Capitalising on its strengths

Ebiquity 28 September 2016 Outlook

Ebiquity

Capitalising on its strengths

Interim results

Media

28 September 2016

Price

103p

Market cap

£80m

Net debt (£m) at 30 June 2016

28.1

Shares in issue

77.2m

Free float

99%

Code

EBQ

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.0

(4.6)

(29.5)

Rel (local)

3.6

(16.7)

(36.0)

52-week high/low

147.0p

98.0p

Business description

Ebiquity is an independent marketing analytics specialist providing a range of business-critical data, analysis and consultancy services to advertisers and media owners on an international basis.

Next events

Trading update

December 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Fiona Orford-Williams

+44 (0)20 3077 5739

Ebiquity is a research client of Edison Investment Research Limited

Along with the release of its (in line) interim results, management has presented its new strategy. This will involve the roll-out of the fast-growing MPO services in more markets, and investment in technology enablement across all divisions as well as in organisational processes. Initial investment means a reduction to FY17 EPS forecasts. However, Ebiquity is building on strong foundations and we believe it is in a good positon to execute its plan, which should result in a higher-quality business with a more robust longer-term growth profile.

Year
end

Revenue (£m)

EBIT
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14**

69.1

8.0

6.8

6.6

0.0

15.6

N/A

12/15**

76.6

12.4

11.2

10.8

0.4

9.5

0.4

12/16e

84.5

13.8

12.7

11.0

0.5

9.4

0.5

12/17e

92.0

13.3

12.3

10.0

0.6

10.3

0.6

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Unaudited pro forma figures, as year end changed to December from April in 2015.

Strategy update: Creating a higher-quality business

Management today unveiled its strategy to create a faster growing, higher-quality business. Building on the existing strong foundations, it plans to roll-out the services of the fast-growing MPO division (revenues +53% in H1) across additional geographies. In parallel, the technological capabilities of the MVM and MI divisions will be improved, and the organisational structure realigned to support a client and product driven sales strategy with greater cross-sell potential.

Forecasts: Increased investment to accelerate growth

Management expects this strategy to accelerate the organic revenue growth from the mid-single digit rates secured over the last few years on EBIT margins of c 16% to revenue CAGR of 10% over the next five years, on a more sustainable margin of 12-13%, still a premium to its agency and consulting peers. While this means a reduction to our FY17 EPS forecast of 14%, this investment should create a more robust longer-term growth profile.

Valuation: Well equipped to execute plan

Media markets are becoming more complex and the need for independent advice has become increasingly apparent, as highlighted in the high-profile report about media transparency published in July by the Association of National Advertisers (ANA). Ebiquity is already a trusted adviser to 1,100 clients including 80% of the world’s largest 100 brands and has considerable expertise across its 900 staff in 14 markets. The FY17e P/E of 10.3x is at a c 50% discount to peers. We consider this an attractive valuation given EBQ’s targeted, more sustainable longer-term organic growth profile, with the added earnings leverage of a declining debt position. The key catalysts over the next 12 months include the timely execution of the new strategy at the planned cost as well as maintaining the ongoing strong trading momentum in the MPO and MVM divisions.

Investment summary

Market context and strategy: The need for independent advice

In a complex and fragmented media ecosystem, it is hardly surprising that recent surveys indicate that the most challenging part of a chief marketing officer’s job is to manage, analyse, exploit and optimise the explosion in consumer data. The need for high-quality independent advice has become increasingly necessary – evident in Ebiquity’s growth profile, which has seen a 40% three-year CAGR in revenues in its marketing data and analytics services (MPO division).

Management plans to widen the reach of the MPO division (17% FY16e revenues). This will start with the launch of marketing effectiveness in the US and additional European markets followed by the Asia-Pacific region. Alongside this it will expand the digital capabilities of the MVM and MI divisions to widen and improve its overall service offering. Finally, with only 17% of customers taking two or more services, there is an opportunity to improve client service penetration and plans also include a realignment of the group to support a more integrated approach. In doing so, management plans to position Ebiquity as a leading global technology enabled independent media and marketing analytics consultancy with a more robust longer-term growth profile.

Financials: Reflect the increased investment

Management believes that on a more sustainable EBIT margin of 12-13%, it can accelerate revenue growth to a CAGR of 10% over the next five years. We update our forecasts to FY17, to capture the initial investment phase of management’s new strategy, as well as today’s interim results, which, with like-for-like revenue growth of 5.2% y-o-y, were broadly as expected.

