IQGeo set for strong progress in 2021

Geospatial software provider IQGeo (LON: IQG) had a strong end to 2020 acquiring a business that fits well with the core business, winning new contracts and selling a minority stake in a former subsidiary.

Analysis and storage software provider OSPinsight was acquired for an initial $5.6m in cash and $1.1m in shares, with a further $2.2m deferred. A placing at 78p a share raised £5.3m to help pay the cash portion.

Both businesses help telecoms and utilities companies to plan and maintain their network infrastructure.

IQGeo is still losing money and that is likely to continue until 2023, but the acquisition brought profitability forward. The group should generate cash from operations in 2022.

Business

IQGeo is a geospatial software and services provider and the core customer base is utilities and telecoms. The myWorld software enables collaboration between the various parts of these large businesses in order to create the information and geospatial data required to build up a visualisation of all the assets in the business and where they are sited.

OSPinsight focuses on the analysis and storage of information for communications and utilities that enables them to plan, build and manage networks. 

The myWorld software generates revenues from SaaS or software sales, services, maintenance and support. OSPinsight generates subscription-based revenues.

Stake sale

IQGeo sold its remaining 5.3% stake in RTLS SmartSpace for £2.5m. There will be a further payment if the business is sold at a higher valuation in the next 12 months. The stake was originally valued at £2m and then written down to £200,000.

In 2018, RTLS SmartSpace was sold for up to £35m, although the £3m performance-based earn-out did not happen.

Financials

Revenues of £8.8m are forecast for 2020, rising to £13.4m in 2021 due to a full contribution from the acquisition. The 2021 loss is expected to be more than £3m and a reduced loss is anticipated the following year. A 2023 profit of £2.9m is forecast. Earnings per share of 4.7p are forecast for 2023, compared with 1.8p before the acquisition.

Group operating expenses are set to be around £9.3m for each of the next three years. That means that additional contracts could make significant contributions to profit, although it should be remembered that forecasts do include a level of contract wins.

Next year cash could fall from £9.3m to more than £7m. Net cash should then build up.

Future

Contracts continue to be won.  The latest is with a Canadian telecoms operator that will generate £1.2m in revenues over three years.

At 96p, the shares are trading on more than 20 times prospective 2023 earnings. However, cash generation will be even more significant.

The operational gearing combined with the success in winning new business makes the shares attractive.