Edison QuickView

Double-digit growth continues

The Mission Marketing Group 21 July 2016 QuickView

The Mission Marketing Group

Double-digit growth continues

Media

QuickView

21 July 2016

Price

37p

Market cap

£31m

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Share details

Code

TMMG

Listing

AIM

Shares in issue

84.12m

Business description

The mission is a network of entrepreneurial marketing communications agencies predominantly in the UK, and also Asia and San Francisco. The group provides national and international clients with marketing, advertising and business communications.

Bull

Organic growth well ahead of market.

Growing international offer.

Strong and loyal client base.

Bear

Brexit-inspired uncertainty.

Client pressure on pricing/procurement.

Bias to H2 limits visibility.

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5757

The Mission Marketing Group is a research client of Edison Investment Research Limited

This morning’s trading update shows that the positive trading momentum from H215 has continued into the current year. The mission’s H1 revenue and profit growth, in double digits, continue to be well ahead of the market, with no indication of any hiatus post the Brexit vote. There is growth both at the organic level and from last year’s acquisitions, which added scale, capability and geographic reach. Although there is an inherent H2 bias to the numbers, current year forecasts look well underpinned and make the rating’s deep discount to peers and market look significantly overdone.

Business as usual

The full interim results will be published on 22 September, by which point the trading backdrop should be clearer. Early post-Brexit signs are that the anticipated cataclysm has been – at the least – postponed and that currency benefits from weaker sterling should give a degree of protection for industry forecasts. Trading at the mission has continued strongly, with the group also continuing to win business (Story winning VELUX and Chapter recently adding Virgin East Coast to its existing West Coast rail account). It has also made further small infill acquisitions, which will add cross-referral opportunities. The investment premise for the mission is based on organic and acquisitional growth, with the group companies increasingly sharing opportunities and best practice. This continues to deliver market-beating returns.

Net debt falling

With the equity still lowly valued, recent acquisitions have been debt-funded, structured with initial payments followed by deferred consideration based on post-acquisition performance. Having increased to £10.9m at end FY15 (committed loan facilities of £15m being in place), net debt fell by £1.5m in H116 to £9.4m. This is despite cash consideration of £2.6m being paid out, implying a reversal of the working capital outflow in H215. Strict leverage limits on bank debt and net debt to EBITDA are in place and these ratios have improved in the first half.

Valuation: Deep discount persists

The house broker’s unchanged FY16 figures are based on revenue growth slightly below the current run rate. Forecast earnings growth for the quoted agency sector has dipped 1.0% to 10.9%, which still looks optimistic. The mission’s forecast EPS growth rate is greater at 13.6%, yet the market values it on an FY16e P/E of 5.5x, well below peers on 11.7x. On consensus FY16e EV/EBITDA, the mission trades at 4.5x vs peers at 7.6x, despite similar EBITDA margins.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

55.0

5.5

5.1

1.1

7.3

3.0

12/15

61.0

6.5

5.9

1.2

6.3

3.2

12/16e

66.8

7.2

6.7

1.3

5.5

3.5

12/17e

71.9

7.8

7.3

1.4

5.1

3.8

Source: Company accounts, Bloomberg

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

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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