Exhibit 1: Summary forecast changes

Revenues (£000s)

EBIT (£000s)

PBT (£000s)

EPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

FY16e

82,000

84,500

3%

13,800

13,800

0%

12,520

12,710

2%

11.0

11.0

0%

FY17e

88,500

91,953

4%

15,000

13,333

-11%

13,910

12,343

-11%

11.7

10.0

-14%

Source: Edison Investment Research

Valuation and investment case: Building on strong foundations

Management has a strong foundation to execute its plan and we consider the 10.3x FY17e P/E and 8.3x EV/EBITA rating unchallenging (peers average 15x P/E and 12x EV/EBITA). Notably:

Independence is becoming increasingly valued in this industry and Ebiquity recently received high-profile recognition when it was contracted by the ANA to draft a framework to provide media business practice clarity.

Ebiquity can leverage its existing network. It is a market leader in media benchmarking and auditing and one of the largest media monitoring providers globally. It has an international presence and relationships with over 1,100 clients including 80% of the world’s largest 100 brands.

The group has considerable know-how. It owns two of the largest international media databases, employs c 900 employees, has deep sector knowledge in several verticals (automotive, FMCG, finance) and has a significant understanding of media technology.

Sensitivities: FX, people, competition

Ebiquity competes against large global consulting groups in a price-sensitive market place. As a people-based business, the tight labour market for consultants with appropriate skill sets may affect the pace and cost of management’s expansion plan. 66% of revenues are non-sterling denominated and fluctuations in exchange rates may affect forecasts.

Company description: Media & marketing consultancy

Ebiquity is an independent media and marketing consultancy. Its services and products help brands and advertisers maximise the return on their media and marketing budgets. As the group does not buy or sell media, Ebiquity is able to provide impartial advice to optimise return on media investment by channel, brand and country.

Founded in 1997, over the past decade the group has made a series of significant acquisitions, which have established it with a global media presence, and it now provides services to over 1,000 clients across 85 countries, including 80% of the world’s 100 largest advertisers. Headquartered in London, it has c 900 employees across offices in 14 countries. Approximtely 50% of revenues are generated in the UK, with c 20% from North America, 20% from the rest of Europe and the balance from its Eastern Europe and Asia-Pacific regions. The group also owns two of the largest international media cost and creative databases, representing a significant barrier to entry.

The group structures its business into three reporting segments: Media Value Management (MVM), Market Intelligence (MI) and the smaller, but rapidly growing Market Performance Optimisation division (MPO).

Exhibit 2: 2016e revenues by division

Exhibit 3: 2016e operating profit by division

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 2: 2016e revenues by division

Source: Edison Investment Research

Exhibit 3: 2016e operating profit by division

Source: Edison Investment Research

MPO – rapidly emerging position

The MPO division offers marketing effectiveness and analytics services to improve the ROI of a brand’s cross media strategy.

Marketing effectiveness services use statistical analysis of sales and marketing data to correlate and estimate the impact of marketing tactics and other variables (eg price, location, weather) and forecast the impact of a marketing strategy. The multichannel analytics services support the planning, implementation, measurement and interpretation of data to improve the understanding of customer journeys across multiple channels.

Ebiquity estimates that the current market for marketing optimisation is c $500m, with marketing analytics c $100bn. Although currently the smallest division by revenues, it is the fastest growing, and the focus of management’s strategy to accelerate Ebiquity’s overall top-line growth.

MVM – driving media transparency

The Ebiquity Rack is an industry standard benchmarking tool used to determine the efficiency and quality of ad spend. It is embedded into many contracts between a client and an agency; Ebiquity is the global market leader in this category. It operates directly in 14 markets across Europe, North America and Asia-Pacific.

Services draw on its media cost pool database (one of the world’s largest, which analyses c $20bn of media spend annually), proprietary analytics engine (Value Track captures data from agencies and delivers it to clients via a dashboard) and consultants’ knowledge of the local markets. Using these tools, Ebiquity helps clients set realistic goals for their agencies, analyses and audits the performance of a client’s media budget, and benchmarks their client’s agency performance against sector and peer averages or agreed performance targets (which is important in the calculation of agency bonuses).

FirmDecisions provides advertisers with transparency into their media and marketing agencies and particularly into the compliance of their agencies with the terms of their contracts.

