All about the data

YouGov 11 December 2017 Outlook
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YouGov

All about the data

Full year results

Media

11 December 2017

Price

316.0p

Market cap

£333m

£/$1.32

Net cash (£m) at end July 2017

23.2

Shares in issue

105.1m

Free float

91.4%

Code

YOU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.6)

18.1

31.1

Rel (local)

0.2

17.5

21.4

52-week high/low

325p

215p

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 events

AGM

6 December 2017

Interim results

26 March 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Yougov is a research client of Edison Investment Research Limited

YouGov has a strong growth record and its investment in building its data-driven products and services is steadily improving its earnings’ quality. This is also helped by the shift in its custom business to more tracking studies and a greater use of data already held in the Cube, the group’s proprietary multi-dimensional database. The strong balance sheet (net cash of £23m at end FY17) is funding continuing investment in panel and new applications, as well as allowing for an increased dividend payout. The rating reflects the growth record and continued good prospects.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

07/16

88.2

13.3

8.5

1.4

37.2

0.4

07/17

107.0

16.4

10.5

2.0

30.1

0.6

07/18e

115.1

18.3

12.4

2.3

25.5

0.7

07/19e

125.1

20.9

13.2

2.5

23.9

0.8

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

Rich reserves of data in the YouGov Cube

YouGov’s data serves client needs such as planning and evaluating campaigns, products and policies and understanding consumer and public attitudes. The group’s five million panellists globally provide a rich reserve to draw on, stored in a multi-variate database known as the YouGov Cube. BrandIndex, the flagship product, is a brand intelligence and perception tracker, with over 500 subscribers worldwide. YouGov Profiles, a more recent addition, has been clearly validated by recently being chosen by Dentsu Aegis Network for audience understanding, strategy and activation (supplanting WPP’s TGI product). Omnibus remains the market leader in its segment, with geographical expansion attracting clients outside the UK as well as supporting multi-territory projects. YouGov continues to invest in data applications that can be fully integrated into marketers’ workflow, improving the quality of earnings. The successful prediction of a hung parliament at the UK general election, using the new MRP technique, has boosted YouGov’s reputation and can be used to describe micro audiences in great detail.

Board changes keep focus

The imminent board changes will see CFO Alan Newman retiring, replaced by Alex McIntosh. Alex began his career as an accountant and is currently chief strategy officer, having joined YouGov in 2007. COO Sundip Chahal, who joined in 2005, will move up to the main board. Doug Rivers, chief scientist, is stepping down from the board but will remain with the group. The transition at board level is therefore to managers who know and understand YouGov’s business and its dynamics well.

Valuation: Premium rating

YouGov’s rating remains towards the top of the ranking of global peers. Much of the traditional market research sector still struggles with legacy infrastructures. YouGov continues to refine and productise its offerings, driving a higher earnings CAGR than the sector and funding a progressive dividend stream. The group’s clear and consistent strategy is translating into profits and, at least as importantly, into cash.

Investment summary

Company description: Data and analytics

YouGov has expanded from being an online market research company to one with a broad range of data products and services, with underlying data sourced from its own panel of around five million people across 38 countries. This is a clear distinction from much of the industry and enables the group to work with connected data that provide far richer and more complex outputs. The panel is highly engaged, constantly feeding opinions, observations, enthusiasms and objections into a multi-variate database known as the YouGov Cube. The relationship with the panel also fits well with the tightening data privacy regimes globally, which may compromise other business models. The growth strategy centres on growing the data products and services and orienting the custom research business to use more own-panel data and increase the proportion of long-term tracking business in the mix. The members of the management team are highly experienced, with the incoming CFO having been with the business since 2007.

Valuation: Reflecting growth and financial strength

The share price has performed strongly both recently and over the last five years. This has reflected the improving quality of earnings and the lengthened record of management delivering against market expectations. The current rating is at a premium to the peer average but remains within the peer group range. A DCF shows that the current share price is underpinned, assuming operating margins cap out at FY19 forecast levels and top line growth in FY20-25 moderates to 7%. Any improvement on these assumptions would imply further possible uplift.

Financials: Generating cash

We updated our forecasts post the preliminary results in October and make no further changes at this point.

YouGov has built a long-term record of top-line and margin growth, which our model shows continuing through the forecast period.

The growth of data products and services, and of custom trackers, in the revenue mix is improving the quality of the earnings.

