Activated data

YouGov 2 April 2019 Update
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YouGov

Activated data

Interim results

Media

2 April 2019

Price

477.5p

Market cap

£504m

Net cash (£m) as at 31 January 2019

25

Shares in issue

105.5m

Free float

83.3%

Code

YOU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.6

18.6

30.8

Rel (local)

1.1

10.4

27.8

52-week high/low

500p

380p

Business description

YouGov is an international market research and data and analytics group offering a data-led suite of products and services including YouGov BrandIndex, YouGov Profiles, YouGov Omnibus and custom research.

Next event

Prelims

8 October 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

YouGov is a research client of Edison Investment Research Limited

As indicated at January’s trading update, YouGov had a strong H119. 18% revenue growth (10% underlying) blends +34% from Products & Services with +4% from Custom. More notable, though, is the step up in adjusted operating margin from 16% in H118 to 19% as the syndicated data model starts to show its value. Management has outlined ambitious new, five-year targets; looking to double group revenue and operating margin and achieve a CAGR of over 30% for EPS. With the continuing investment requirement, we expect stronger progress towards these targets in the second half of the period. Nevertheless, they underpin the valuation.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA (x)

P/E
(x)

Yield
(%)

07/17

107.0

17.9

10.5

2.0

27.7

45.4

0.4

07/18

116.6

26.9

15.6

3.0

19.3

30.6

0.6

07/19e

137.0

27.2

16.2

3.5

19.5

29.4

0.7

07/20e

150.0

30.5

18.7

4.0

16.8

25.6

0.8

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Operating margin to build over five-year plan

Our revenue forecasts for FY19e and FY20e are pushed ahead by 5–6% on the back of these results, with our current year EBITDA number broadly unchanged and that for FY20e edged up 5%. The rise in the H119 adjusted group operating margin came from improvements both in Data Products, buoyed by growth in YouGov Profiles and reduced use of third-party data collection, and in Custom Research, as the strategy of reducing one-off projects and the benefits of earlier restructuring started to flow through. The newly stated target to double the operating margin by the end of five years would partly be achieved through the change in mix from faster growth of Data Products and Services and partly through operational leverage against a proportion of fixed central costs. However, it will also require further investment in platforms and tools to make the most of the connected data resource for the advantage of clients.

Adjustments to reporting measures flagged

Management has indicated that as of reporting the FY19 results in November, it will alter its definition of adjusted profits and earnings to include the amortisation of intangible assets charged to operating expenses and share-based charges where appropriate. FY18 will be presented in the new format to facilitate comparison.

Valuation: Not yet reflecting full growth potential

The share price has performed well year-to-date (+22%) as the strength of the group's positioning as a data partner to businesses, and in particular to media owners, agencies and brands, has been recognised. This has put YouGov on a rating well ahead of sector peers, but still considerably below the listed SaaS subscription businesses with which it has increasing commonality. On a DCF basis (on a WACC of 6.5% and terminal growth of 2%), the current price is reflecting no margin expansion on mid-term revenue growth of 10%.

Good H119 progress

The divisional results are set out below:

Exhibit 1: Half-year results

£m

H118

y-o-y change

H218

y-o-y change

FY18

y-o-y change

H119

y-o-y change

Revenue

Data Products

14.382

31%

16.1

12%

30.445

26%

19.402

35%

Data Services

13.439

22%

15.5

26%

28.956

24%

17.819

33%

Custom Research

29.135

-2%

29.5

-3%

58.657

-3%

30.358

4%

Eliminations

(0.64)

(0.859)

(1.499)

50%

(1.04)

62%

Total

56.96

10%

61.10

8%

116.560

9%

66.54

17%

Operating profit

Data Products

4.785

73%

6.9

61%

11.659

66%

7.338

53%

Data Services

3.511

41%

4.5

39%

8.002

40%

4.402

25%

Custom Research

6.863

60%

7.3

57%

14.121

59%

7.863

15%

TotalL

15.16

59%

18.62

54%

33.782

56%

19.60

29%

Central costs

(6.329)

(7.779)

(14.108)

(7.124)

Divisional operating margin

Data Products

33.3%

42.8%

38.3%

37.8%

Data Services

26.1%

28.9%

27.6%

24.7%

Custom Research

23.6%

24.6%

24.1%

25.9%

Group operating margin

15.5%

17.7%

16.9%

18.8%

Source: Company data

The improvement in operating margin for Data Products from 33.3% in H118 to 37.8% in H119 is particularly noteworthy as it shows the first benefits of integrating the established BrandIndex product with the newer YouGov Profiles to provide a powerful planning and tracking tool for media campaigns. This is now available in 19 of BrandIndex’s 38 territories. The US market produced 28% underlying growth in Data Products revenue in the period, up 39% with acquisitions included. The UK grew 29%, albeit that this was a slower pace than the prior year and shows no signs of maturity as yet.