MI – Competitor monitoring and market insight

MI provides tools that enable brands to monitor the advertising and marketing activity of competitors, enabling them to respond and plan appropriately. The backbone of these services is Ebiquity’s advertising creative database (one of the most comprehensive in the world with over 25m adverts, updated daily since the 1950s). Advertising creative across 40 markets (with deep-dive services available in the UK, Germany and Australia) and all key platforms is captured, coded, tagged, formatted and priced (drawing on its media pool database) at the group’s four data centres in Newcastle (UK), Chicago (US), Baden-Baden (Germany) and Sydney (Australia). This information is delivered via a dashboard (Portfolio platform) on a near real-time basis. Whereas the other divisions are services led (c 95% of revenues are generated from services in MVM and MPO), MI is a product-led business model (c 85% from products rather than services). Ebiquity competes principally against Kantar, Nielsen and Competitrack.

Market context – increasing demand for transparency

The publication of the ANA report on media transparency and subsequent recommendations highlights the need for independent validation of media spend in a market that has become increasingly complex in a digital data-driven environment.

As the media landscape becomes increasingly digital, there is more need for companies to be able to manage and understand large and complex data sets to optimise campaigns in near real time. To do so, advertisers need to negotiate a very complex and fragmented supply chain, compounded by issues such as online advertising fraud, viewability concerns and ad blocking. These complexities can undermine brand building efforts and have a significant effect on the returns on media investments. Recent surveys indicate that the most challenging part of a chief marketing officer’s job is to manage, analyse, exploit and optimise the explosion in consumer data.

Media transparency issues affect many areas of media buying. However, the issue of trust was highlighted this year following the publication of the ANA-commissioned report on the contentious issue of agency rebates. K2 Intelligence conducted the fact-finding study over a six-month period and published its findings in July 2016. The report found that numerous non-transparent business practices were pervasive across a sample of the US media ad-buying ecosystem and a wide range of media. Notable extracts from the report include:

“A fundamental disconnect between advertisers and agencies about the basic nature of their relationship.”

“Opaque business practices, rebates, agency principal transactions and more have shaken the bond of trust between advertisers and agencies…”

“… transparency concerns reflect the inability of advertisers to understand the media transaction process due to increasing opacity.”

Ebiquity’s standing in the industry was recognised in a high-profile way when it was selected by the ANA to draft a framework to provide business practice clarity.

The increasing demand for transparency has already started to become evident in Ebiquity’s results. Over the last four years, like-for-like growth has tracked up from 2-3% in FY13 and FY14 to 8% in FY14 and FY15 (and 5% H116 – reported today). The acceleration in growth reflects a marked pick-up in growth at MVM and exceptional growth from MPO, dragged down by persistent weakness in MI (Exhibit 4). Excluding the drag on growth from the MI division, revenues from the MVM and MPO divisions grew by 20% in FY15 and 15% in H116.

Exhibit 4: Revenue growth and operating margins

Year end

04/10

04/11

04/12

04/13

04/14

04/15

12/15

H116

MVM

8%

11%

15%

5%

MI

-7%

-3%

-4%

-5%

MPO

32%

42%

38%

51%

Total l-f-l constant currency growth

N/A

N/A

2%

3%

8%

8%

11%

5%

Total revenue growth

15%

108%*

20%*

21%**

7%

8%

8%

7%

Operating profit margin

12.5%

12.0%

15.5%

16.3%

16.6%

15.9%

16.2%

20.3%

Source: Ebiquity investor presentations. Note: Before 2013 Ebiquity classified its divisions differently; organic growth by division is not available before 2014. * Acquisition of Xtreme. **Acquisition of Stratigent.


Strategy update – technology enabled consulting

The new management team today formally unveiled its strategy, which builds on the existing strong foundations to accelerate the longer-term revenue growth profile of Ebiquity.

Recent management changes

Appointed CEO in January 2016, Michael Karg replaced Michael Greenlees, CEO of eight years, who will remain in an advisory capacity for two years. Karg has 20 years of experience in the digital marketing industry, most recently as CEO of Razorfish International, the digital transformation division of Publicis. Andrew Noble, who joined Ebiquity in February 2015 as group finance director, was appointed as group CFO earlier in September. He replaced Andrew Beach, who had been CFO since 2008 but resigned in July; Beach has committed to remain at Ebiquity to ensure an orderly transition. Michael Higgins, who has been on the board since 2006, continues his longstanding oversight as non-executive chairman.