The group has considerable reserves of net cash (£23m at the year-end), allowing it to continue to invest in building its panel and in developing its product and service suite (both of which costs are capitalised and amortised over three years)

Sensitivities: Market changes

The market research industry has changed substantially over recent years while YouGov has an advantage in having started as an online business and therefore had no need for a digital transition. The introduction of tighter data protection regulation may also bring changes and disruption to the industry while providing an opportunity to businesses such as YouGov, whose data is obtained on a “permissioned” basis from its panellists. Data governance will remain an important factor and technological robustness is a prerequisite. With an increase in geographic diversity, there are currency sensitivities as well as geopolitical risk. YouGov’s recent strong growth has principally been driven by BrandIndex and Omnibus, as planned. The timing of investment in further data applications and of their gaining traction in their target markets will influence medium-term growth and margin progression.

Company description: Connecting the data

YouGov is an online market research and data analytics business, with clients and operations around the globe. It has grown through a combination of organic development and acquisition, with organic growth dominating in recent reporting periods. It now has one of the top 10 global market research networks, with 31 offices in 21 countries and a panel of around five million respondents worldwide. These individual panellists generate data roughly equally from surveys and from information volunteered: likes, dislikes, habits and behaviours, either directly or through their interactions with websites and on social media. This data set is at the heart of YouGov’s offer, and is all attributable to identifiable individuals by YouGov in its data sets but is obviously aggregated and anonymised in the data supplied to clients. This is the key differentiator, as the data are connected in ways not achievable through conventional survey methodology. Rich data from a sizeable sample of the five million panellists, now covers more than 200k variables, have been compiled into a proprietary multidimensional database, or ‘connected data library’, known as the YouGov Cube. As all data are actively volunteered by panellists who give their explicit permission, the impending introduction of the General Data Protection Regulation (GDPR) in Europe, and other data protection and data privacy issues, do not pose a meaningful business risk and, indeed, may create new opportunities for YouGov.

Started in the UK in 2000, the group has grown well beyond its domestic market and broadened out considerably from its initial best-known political polling activities. The largest proportion of revenue is now generated in the US, the world’s largest market for MR (see Exhibit 1 below for full geographic breakdown). From inception, YouGov had an online-driven business model and an innovative culture that looks to exploit the value and actionable information inherent in the data it collects and supplies to clients. This has been recognised by the group’s inclusion in the respected GreenBook (GRIT) Report, in which clients rank and rate suppliers for their innovation. This is itself a reflection of YouGov’s development of a series of products and services that have helped to build its client base and its penetration of major corporate accounts.

YouGov has over 2,000 clients across a wide variety of verticals, including FMCG, financials, technology and marketing services. It has developed a set of tools and services aimed at these brand owners and marketing agencies that help inform their planning and implementation decisions through the data gleaned from its panellists around the globe. The five-year corporate plan centres on growing the suite of syndicated products and integrating custom research and syndicated data. These products and services are then being rolled out geographically. YouGov reports its financial results in three components: Data Products (centred on BrandIndex), Data Services (centred on Omnibus) and Custom Research. It also discloses segmental profits by geography, clearly showing the importance of the US operations in driving the financial performance.

Organic revenue growth from data products and services

YouGov’s growth strategy is unaltered: to develop as a global data and analytics business. This is predicated on meeting client needs through the delivery of connected data. The group is currently three years through its five-year plan, over the course of which it aims to achieve substantial growth – as demonstrated by the stretch targets incorporated in its 2014 Long Term Incentive Plan (LTIP) described on page 10. Over recent reporting periods there has been a deliberate reduction in the group’s complexity in line with the plan to become bigger but simpler. The key element of the growth strategy is to increase the proportion of revenue from the data products and services such that it matches and may exceed that from custom research. Our model shows the parity milestone being reached in the current financial year. There is also an objective to cut away the lower margin and more volatile elements of the custom business. The business plan outlines five further strategic objectives:

Growing the syndicated products suite. The group has an impressive record of developing tools that are useful to its clients in house within its Data Intelligence Unit, with incremental products based on the connected data in the YouGov Cube and extending the share of client spend. Acquisitions to bring in appropriate products or technologies might be relevant, but only if they can be found at sensible prices and provided they will fit comfortably in the YouGov culture.

Integrating the CR with the syndicated data, adding value and differentiating the client proposition.

Enhancing the user experience, broadening out the relationship beyond that of questioner and respondent. The YouGov Online model that invites panellists to volunteer their views is presented in an almost game-like format, supplemented now with the daily short surveys delivered via YouGov’s mobile app. These contain a strong social element in the sharing of opinions that increases engagement and dwell time on the website, while feeding the data pooled into the Cube, boosting the public profile, particularly through media partnerships.

Boosting the public profile. This is driven through press partnerships and the regular flow of content that can be generated by YouGov Online and the mobile app surveys. Political polling also delivers a high public profile, with the credibility enhanced by the innovative MRP (multi-level regression and post-stratification) model used to great effect in the US presidential elections and the 2017 UK general election, where the aggregated constituency results correctly anticipated the actual outcome of a hung parliament.

