Recovery could be constrained by companies kept afloat thanks to state support
Geo-spatial technology company 1Spatial (SPA:AIM) runs the risk of destroying shareholder value as it attempts to reverse an operating performance that fails to live up to the hype. Some analysts believe the company’s latest acquisition, the surprise £2 million deal to buy serial underperfomer Enables IT (EIT:AIM), makes little strategic sense and could cost shareholders in the long-run.
‘Putting together one underperforming company with another underperforming company does nothing but create a larger underperforming company,’ states Ian Spence, founder of IT consultancy boutique Megabuyte. ‘As well as there being no financial logic to the deal, the thinking behind putting a small infrastructure services company together with a geospatial software company is lost on us.’
Headquartered in Cambridge and with offices in Australia, Ireland and Belgium, 1Spatial’s software is used to create, manage, analyse and display geospatial data. Customers includes Unilever (ULVR), Unisys (UIS:NYSE), US Census, Ordnance Survey GB, the Brazilian Army, and Ordnance Survey Ireland. Acquisitions over the past two years or so include profit performance management consultancy Avisen, in 2013, and the staged purchase of Star-Apic, completed in January 2014.
Yet the company’s operating performance has failed to impress. Despite headline revenue growth of 13% in the financial year to 31 January 2015, operating metrics remain firmly in the red, running up a £1.47 million operating loss and a £1.52 million pre-tax deficit. Cash from operations turned positive yet remains lacklustre, the business generating just £0.32 million. House broker N+1 Singer cut its revenue forecasts for this year to January 2016 by 11%, and is now anticipating £21.4 million.
Worryingly for shareholders, Enables IT, a cloud IT infrastructure platform wannabe, has struggled even more than its suitor. Interims on 8 June showed revenues down from £3.6 million to £2.8 million and an adjusted operating loss of £0.5 million, flat on the previous year. The company managed to chew through £200,000 of net cash, leaving just £400,000 on the balance sheet.
It is arguably no coincidence that 1Spatial’s CEO, Marcus Hanke, was once in charge at EnablesIT, resigning in November 2012. This could imply that he knows the business well enough to see value-creating opportunities. However, given Hanke’s patchy operational track record over recent years at 1Spatial, the market is likely to remain sceptical.
‘The fact that private equity firm Azini Capital recently took an 11% stake in 1Spatial makes us think that perhaps we’re missing something,’ admits Megabuyte’s Spence, before concluding, ‘but then that feeling passes quite quickly.’

At 6.25p 1Spatial will need to overcome credibility issues.