In Data Services, revenues were ahead by 33%, but some of this was business reallocated from the Custom business, which diluted the published operating margin. Underlying revenue growth from Omnibus (which makes up 96% of the segment) was 10%.

The quality of the Custom Research book continues to improve as it focuses more on multi-country, multi-wave studies and makes increasing use of Cube data. Its financial performance was also boosted by last year’s restructuring of the Custom business in Germany and the Middle East.

Modest changes to forecasts

The new five-year growth targets would seem to imply that there needs to be a faster ramp up in performance than is indicated by our forecasts, but we would expect the faster growth to be back-end loaded, as it was with the previous five-year plan, which matures with the end of the financial year in September.

To achieve this degree of progress, YouGov needs to continue to invest in its technology platform, its people, its toolset and its panel. There is also some cost to be borne in respect of developing the Public Data offering, which will give greater utility to the participating panellists and to others wishing to use the data, as well as providing content for media owners and supporting the YouGov brand.

Exhibit 2: Revisions to estimates

EPS (p)

PBT (£m)

EBITDA (£m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY18

15.6

15.6

N/A

26.9

26.9

N/A

24.6

24.6

N/A

FY19e

17.2

16.2

-6

27.5

27.2

-7

26.5

26.2

-1

FY20e

18.3

18.7

+2

29.5

30.5

+3

28.7

30.2

+5

Source: Company accounts, Edison Investment Research

Doubling revenue to £230m by FY23e equates to a CAGR of just below 15%, which in the context of the group’s recent financial history, seems a slightly less aggressive target than the doubling of operating margin to 30%. More challenging than either, though, will be the EPS CAGR target of over 30%. It should be borne in mind that these are intended to be targets, not budgets.

Plenty of cash resource

As at the half year, the balance sheet had £25.0m of net cash (there is no debt), down from £30.6m at the year end. In the six months, though, the group spent £2.3m on acquisitions, a similar amount on continuing development of the technology platform, £2.2m on panel recruitment and £2.2m on property, plant and equipment. The total deferred consideration payable on future earnouts now stands at £16.0m which is clearly very comfortably covered by operating cash flow.

Our modelling indicates a cash balance of around £31m at end FY19e, rising to £33.5m by the close of the following year despite acquisition spend of £4.5m followed by £7.0m and share buybacks of £3.2m in FY19e followed by £1.5m in FY20e.

Divergent peer valuations favour data

Exhibit 3: Peer set valuations

% ytd

Market

EV/Sales

P/E

EV/EBITDA

FCF yield

performance

cap (m)

FY1 (x)

Last (x)

FY1 (x)

FY2 (x)

Last (x)

FY1 (x)

FY2 (x)

FY1 (%)

Nielsen Holdings

US$23.67

1.46

US$8,413m

2.54

24.66

13.95

12.66

9.05

8.92

8.48

7.48

Ipsos

€22.32

8.67

€992m

0.81

N/A

N/A

N/A

7.41

6.89

6.60

10.86

Ebiquity

42.5p

-34.62

£31.9m

0.78

9.86

10.37

8.60

4.41

7.65

6.85

4.07

System1 Group

195p

-9.30

£24.5m

0.78

20.53

10.07

7.70

8.92

5.23

4.01

N/A

Next Fifteen Communications Group

562p

14.93

£470.0m

2.18

20.22

17.10

15.09

14.30

11.65

10.06

4.21

GlobalData

595p

1.28

£703.4m

4.35

30.23

25.84

22.62

28.88

18.48

16.49

4.55

Forrester Research

US$48.35

8.17

US$890m

1.62

35.55

29.97

24.01

21.23

15.88

11.43

1.19

Average

1.87

23.51

17.88

15.11

13.46

10.67

9.13

5.39

YouGov

477.5p

21.66

£503.6m

3.74

30.61

28.72

25.75

19.25

18.32

16.48

2.84

Premium

101%

30%

61%

70%

43%

72%

80%

-47%

Source: Refinitiv, Edison Investment Research. Note: Prices as at 1 April 2019.