Continuing to expand the geographic footprint. While some has been done through acquisition (the basis of the Asia Pacific expansion), most has been achieved organically, with Italy, Spain, Poland and India the current focus of international growth.

Experienced management team

Stephan Shakespeare is a co-founder of YouGov and returned to the role of CEO in 2010, after a period as Chief Innovation Officer. Stephan has a clear understanding of the product base and its commercial potential. He refocused corporate strategy back onto exploiting the group’s core research and delivery strengths. Alan Newman was appointed Group CFO in August 2008 and has extensive experience in media and communications businesses, both in operational and consultancy capacities. He put in place improved financial controls and harmonised the group’s reporting and key business processes. Alan will be retiring at the end of December 2017 and is to be succeeded by the current Chief Strategy Officer, Alex McIntosh. Alex has been at YouGov since 2007 and was initially corporate finance manager before taking a leading role in strategic planning and innovations, working alongside Stephan. He led the development of YouGov Profiles, the media planning and audience segmentation tool launched in 2014. Doug Rivers, chief scientist, will also be standing down from the board with effect from the AGM. Doug will remain with the group with an expanded remit, managing its global technology development teams.

YouGov created a new role of Chief Operating Officer in August 2014 with the appointment of Sundip Chahal, to drive the implementation of the group’s procedural harmonisation and manage day-to-day operations. As of the upcoming AGM, this will now be an executive main board role. Sundip has been with the group since 2005, when he joined YouGov’s UK Data Products & Services business, having previously worked for Ipsos and Research International in the UK. In 2007, Sunny became UK Head of BrandIndex and Omnibus, and in 2010 was appointed CEO of YouGov’s Middle East and North Africa region, overseeing the development of the Asia Pacific business after its acquisition in January 2014.

Growing Data Products and Services

While the custom research (CR) business accounted for 56% of FY17 revenues, this is on a deliberately reducing trend (FY16: 61%; FY15: 68%). The nature of the CR work undertaken is also changing away from one-off, complex projects towards data-oriented tracking and in-depth studies building on YouGov’s data products. The more attractive opportunities are those that help to build embedded client relationships through realising the value of panel-generated data, improving the quality of the group’s earnings. The more rapid growth of this data products and services (DP&S) segment (in particular in BrandIndex and YouGov Profiles in Data Products and Omnibus in Data Services) should drive the mix to revenue parity over time. DP&S already generates 59% of adjusted operating profits, up from 52% in the prior year. With the increasing incorporation of its own gathered rich data, YouGov now sees itself as a ‘true internet company’, with its activities designed to take full advantage of the strengths of a web-based model.

Exhibit 1: FY17 Revenue by activity

Exhibit 2: FY17 operating profit by activity

Source: Company accounts

Source: Company accounts

Exhibit 1: FY17 Revenue by activity

Source: Company accounts

Exhibit 2: FY17 operating profit by activity

Source: Company accounts

YouGov’s growth engine is the Data Products and Services. Activity in Data Products is dominated by key product, BrandIndex, as is shown clearly in Exhibit 2, above. BrandIndex continues its very strong progress, with revenues ahead by 36% year-on-year in FY17 (FY16: +39%, FY15:+ 30%), and subscriber numbers increasing by 150 to 650 in 32 markets (from 27 in FY16). Italy, Spain, the Philippines, Taiwan and Vietnam were added in the year.

BrandIndex is targeted at brand curators in corporate clients, media planners and buyers within media agencies. It appraises sentiment towards brands in their peer space, including ‘buzz’, purchase history and likelihood to recommend, all in real time. The product is syndicated, with YouGov deciding on the sectors and brands to be covered. Some of these brands are global and so are tracked in all markets; some are national and limited to relevant country versions. Subscribers automatically see the data for all the brands covered in the market version that they buy. The additional brand owners included in the analysis who are not (yet) subscribers can then be targeted, with a clear picture already built up of the competitive landscape and their position in it. Being very sensitive to changes in opinion, BrandIndex is also a valuable tool for reputation and crisis management, when reactions can be tracked against events and in comparison to other brands’ reputations post similar events.