Building on strong foundations to create a higher-quality business

Although currently the smallest division by revenue, it is MPO that offers the greatest growth opportunity. CAGR over the last three years has been 40% and this exceptional growth continued in H1, at 53%. Given the strong momentum and significant global addressable market (billions of dollars), management sees an opportunity to scale this division across a wider geographic area, which is where resources are being focused. In parallel, it will invest in the digital capabilities across the group as a whole, and has started a wider group realignment, improving the IT infrastructure and processes to support a more integrated, client-focused group.

In doing so, it expects to create a more geographically diverse, higher-quality business with a more sustainable longer-term growth profile.

Management believes that revenue growth can be accelerated to a CAGR of 10% over the next five years, with margins moving to a more sustainable 12-13% (from the historic three-year average of 16%), still ahead of other agencies operating in this arena. A roadmap has been put in place (Exhibit 5) and we highlight some of the key initiatives below:

MPO – roll-out: Management plans to roll-out the existing MPO services to some of its other geographies. There are two core service offerings: multichannel analytics (offered in the US) and marketing effectiveness (offered in the UK and Spain). This will start with the launch of marketing effectiveness in the US and additional European markets in 2017 followed by the Asia-Pacific region later. Investment will also be directed towards developing and launching a digital attribution model to complement its existing services in traditional media.

MVM – adding service lines: The ANA report has significantly raised awareness of the issues of transparency and Ebiquity’s involvement in the publication of a best-practice guide has also led to an improvement in its brand profile in the US. Management plans to capitalise on its position as an independent voice by widening the service offering and improving its product capabilities. This will include the launch of a new strategic media consultancy, the development of a digital paid media performance measurement platform (Optix) and the launch of a data management platform (Connect).

MI – updated platforms: A new platform, which combines creative and spend data and new reporting and dashboard functionalities, was launched in September, and it is now being rolled out across Ebiquity’s clients. In addition, a digital portfolio offering, which captures banner adverts, to complement the offerings in traditional media will be launched in the coming months. Finally, investment is being made to improve the data capture processes and technology.

Organisational: With the majority of clients still only taking one service line (c 83%), there is considerable opportunity to improve service penetration into its client base. Ebiquity is moving away from a local market based sales structure towards a client-focused one across regional and global lines. Investment will be directed towards improving the robustness of its IT systems, training to update skill levels, as well as an increase in sales and marketing activities to drive brand awareness of the newer services.

Exhibit 5: Key milestones

Source: Ebiquity

Forecasts

The interim results were as we had expected with like-for-like revenues up 5%, reflecting the increasing demand for analytics alongside continued weakness in MI. Our forecast changes reflect currency tailwinds and the investment in the digital product offering.

Interim results – reflect the increasing demand for analytics

The company has moved from an April to a December year end and these are the first interim results on that basis. Results were as flagged in the 27 July trading update. Total revenues increased 6.8% on a reported basis (+5.2% l-f-l) to £42.3m, with a 2.5% benefit from currency movements. Operating margins of 20.3% were slightly up on last year. Due to the first-half weighting of revenues, operating margins tend to be higher in that period. Separately disclosed items of £3.4m includes £0.9m of purchased intangible amortisation, £1.6m of deferred consideration adjustments, £0.2m share option charges and £0.7m acquisition and integration costs.

Consistent with recent periods, it was the exceptional performance of the analytics services (MPO) and solid growth from MVM that underpinned this, with MI continuing to struggle.

MPO H1 revenue growth of 53% continues to reflect the increasing reliance on data-driven analytics in marketing, and this division is now making a significant contribution to group revenues (16%) in H116, and operating profit (20%).

MVM – FY15 was an exceptional year for MVM with 15% revenue growth, as the company benefited from a significant level of client reviews ($40bn of global advertising spend was tendered last year vs $20bn in a more typical year). In H116, revenues increased by 5% (l-f-l), despite some clients in the US delaying spend in advance of the publication of the ANA report. This report has now been published and management expects to see accelerated growth in the second half of the year.

MI – The MI division continued to struggle in H1 with revenues down 11% y-o-y including revenues from the platform based business, which decreased by 4.5%. However, the initial reaction to the new platform (Portfolio) has been positive and it is being rolled out more widely across Ebiquity’s clients, which should support renewal rates (currently 91%).

