutions with associated consultancy and support in the United Kingdom, Ireland, Rest of Europe, the United States, and Australia.

• While the accelerating adoption of smart infrastructure and new regulatory requirements are expected to drive long-term demand for high-quality geospatial solutions, significant operational headwinds exist as government procurement cycles remain protracted and subject to delays, particularly in the US, which limits near-term revenue growth and makes earnings predictability challenging.
  
• Although increased SaaS and recurring revenue penetration should support improved gross margins and more reliable cash generation, high upfront R&D and platform costs, coupled with only an early-stage scale in flagship products like 1Streetworks and NG9-1-1, risk weighing on net margins and slowing the path to sustainable profitability.
  
• While there is a clear mandate for digital transformation and higher-quality data in public infrastructure, ongoing economic uncertainty and restrained government budgets (especially in the US and UK) could continue to suppress contract awards and delay the realization of the company's large addressable market, impacting both revenue momentum and operating leverage.
  
• Despite 1Spatial's efforts to position its platform for AI and machine learning readiness-favorable given the industry's pivot towards advanced analytics and interoperability-actual uptake may be hampered by competitive pressures from open-source solutions and larger, better-financed rivals capable of faster innovation cycles, which could undercut 1Spatial's pricing power and industry relevance in the long run.
  
• Even with positive momentum in winning international contracts and expansion into new verticals such as US utilities and telcos, customer adoption remains in early phases, and a failure to rapidly broaden beyond core government clients increases concentration risk and exposes earnings to sector-specific shocks, ultimately limiting the company's ability to sustain top-line and margin growth.

1Spatial Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on 1Spatial compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming 1Spatial's revenue will grow by 8.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.5% today to 12.8% in 3 years time.
• The bearish analysts expect earnings to reach £5.5 million (and earnings per share of £0.05) by about July 2028, up from £167.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, down from 316.8x today. This future PE is lower than the current PE for the GB IT industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.02%, as per the Simply Wall St company report.

1Spatial Future Earnings Per Share Growth

Risks

• A substantial portion of 1Spatial's revenue is dependent on government contracts and public infrastructure spending, making the company exposed to delays, election cycles, and potential reductions or cancellations in government budgets, which could constrain future revenue growth.
  
• The company continues to invest heavily in R&D and capitalized development projects, but if the pace of new recurring revenue lags behind these investments, there is a risk of compressed net margins and reduced operating profits over the long term.
  
• 1Spatial's SaaS and recurring revenue model, while growing rapidly, remains relatively small in absolute terms and concentrated within early adopter geographies and sectors, creating execution risk if wider adoption is slower or if competitors accelerate in those markets, which could impact top-line growth and earnings reliability.
  
• The geospatial software sector is increasingly competitive, with the proliferation of low-cost solutions, open-source alternatives, and the potential for larger, more well-resourced technology companies to integrate geospatial capabilities and undercut specialist providers, all of which threaten pricing power and could lower gross margins over time.
  
• The company's emphasis on scaling through partnerships with global consultancies and system integrators brings opportunity but also risk, as 1Spatial may be relegated to a subcontractor role with reduced share of contract value and less influence over customer relationships, which could limit the ability to expand revenue and sustain high margins.

Valuation

• The assumed bearish price target for 1Spatial is £0.75, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of 1Spatial's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 £0.75.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £42.5 million, earnings will come to £5.5 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of £0.48, the bearish analyst price target of £0.75 is 36.7% 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.