YouGov Profiles is also gaining ground rapidly. It was launched in November 2014 and achieved £3.7m of revenues in FY17, with annualised sales running at £7.0m as at the year end. Profiles is aimed at the corporate market/brand curators and at agencies, and is effectively the ‘front end’ of the data Cube. A sophisticated planning tool, it allows marketers to put in place very detailed segmentation of their target audience, far beyond the demographic and location data traditionally available. Profiles’ primary application is in media campaign planning, where it facilitates appropriate targeting by identifying typical characteristics of brand adherents versus the norm. It is being sold on a subscription basis, accessible via an interactive portal and has grown to 125 subscribers worldwide (from 75 last year), many of whom also subscribe to BrandIndex. Bundling these two products together gives a particularly rich resource for agencies and brand owners, and sales of this package have been made to major industry names. Profiles has now been rolled out to eight territories, with France tabled for FY18. The investment in this multi-country availability has been validated by the recent high-profile win at Dentsu Aegis Network business, which selected Profiles as its main tool for its audience understanding, media planning and strategy (in place of WPP’s TGI).

Additional connected data applications are being launched in both data products and services. These tools should allow marketers to allocate their budgets more effectively, with the capability to evaluate campaign effectiveness or test putative campaigns with seed audiences. With the ability to link into BrandIndex, the impact of television or digital campaigns can be tested, while the reach of campaigns can be tested through assessing who has been exposed – an important validation when media transparency is so much of an industry issue. The Data Intelligence Unit has also developed methodologies to incorporate dynamic segmentation and plug directly into programmatic media. There are also new data applications enabling re-contact studies via Omnibus (see below).

Together, BrandIndex and YouGov Profiles account for 97% of Data Products. The division grew by 29% at constant currency in FY17. With the main investment phase for Profiles now passed, the operating margin moved up from 27.1% in FY16 to 29.1% in FY17.

Data Services is also dominated by one offer, Omnibus, which accounts for 94% of segmental revenues, which were up by 30% in FY17 (the same high level of increase as the prior year). Omnibus is the clear market leader in the UK, where it has been available for a number of years and continues to grow at least in line with the overall MR market at +7%. YouGov’s ability to facilitate multi-country projects is bringing in larger, multinational clients and helped overall Omnibus revenues to grow by 23% in FY17. The operation of Omnibus is highly efficient and it is straightforward to incorporate additional business given the degree of automation. YouGov now has more than 1,000 clients for its Omnibus service globally and continues to add both new clients and new territories (often across multiple territories), with Acer, Bertlesmann, E.ON and Allianz Insurance among those joining the roster in the year just reported.

Again, the group is not sitting back on its success. YouGov has been extending the range of services that it is offering, in particular adding value through segmentation, increasing the degree of automation in the submission of questions into surveys and by giving more flexibility in the way that output is delivered back to the clients. A new self-service survey tool, Collaborative Insights, has been developed to allow quicker survey build both within Omnibus and as distinct custom projects, as well as having the capability to bring both together within a single dashboard.

It is also planned to deliver Omnibus survey results through the Crunch analytics software. Crunch facilitates the configuration of the output according to client requirements. It allows very large data sets to be searched, examined and analysed extremely quickly (measured in milliseconds), with the output available in flexible formats, including visualisation, dashboards and automated reporting. It also allows clients to combine and analyse data from other sources as well as that flowing from YouGov’s data products. This ability is enabling YouGov to differentiate its offer through incorporating elements of its other activities – such as adding market positioning/reputational data from BrandIndex or by accessing specialised niche samples derived from data from the existing panel, such as key corporate influencers. These additional elements are also allowing the group to pitch for more substantial pieces of business. Notable larger clients include ITV, Google, HSBC, Ford, Sun Products and Microsoft, with Bausch + Lomb, Mastercard, M&C Saatchi, Sony, SEE and Virgin Money added during FY17.

Custom research still represents the majority of revenues, but was overtaken by the operating profits generated from Data Products and Services in FY16. However, the focus of the custom research business has been changing towards projects and product-level trackers that utilise the group’s existing panel data and the YouGov Cube resource. This is already improving the quality of the achieved earnings and moving it away from the most commoditised and therefore competitive parts of the market. There is a shift from the generally ad hoc studies, building out the multi-client or syndicated studies and/or full research programmes. The latter are particularly attractive for tracking studies and research under multi-year contracts in an industry dominated by relatively small and one-off contracts. The sales effort is now focused on increasing the share of clients’ spend, for example by increasing the number of geographies covered. The move to focus custom research on the core panel-based services led to flat revenues (at constant currency) in FY17, with underlying growth in the US (+7%), the UK (+4%) and Asia Pacific (+28%, but obviously off a lower base) and reductions most notable in Germany (-37%). However, there was a good improvement in operating margins, from 12.6% in FY16 up to 14.8% in FY17. Our model anticipates further progress through FY18 and FY19, albeit at a less spectacular pace.