Exhibit 6: Summary H116 results and revised forecasts

£000s

H115

H116

Change

FY16e (new)

FY17e (new)

Revenues

MVM

22,780

24,466

7.4%

47,335

51,122

MI

12,418

11,107

-10.6%

23,000

23,230

MPO

4,371

6,685

52.9%

14,165

17,601

Total revenues

39,569

42,258

6.8%

84,500

91,953

Operating profit:

MVM

7,838

8,045

2.6%

13,250

13,292

MI

1,745

1,516

-13.1%

3,220

3,252

MPO

1,541

2,394

55.4%

4,330

4,089

Central costs

(3,208)

(3,390)

(7,000)

(7,300)

Total operating profit

7,916

8,565

8.2%

13,800

13,333

Operating margin

MVM

34.4%

32.9%

-1.5%

28.0%

26.0%

MI

14.1%

13.6%

-0.4%

14.0%

14.0%

MPO

35.3%

35.8%

0.6%

30.6%

23.2%

Total operating margin

20.0%

20.3%

0.3%

16.3%

14.5%

Highlighted items

(2,709)

(3,354)

23.8%

(5,444)

(3,300)

Reported operating profit

5,207

5,211

0.1%

8,356

10,033

Net finance cost

(595)

(613)

3.0%

(1,100)

(1,000)

Share of associates

4

10

10

PBT - adjusted

7,325

7,952

8.6%

12,710

12,343

Source: Ebiquity (historic), Edison Investment Research (forecast)

Forecast changes reflect investment phase of the strategy

Overall, we make no change to our FY16 EPS and reduce our FY17 EPS by 14%:

We have increased our FY16 and FY17 revenue forecasts to reflect the depreciation of sterling in FY16. We do not forecast currency beyond FY16, recognising there is upside potential in H117 should sterling remain at these levels. In FY17, we also nudge up our organic growth assumption to 9% (from 8%) in anticipation of some initial benefits from the more ambitious growth plan.

In FY16 we make no change to our absolute EBIT forecast, with the FX benefits offset by the investment into the digital product offering. This translates to a new EBIT margin forecast of 16.3% (from 16.8%). In FY17, we reduce our EBIT margin forecast further to 14.5% as the group continues to implement its strategy.

We also increase our forecast tax rate slightly to capture our expectation of the faster relative growth from outside the UK and the exhaustion of tax losses.

Sufficient funds to execute plan and satisfy earnout commitments

Net debt at 30 June was £28.1m, comprising £6.2m cash and £34.4m debt. The group has a £5m term loan (repayable on a quarterly basis) and a revolving credit facility of £30m (£29.4m drawn), both of which have a maturity date of 2 July 2018 (and covenants set at 2.5x EBITDA). In addition, the group has an accordion option to increase these facilities by a further £20m.

Ebiquity is cash generative, last year converting 110% of operating profit to perating cashflow. However, over the last few years it has been funding the earnout payments on the acquisitions of Stratigent (2013), China Media (2014) and Billets America (2014) and consequently net debt has remained relatively stable. We forecast the last significant payment of £4.3m relating to these acquisitions in H216, decreasing to £2m in FY17. Inclusive of these payments, capitalised R&D spend and the payment of the FY15 dividend, we forecast a year-end net debt of £28.3m, decreasing to £24.0m in FY17.

Progressive dividend policy reiterated

The company paid a maiden dividend for the year ended 30 April 2015 of 0.4p per share and maintained the same dividend for the eight months to December 2015 (a pro-rata increase). The payment of this dividend was conditional on the cancellation of the company’s share premium account, which was effected on 9 June. An interim dividend of 0.4p has been announced in lieu of this (ex-dividend date of 6 October, payable on 28 October). Going forward, interim dividends will not be paid, however, the board has reiterated its commitment to pursuing a progressive final dividend policy.

Valuation and investment case

With its good brand awareness, recurring client relationships and a global network across 14 countries and 20 offices, we believe that Ebiquity has a solid foundation on which to roll-out its MPO services globally, and improve services penetration into clients more generally. In doing so, it should create a higher-quality company with a more robust longer-term growth profile.