There is a clear divergence on valuation amongst the peers, with those whose business model is predicated on data modelling being significantly more highly rated by the market, helped also by their greater scale. In this context, YouGov’s rating looks more appropriate.

Exhibit 4: Financial summary

£'000s

2017

2018

2019e

2020e

Year end 31 July

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

107,048

116,560

137,000

150,000

Cost of Sales

(21,339)

(21,496)

(26,780)

(27,650)

Gross Profit

85,709

95,064

110,220

122,350

EBITDA

 

 

17,210

24,551

26,194

30,176

Operating Profit (before amort. and except.)

 

 

16,036

23,320

24,694

28,601

Intangible Amortisation

(6,483)

(7,026)

(8,000)

(8,000)

Share based payments

(1,508)

(3,646)

(2,500)

(1,800)

Exceptionals

(488)

(826)

(800)

0

Other

103

2

0

0

Operating Profit

7,660

11,824

13,394

18,801

Net Interest

254

(51)

25

137

Profit Before Tax (norm)

 

 

17,901

26,917

27,219

30,538

Profit Before Tax (FRS 3)

 

 

7,914

11,773

13,419

18,938

Tax

(3,273)

(3,615)

(5,036)

(6,108)

Profit After Tax (norm)

13,120

19,858

19,683

22,631

Profit After Tax (FRS 3)

4,641

8,158

8,383

12,629

Average Number of Shares Outstanding (m)

104.8

105.4

113.4

113.4

EPS - normalised and fully diluted (p)

 

 

10.5

15.6

16.2

18.7

EPS - FRS 3 (p)

 

 

4.5

7.7

7.4

11.1

Dividend per share (p)

2.0

3.0

3.5

4.0

Gross Margin (%)

80.1

81.6

80.5

81.6

EBITDA Margin (%)

16.1

21.1

19.1

20.1

Operating Margin (before GW and except & share-based payments) (%)

13.6

16.9

16.2

17.9

BALANCE SHEET

Fixed Assets

 

 

64,637

78,019

77,768

77,517

Intangible Assets

54,960

65,357

65,331

65,305

Tangible Assets

9,332

12,471

12,246

12,021

Investments

345

191

191

191

Current Assets

 

 

54,918

66,735

71,743

79,590

Stocks

0

0

0

0

Debtors

30,699

34,672

39,122

44,619

Cash

23,481

30,621

31,179

33,529

Current Liabilities

 

 

(34,177)

(41,445)

(47,613)

(51,653)

Creditors

(33,915)

(41,445)

(47,613)

(51,653)

Short term borrowings

(262)

0

0

0

Long Term Liabilities

 

 

(4,905)

(11,238)

(11,238)

(11,238)

Long term borrowings

0

0

0

0

Other long term liabilities

(4,905)

(11,238)

(11,238)

(11,238)

Net Assets

 

 

80,473

92,071

90,660

94,216

CASH FLOW

Operating Cash Flow

 

 

18,914

23,617

27,100

28,700

Net Interest

4

22

25

137

Tax

(2,487)

(5,501)

(5,703)

(5,304)

Capex

(7,661)

(8,181)

(10,000)

(8,750)

Acquisitions/disposals

0

(885)

(4,500)

(7,000)

Financing

175

259

(3,200)

(1,500)

Dividends

(1,470)

(2,106)

(3,166)

(3,934)

Net Cash Flow

7,475

7,225

557

2,350

Opening net debt/(cash)

 

 

(15,553)

(23,219)

(30,621)

(31,177)

HP finance leases initiated

0

0

0

0

Other

191

177

0

0

Closing net debt/(cash)

 

 

(23,219)

(30,621)

(31,177)

(33,527)

Source: Company accounts, Edison Investment Research

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This report has been commissioned by YouGov and prepared and issued by Edison, in consideration of a fee payable by YouGov. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This report has been commissioned by YouGov and prepared and issued by Edison, in consideration of a fee payable by YouGov. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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