Market segment

MR market in stronger growth. Esomar’s annual Global Market Research Report estimates that global turnover of the traditional market research sector was $44.5bn in 2016. This was up 2.3% (inflation-adjusted), which is the highest pace of growth since 2010. Adding in newer research methodologies, such as data analytics, the estimated market size globally for research in 2016 was $71.5bn. The US remains the largest market by a substantial margin (44%) with revenues of $19.5bn, followed by the UK (15%) on $6.6bn and Germany (6%) on $2.8bn. Africa grew the fastest in that year, ahead by 22.7%, while Asia Pacific grew by 7.8%. Japan overtook China to become the largest market in the region. Growth was slower in the biggest markets of the US and UK.

There is a relatively small cohort of large players globally, with the 10 largest companies taking a 47% market share. These include Nielsen, Kantar (WPP), Quintiles IMS (focused on healthcare), Ipsos and GfK. In terms of client segments, the US market’s largest sector was media and entertainment (25%), followed by pharmaceuticals/healthcare at 21% and consumer non-durables at 13%. This latter is the largest client segment in the UK market at 30%, followed by government and non-profit (14%) and telecommunications and ICT (10%).

Growth of big data. One of the significant changes in market research over recent periods has been the growth in big data analytics, broadening the market well beyond its traditional remit. Big data has been defined by Gartner as “…high-volume, high-velocity and high-variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision making”. The use and gradual commoditisation of these methodologies has undermined the economics of the large-scale, non-digital survey and prompted considerable change in the industry. Some of the largest traditional suppliers have struggled to realign their business models (and their overheads) to a market that increasingly expects both low-cost and rapid project turnaround. The MR industry used to operate very much in a supplier/provider mindset. While garnering feedback and insight from the market was an onerous and time-consuming task, this worked reasonably well. With the huge growth in the availability of big data and in social media analytics, the ground has shifted and the collaborative model, where the MR company works alongside the client to bring them closer to their customers, has gained traction.

Changes to regulatory environment. The GDPR comes into effect on 25 May 2018 and will bring extensive changes to the working practices of the marketing services sector. The new data protection legislation alters how the system of consumer consent works, requiring permissions to be opt-in with clear and distinct affirmative action. The GDPR also contains prohibitions on processing customers’ data unless explicit permission has been obtained. In contrast, YouGov has a permissioned model in which panellists are already told and give explicit consent to how their data will be used. This provides a competitive advantage, including over the tech companies such as Facebook and Google.

Sensitivities

As well as the changes in the market backdrop outlined above, the following factors may also come into play:

Economic conditions and GDP growth are crucial to spend on MR. For brand owners, MR generally forms part of the overall marketing budget. Public sector research operates in a different set of constraints, with commissioning by media organisations and the third sector subject to other influences. The growth of procurement puts constant pressure on pricing, increasing the attraction of offering more complex and bundled output.

The group’s long-term plan involves continuing investment in products, platforms and people to take full advantage of opportunities that may only be open temporarily. The phasing of that investment against the continuing battle to push the revenue streams ahead is a key determinant of margins.

As an international business, currency management and harnessing diverse cultures and opportunities are perennial sensitivities. The currency exposure is mostly translational, with the US dollar, euro, UAE dirham and the Danish krone all important.

Product development and enhancement are an integral part of the business development strategy. Not all elements of the product suite may perform according to expectations. Credibility is crucial and so far management has been successful in building this into the brand identity. The success of the MRP on its predicted outcomes for the 2017 UK general election will have enhanced this further.

Competition comes from both large, established players and from younger, innovative firms giving research commissioners new tools to derive richer qualitative data. The need to be faster, more accurate and cheaper is a powerful business driver. Delivering on time, on budget and adding value are the key requirements and will help to ensure client retention in what will continue to be a highly competitive market. YouGov’s ability to allow its clients to revisit previous respondents and to cut existing data across multivariates is a clear differentiator, improved further with the more extensive use of the Crunch tool.

Valuation

Peer comparison

We have looked at YouGov’s valuation in the context of a range of global peers. The shares have performed well over the year to date and continue to hit all-time highs. The share price has climbed from 74p five years ago, a CAGR of 44%. The rating is clearly at a premium to peer average, but remains within the range, with the US stocks tending to trade at higher valuations than those quoted elsewhere.