Larger agency and consulting peers trade on average FY17 P/E and EV/EBITA multiples of 17x and 14x, respectively, and small-cap agencies on 14x P/E and 10x EV/EBITA. Although the step up in investment means an earnings contraction in FY17, this reflects the initial investment phase of Ebiquity’s more ambitious growth strategy and we consider the 10.3x FY17e P/E and 8.3x EV/EBITA rating unchallenging. Given the brand, relationships and global footprint that Ebiquity already has, we believe management has a good chance of delivering its strategy. The roadmap the company has laid out (Exhibit 5) will enable investors to monitor the group’s progress.

Know-how: Ebiquity employs c 900 employees, half of whom are consultants. It has deep sector knowledge in several key verticals (eg automotive, FMCG, finance) and a significant understanding of media technology.

Brand: Ebiquity is a market leader in media benchmarking and auditing worldwide and is one of the largest three media monitoring providers globally. A number of Ebiquity’s ‘quality’ tools (eg The Rack) are embedded into many advertiser/agency agreements as a matter of course.

Network: By leveraging existing client relationships across its network of 14 offices, the costs and risks associated with launching new products and services is somewhat mitigated. Ebiquity is already working with 80% of the world’s largest 100 advertisers and over 1,100 clients. This provides a good springboard from which to expand.

Embracing structural changes, which are moving in its favour: Management is building on already very strong momentum in the MPO division.

Revenue visibility: 84% revenues are from renewable contracts and Ebiquity enjoys a high renewal rate.

Independence: The group does not buy or sell media and Ebiquity is able to provide an independent and impartial viewpoint to optimise return on media investment by channel, brand and country. Independence is becoming increasingly important to clients.

Unique databases: Continuously built over the last decade, the group owns two significant international media databases. The ‘media cost pool’ is one of the world’s largest media cost databases (c $20bn of media spend analysed each year), and it also owns one of the world’s most comprehensive advertising creative databases (over 25m adverts).

Sensitivities

We consider Ebiquity’s growth strategy, which builds on its existing strong foundations, as a relatively low-risk approach to accelerating and securing its longer-term growth profile. Nevertheless, any change of direction carries risk. Investors should also consider the following:

Competition: While Ebiquity’s large media and related cost databases provide a significant barrier to entry, new competitors could emerge if they are willing and able to finance such an undertaking, especially as the media industry is dominated by very large global companies, such as Nielson and Accenture.

Foreign currency exposure: 66% of revenues are non-sterling denominated. Fluctuations in sterling may affect our forecasts. A 10% strengthening of sterling against these currencies would have had a 2% impact on FY15 underlying pre-tax profit.

Level of advertising and media spend: 84% of revenues are from renewable contracts. With a historically high renewal rate, this provides a good degree of forward visibility. However, these contracts are often based on the value of media spend being monitored, hence a significant change in levels of advertising and media spend could affect revenue.

People business: Ebiquity has c 900 employees across its 14 offices worldwide. Attracting and maintaining highly skilled employees, with the necessary data and technology skills, is becoming increasingly challenging. This may affect the pace and cost of expansion.

Overseas expansion: The long-term potential of the group lies in building out its MVM and MPO practices overseas. The group’s top management, including the new incoming CEO, has many years’ experience of managing global operations, which should provide comfort in this regard. However, as companies become more diverse, execution risk can increase.

Technology enabled: Unlike most other consulting industries, media and marketing consultants rely on technology to support their service offerings. Maintaining state-of-the-art systems and processes to support their consultants’ strategic advisory and analytics services is becoming ever more crucial as companies seek to harness wider datasets to understand and predict their customers’ behaviour. Investment requirements may vary from the current plan.

Brexit: We expect Ebiquity to be fairly cushioned from the current uncertainty in the UK economy. 84% of revenues are recurring and as its services are geared to helping companies maximise the efficiency of their ad spend, demand may well increase in times of austerity (as it did for MVM during the 2007/08 period).

M&A: Management has presented an organic growth strategy. However, should opportunities arise to strengthen this plan, we believe acqusitions would be considered.

Exhibit 7: Financial summary

£000s

2013

2014

2015

2015

2014*

2015*

2016e

2017e

Year

Year

Year

8 months

Year

Year

Year

Year

Period ending

30-Apr

30-Apr

30-Apr

31-Dec

31-Dec

31-Dec

31-Dec

31-Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

64,046

68,452

73,874

43,310

 

69,106

76,584

84,500

91,953

Cost of Sales

(29,359)

(30,008)

(32,383)

(22,514)

N/A

N/A

(36,335)

(38,620)

Gross Profit

34,687

38,444

41,491

20,796

N/A

N/A

48,165

53,333

EBITDA (norm)

 

 

11,734

12,768

13,463

1,151

 

9,572

14,161

15,700

15,283

Operating Profit (before GW and except.)