Exhibit 3: Peer valuation

Ytd performance (%)

Price

Market cap (m)

EV/Sales
1FY (x)

EV/EBITDA (x)

P/E (x)

Div yield
last (%)

EBITDA margin last (%)

Last

1FY

2FY

Last

1FY

2FY

YouGov (£)

26

316

333

2.7

20.4

17.3

14.7

30.2

25.5

23.9

0.6

14.2

Cello Group (£)

22

126

132

0.5

242.2

10.1

9.6

15.2

15.6

14.8

2.7

0.3

System1 (£)

(26)

393

49

1.9

11.2

9.0

21.3

17.0

Next Fifteen Communications (£)

22

378

286

1.3

8.7

7.7

70.8

13.9

12.3

1.4

10.2

Ipsos (€)

1

30.19

1,342

0.9

9.2

9.1

8.6

12.8

11.6

10.7

2.8

11.3

Forrester Research (US$)

7

46.05

828

1.3

17.6

16.5

14.5

44.5

38.5

34.1

1.6

12.1

IQVIA (US$)

36

102.59

21,580

1.7

20.2

15.2

13.9

46.4

22.2

19.3

0.0

23.2

Natl Research Corp (US$)

87

35.60

934

8.2

25.4

32.4

Nielsen Holdings (US$)

(14)

36.23

12,904

3.9

12.0

10.3

10.1

22.4

14.2

14.4

3.3

27.7

Average (excl. YouGov)

17

2.5

16.9

11.6

10.5

35.3

19.6

17.5

2.0

16.7

Source: Bloomberg. Note: *Omitted from average. Prices as at 1 December 2017.

DCF backs current levels

We have also looked at the share price on a reverse DCF basis, varying the medium-term growth assumptions and the EBITDA margin, fixing the WACC at 7.0% and using a terminal growth rate of 3%. As can be seen from the table below, the current share price of 321p indicates that if the EBITDA margin were not to advance over FY20-25 ahead of the 16% that we are forecasting for FY19 and onwards, then FY20-25 top-line growth would be running at 7.2%, which would be lower than we anticipate. Revenue growth over the last five years was at a CAGR of 14.4%.

Exhibit 4: DCF

FY20-25 revenue growth rate

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

EBITDA margin

12.00%

168.2

183.3

199.8

217.9

237.8

257.3

13.00%

184.3

201.2

219.7

240.0

262.3

284.2

14.00%

200.3

219.0

239.6

262.1

286.8

311.1

15.00%

216.4

236.9

259.5

284.2

311.3

338.0

16.00%

232.5

254.8

279.4

306.3

335.8

364.9

17.00%

248.5

272.7

299.3

328.4

360.3

391.7

18.00%

264.6

290.6

319.2

350.5

384.8

418.6

19.00%

280.7

308.5

339.1

372.6

409.3

445.5

Source: Edison Investment Research

Financials

Enviable long-term growth record

Exhibit 5: Long-term earnings record

Source: Company accounts, Edison Investment Research

We updated our financial model on the publication of the FY17 results in October and there are no further changes at this juncture.

From 2009 to the end of our forecast period, revenue will have grown at a CAGR of 11%. Over the years FY15-17, that growth rate speeded up to 19% as the strategy to invest behind the data products and services gained traction in its target markets. Our forecasts assume that the pace of growth for BrandIndex and Omnibus eases back a little from the last couple of years (see Exhibits 6-9 below), with YouGov Profiles and the new data applications starting to move the dial, but with the reorientation of custom research towards own-panel and more profitable work dampening the overall top line progress slightly.

This change in the mix has been lifting operating margins, as shown in Exhibit 5, above, and should continue to do so. With a much higher proportion of productised offer (and 24/7 data processing and analytics resource based in Romania), the business model is inherently more scalable. The incremental costs on additional sales of data products and services are relatively insignificant. Staffing has been reoriented with fewer ‘traditional’ researchers and more sales people and data analysts.

Exhibit 6: BrandIndex revenue

Exhibit 7: Omnibus revenue

Source: Company accounts, Edison Investment Research

Source: Company accounts, Edison Investment Research

Exhibit 8: Custom research revenue

Exhibit 9: Other revenue (including Profiles)

Source: Company accounts, Edison Investment Research

Source: Company accounts, Edison Investment Research

Exhibit 6: BrandIndex revenue

Source: Company accounts, Edison Investment Research

Exhibit 8: Custom research revenue

Source: Company accounts, Edison Investment Research

Exhibit 7: Omnibus revenue

Source: Company accounts, Edison Investment Research

Exhibit 9: Other revenue (including Profiles)

Source: Company accounts, Edison Investment Research

We show adjusted earnings consistent with the company’s methodology. The group capitalises and amortises over three years the costs of investment in panel and in software development. This amortisation is added back in addition to any amortisation on acquired intangibles.

YouGov has an LTIP scheme set up in 2014 designed to incentivise the executive directors and a small group of key senior managers. It is based on achieving demanding earnings per share growth targets (CAGR of 25%) over the five-year period ending 31 July 2019 as well as an average operating profit margin of 12% over that period. Participants are conditionally awarded nil cost options in three equal tranches over FY16 to FY18, dependent on reaching personal targets set in each previous financial year. At EPS growth of under 10%, there is to be no grant; full payout requires 25% EPS CAGR. Although the awards are high in terms of salary multiples and number of shares (particularly for the CEO), the triggering thresholds are particularly demanding, with no grant if compound EPS growth is below 10% or if operating margin is below the 12% average threshold. This plan has led to higher share-based payments, but this is stripped out of our definition of normalised operating profits. Compound growth in adjusted earnings per share was 21% for FY14-17. Our model currently shows a CAGR from FY14 through FY19e of 19% and operating margin running at an average of 13.5% (improving in each year).

Strong cash conversion

In FY17, YouGov had operating cash conversion of 130% (FY16: 130%), giving it a five-year average cash conversion of 122%. The growing level of subscription-based income is also increasing the deferred element of those annual subscriptions, benefiting the working capital position. The group continues to invest in its software and in its panel. Both of these investments stepped up in FY17, with £3.4m spent on internally generated software (FY16: £2.6m) and £3.5m spent on panel recruitment (FY16: £2.0m). Ensuring that the panel is appropriate in size and in its constituents is crucial to be able to deliver the timely and robust data in each territory, so there will be a need for higher levels of spend, particularly when moving into new geographies. The largest increase in panel in FY17, though, was in the UK, so as to ensure that the spread was sufficient to run the MRP referred to above to model the outcome of the general election on a constituency-by-constituency basis. Our model anticipates capital spend running at £7.0m in both FY18 and FY19.

With the strong financial position, the level of dividend cover has been reviewed and reduced from 6.3x to 5.4x (on adjusted earnings), giving an increase from 1.4p to 2.0p. With the forecast growth in earnings, the dividend should also increase in both our forecast years.

Cash-rich balance sheet

Goodwill accounts for £43.6m, the largest single element of which relates to the US. Other intangible assets include £5.6m of internally developed software and software development and a value of £4.2m for the consumer panel. Trade payables of £29.4m include £10.7m of deferred income, up from £9.4m in the prior year.

Net cash at the year-end was £23.2m, up from £15.6m at the end of FY16. The group’s only debt was a small bank overdraft of £0.3m. With the strong cash flow described above, we would expect this balance to increase, with our modelling resulting in net cash balances of £28.4m at end FY18 rising to £36.3m by end FY19.

Exhibit 10: Financial summary

£'000s

2016

2017

2018e

2019e

Year end 31 July

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

88,202

107,048

115,064

125,075

Cost of Sales

(19,476)

(21,339)

(25,314)

(27,517)

Gross Profit

68,726

85,709

89,750

97,559

EBITDA

 

 

11,736

15,231

17,687

20,193

Operating Profit (before amort. and except).

 

 

10,917

14,528

16,984

19,490

Intangible Amortisation

(5,478)

(6,483)

(6,500)

(6,500)

Share based payments

(1,138)

(1,508)

(1,200)

(1,200)

Exceptionals

(1,108)

(488)

0

0

Other

(4)

116

0

0

Operating Profit

3,189

6,165

9,284

11,790

Net Interest

1,199

254

162

169

Profit Before Tax (norm)

 

 

13,254

16,406

18,346

20,859

Profit Before Tax (FRS 3)

 

 

4,388

6,419

9,446

11,959

Tax

(2,111)

(4,915)

(4,678)

(6,258)

Profit After Tax (norm)

11,139

13,117

13,667

14,914

Profit After Tax (FRS 3)

3,415

4,651

5,765

7,214

Average Number of Shares Outstanding (m)

103.9

105.5

105.5

105.5

EPS - normalised (p)

 

 

8.5

10.5

12.4

13.2

EPS - FRS 3 (p)

 

 

3.3

4.4

5.4

6.8

Dividend per share (p)

1.4

2.0

2.3

2.5

Gross Margin (%)

77.9

80.1

78.0

78.0

EBITDA Margin (%)

13.3

14.2

15.4

16.1

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

11.1

12.2

13.7

14.6

BALANCE SHEET

Fixed Assets

 

 

62,366

64,637

64,534

64,534

Intangible Assets

53,140

54,960

54,960

54,960

Tangible Assets

8,984

9,332

9,332

9,332

Investments

242

345

242

242

Current Assets

 

 

45,339

54,918

61,476

72,164

Stocks

0

0

0

0

Debtors

28,643

30,699

32,338

35,151

Cash

15,553

23,481

28,400

36,275

Current Liabilities

 

 

(27,823)

(34,177)

(36,989)

(40,207)

Creditors

(27,823)

(33,915)

(36,989)

(40,207)

Short term borrowings

0

(262)