 

10,441

11,339

11,729

(3)

 

7,962

12,411

13,800

13,333

Intangible Amortisation

(2,308)

(1,873)

(2,030)

(1,327)

(1,997)

(2,000)

(2,200)

(2,300)

Exceptionals (inc share-based charges)

(628)

(4,854)

(3,883)

(5,329)

(5,818)

(6,768)

(3244)

(1,000)

Other (inc share of profit of associates)

26

19

12

13

10

18

10

10

Operating Profit

7,531

4,631

5,828

(6,646)

157

3,661

10,044

9,859

Net Interest

(975)

(1,191)

(1,171)

(800)

(1,164)

(1,199)

(1,100)

(1,000)

Profit Before Tax (norm)

 

 

9,492

10,167

10,570

(790)

 

6,808

11,230

12,710

12,343

Profit Before Tax (FRS 3)

 

 

6,556

3,440

4,657

(7,446)

 

(1,007)

2,462

7,266

9,043

Tax

(1,393)

5

(538)

1,332

N/A

N/A

(2,600)

(3,000)

Profit After Tax (norm)

6,879

8,082

8,877

(214)

N/A

N/A

9,215

8,764

Profit After Tax (FRS 3)

5,163

3,445

4,119

(6,114)

N/A

N/A

4,266

6,043

Minorities

(119)

(421)

(496)

(107)

N/A

N/A

(450)

(525)

Net Income (norm)

6,760

7,661

8,346

(336)

N/A

N/A

8,764

9,930

Net Income (FRS 3)

5,044

3,024

3,623

(6,221)

N/A

N/A

3,816

5,518

Average Number of Shares Outstanding and equivalents (m)

73

74

76

77.0

N/A

N/A

77

80

EPS - normalised (p)

 

 

9.3

10.3

11.0

(0.4)

 

N/A

N/A

11.4

10.3

EPS - normalised and fully diluted (p)

 

9.0

10.1

10.7

(0.4)

 

6.6

10.8

11.0

10.0

EPS - FRS 3 (p)

 

 

7.0

4.1

4.8

(8.1)

 

N/A

N/A

4.9

6.9

Dividend per share (p)

0.0

0.0

0.4

0.4

0.0

0.4

0.5

0.6

Gross Margin (%)

54.2

56.2

56.2

48.0

N/A

N/A

56.4

57.0

EBITDA Margin (%)

18.3

18.7

18.2

2.7

13.9

18.5

18.5

18.6

Operating Margin (before GW and except.) (%)

16.3

16.6

15.9

0.0

11.5

16.2

16.3

14.5

BALANCE SHEET

Fixed Assets

 

 

64,852

74,173

77,908

73,594

 

N/A

73,594

75,994

76,744

Intangible Assets

60,506

69,547

73,274

68,354

N/A

68,354

70,654

70,954

Tangible Assets

3,061

3,162

3,194

2,928

N/A

2,928

3,028

3,478

Other

1,285

1,464

1,440

2,312

N/A

2,312

2,712

3,262

Current Assets

 

 

29,504

33,386

39,174

33,073

 

N/A

33,073

36,882

44,099

Trade Debtors

13,890

15,683

17,390

16,283

N/A

16,283

19,678

22,673

Other

8,505

11,182

12,489

8,035

N/A

8,035

8,045

8,055

Cash

7,109

6,521

9,295

8,755

N/A

8,755

9,158

13,371

Current Liabilities

 

 

(26,551)

(29,184)

(29,161)

(27,473)

 

N/A

(27,473)

(28,724)

(30,044)

Trade Creditors

(4,611)

(4,989)

(3,866)

(3,538)

N/A

(3,538)

(21,523)

(22,843)

Other

(19,761)

(21,252)

(21,473)

(19,134)

N/A

(19,134)

(2,400)

(2,400)

Short term borrowings

(2,179)

(2,943)

(3,822)

(4,801)

N/A

(4,801)

(4,801)

(4,801)

Long Term Liabilities

 

 

(25,689)

(33,858)

(39,263)

(36,785)

 

N/A

(36,785)

(36,785)

(36,785)

Long term borrowings

(20,238)

(26,235)

(31,880)

(32,615)

N/A

(32,615)

(32,615)

(32,615)

Other long term liabilities

(5,451)

(7,623)

(7,383)

(4,170)

N/A

(4,170)

(4,170)

(4,170)

Net Assets

 

 

42,116

44,517

48,658

42,409

 

N/A

42,409

47,366

54,014

CASH FLOW

Operating Cash Flow

 

 

7,526

6,799

7,927

5,028

 

N/A

11,515

10,912

13,607

Net Interest

(701)

(841)

(1,623)

(588)

N/A

(1,009)

(999)

(1,100.0)

Tax

(1,582)

(1,159)

(1,618)

(892)

N/A

(1,062)

(2,600)

(3,000)

Capex

(1,244)

(2,552)

(3,128)

(1,328)

N/A

(1,986)

(2,200)

(3,000)

Acquisitions/disposals

(7,264)

(9,308)

(5,462)

(4,107)

N/A

(4,530)

(4,300)

(2,000)

Financing

259

(94)

127

261

N/A

344

(309)

(395)

Dividends

0

0

0

(291)

N/A

(291)

(300)

(375)

Net Cash Flow

(3,006)

(7,155)

(3,777)

(1,917)

N/A

2,981

403

4,212

Opening net debt/(cash)

 

 

11,869

15,308

22,657

26,407

 

N/A

31,563

28,661

28,258

HP finance leases initiated

0

0

0

0

N/A

0

0

0

Other

(433)

(194)

27

(337)

N/A

(79)

0

0

Closing net debt/(cash)

 

 

15,308

22,657

26,407

28,661

 

31,563

28,661

28,258

24,045

Source: Ebiquity data, Edison Investment Research. Note: *Pro forma data as supplied by Ebiquity. Year end changed to December from April in 2015.

Contact details

Revenue by geography

CityPoint
One Ropemaker Street
London, EC2Y 9AW
United Kingdom
+44 (0) 20 7650 9600
www.ebiquity.com

Contact details

CityPoint
One Ropemaker Street
London, EC2Y 9AW
United Kingdom
+44 (0) 20 7650 9600
www.ebiquity.com

Revenue by geography

Management team

CEO: Michael Karg

CFO: Andrew Noble

Michael started his role as CEO in January 2016 following his position as CEO of Razorfish International, the digital business transformation agency of Publicis Groupe. He has worked globally over a 15-year career with Razorfish and Digitas, advising some of the world's largest companies on their omni-channel marketing strategies.

Andrew qualified as a chartered accountant at PwC. Prior to joining Ebiquity, as group finance director in February 2015, he held a number of senior finance positions at Ipsos, a leading global market research company.

Non-executive chairman: Michael Higgins

Before joining the board in May 2006, Michael spent 10 years as a partner at KMPG, following 12 years at Charterhouse Bank, the last eight as a director. He is a qualified chartered accountant and, in addition to being a director of Plant Health Care and Arria NLG, he also has interests in early-stage businesses in online publishing and medical services.

Management team

CEO: Michael Karg

Michael started his role as CEO in January 2016 following his position as CEO of Razorfish International, the digital business transformation agency of Publicis Groupe. He has worked globally over a 15-year career with Razorfish and Digitas, advising some of the world's largest companies on their omni-channel marketing strategies.

CFO: Andrew Noble

Andrew qualified as a chartered accountant at PwC. Prior to joining Ebiquity, as group finance director in February 2015, he held a number of senior finance positions at Ipsos, a leading global market research company.

Non-executive chairman: Michael Higgins

Before joining the board in May 2006, Michael spent 10 years as a partner at KMPG, following 12 years at Charterhouse Bank, the last eight as a director. He is a qualified chartered accountant and, in addition to being a director of Plant Health Care and Arria NLG, he also has interests in early-stage businesses in online publishing and medical services.

Principal shareholders

(%)

Artemis Investment Management

16.2

Kabouter Management

11.1

Invesco

8.6

FIL

7.8

Herald Investment Management

7.5

Investec

5.9

Ebiquity

5.8

Legal and General

5.4

Companies named in this report

Accenture (ACN.N), comScore (SCOR.O), Experian (EXPN.L), Nielsen (NLSN.N), Omnicom (OMC.N),Publicis (PUB.PA) and WPP (WPP.L)

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Ebiquity 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Ebiquity 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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