0

0

Long Term Liabilities

 

 

(5,793)

(4,905)

(4,728)

(5,678)

Long term borrowings

0

0

0

0

Other long term liabilities

(5,793)

(4,905)

(4,728)

(5,678)

Net Assets

 

 

74,089

80,473

84,293

90,814

CASH FLOW

Operating Cash Flow

 

 

14,139

18,914

19,077

22,166

Net Interest

11

4

162

169

Tax

(2,365)

(2,487)

(4,855)

(4,995)

Capex

(6,076)

(7,661)

(7,000)

(7,000)

Acquisitions/disposals

(171)

0

0

0

Financing

16

175

0

0

Dividends

(1,028)

(1,470)

(2,202)

(2,465)

Net Cash Flow

4,526

7,475

5,181

7,875

Opening net debt/(cash)

 

 

(10,017)

(15,553)

(23,219)

(28,400)

HP finance leases initiated

0

0

0

0

Other

1,010

191

0

0

Closing net debt/(cash)

 

 

(15,553)

(23,219)

(28,400)

(36,275)

Source: Company accounts, Edison Investment Research

Contact details

Revenue by geography

50 Featherstone Street
London, EC1Y 8RT
+44 (0) 20 7012 6000
www.yougov.co.uk

Contact details

50 Featherstone Street
London, EC1Y 8RT
+44 (0) 20 7012 6000
www.yougov.co.uk

Revenue by geography

Management team

CEO: Stephan Shakespeare

CFO: Alan Newman

Stephan co-founded YouGov in 2000. An internet research pioneer, he has driven YouGov’s innovation-led strategy. He also founded ConservativeHome.com, PoliticsHome.com and, more recently, Opigram. He is a trustee of the National Portrait Gallery and chair of the Data Strategy Board for the Department for Business Innovation & Skills.

CFO of YouGov since 2008, Alan was previously a partner with Ernst & Young and KPMG, where he led the TMT sector financial management consulting practice. Previous roles include international FD of Longman and group development manager of MAI (now United Business Media). He is a trustee of the Freud Museum London and a director of the QCA.

Chairman: Roger Parry

COO: Sundip Chahal

Roger is also chairman of Mobile Streams, MSQ Partners and Shakespeare’s Globe Trust. He was previously a journalist with the BBC and ITV and a consultant with McKinsey & Co. He was CEO of More Group, chairman and CEO of Clear Channel International and chairman of Media Square, Johnston Press and Future.

Appointed to this new role in August 2014, Sundip was CEO of YouGov’s MENA region from 2010 and also oversaw development of the Asia Pacific business since its acquisition in January 2014. He joined YouGov’s UK DP&S business in 2005, becoming MD in 2007, and previously worked for Ipsos and Research International in the UK.

Management team

CEO: Stephan Shakespeare

Stephan co-founded YouGov in 2000. An internet research pioneer, he has driven YouGov’s innovation-led strategy. He also founded ConservativeHome.com, PoliticsHome.com and, more recently, Opigram. He is a trustee of the National Portrait Gallery and chair of the Data Strategy Board for the Department for Business Innovation & Skills.

CFO: Alan Newman

CFO of YouGov since 2008, Alan was previously a partner with Ernst & Young and KPMG, where he led the TMT sector financial management consulting practice. Previous roles include international FD of Longman and group development manager of MAI (now United Business Media). He is a trustee of the Freud Museum London and a director of the QCA.

Chairman: Roger Parry

Roger is also chairman of Mobile Streams, MSQ Partners and Shakespeare’s Globe Trust. He was previously a journalist with the BBC and ITV and a consultant with McKinsey & Co. He was CEO of More Group, chairman and CEO of Clear Channel International and chairman of Media Square, Johnston Press and Future.

COO: Sundip Chahal

Appointed to this new role in August 2014, Sundip was CEO of YouGov’s MENA region from 2010 and also oversaw development of the Asia Pacific business since its acquisition in January 2014. He joined YouGov’s UK DP&S business in 2005, becoming MD in 2007, and previously worked for Ipsos and Research International in the UK.

Principal shareholders

(%)

LionTrust

14.70

Blackrock

10.96

Standard Life

9.76

Balshore Investments

7.63

Kabouter Management

7.42

T Rowe Price

7.13

Stephan Shakespeare (CEO)

7.04

Investec

5.46

Octopus Asset Management

5.00

Charles Stanley

3.63

Companies named in this report

System1 (SYS1), Cello (CLL), Nielsen (NLSN), GfK (GFK), Ipsos (IPS), ComScore (SCOR), Forrester (FORR), Quintiles IMS (IMS)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by YouGov and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by YouGov and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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