The Marketing Group |
Focused on delivery |
Q1 update |
Media |
3 May 2018 |
Share price performance
Business description
Next events
Analysts
The Marketing Group is a research client of Edison Investment Research Limited |
The Marketing Group’s (TMG) Q118 update shows the group delivering sales broadly in line and EBITDA a little ahead of expectations through good cost control. This discipline should stand TMG in good stead as it builds its business both within the existing agencies and in potential further acquisitions. Our forecasts are unchanged on this update. With the TRUTH blockchain-enabled media agency continuing to garner high levels of industry interest, the scale of the discount of the rating to the peer group is looking increasingly anomalous.
Year end |
Turnover (€m) |
PBT* |
EPS* |
DPS |
P/E |
EV/EBITDA |
12/16** |
8.6 |
1.5 |
7.8 |
0.0 |
2.8 |
4.0 |
12/17 |
22.9 |
1.2 |
3.4 |
0.0 |
6.4 |
4.3 |
12/18e |
24.8 |
1.3 |
2.7 |
0.0 |
8.0 |
4.3 |
12/19e |
26.6 |
1.9 |
4.4 |
0.0 |
5.0 |
3.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **FY16 restated.
Making fit for purpose
Q118 net revenue of €3.7m was 10% below the restated Q117 figure, but operating EBITDA (after central costs) was ahead by 35% at €0.4m. This gives a margin of 10.9% on net revenue, against 7.3% in the prior year. There is a clear focus on making sure that the overheads are sensibly aligned with business levels but also that they allow for the investment needed to build out TRUTH (both the platform and in winning commercial client business) and in laying the groundwork for scaling the business. This is most likely to be through further acquisitions, with North America and Europe being the priority areas. Management is also working on cementing collaboration through unified branding and building the recurring and repeatable revenue base, as well as looking into an AIM listing.
Shifting sectoral sands
The current disorder and limited organic growth in the large holding companies is highlighting how the power balance is shifting between brand owners and marcomms suppliers. Smaller agencies that can focus on finding practical and creative solutions to the issues that the client wants to address, rather than present their agencies’ capabilities, are increasingly in a position to make the roster and work in a more integrated manner.
Valuation: Persistent discount
The share price has continued to drift over the last six months; we believe it reflects the group’s rather turbulent history (and low liquidity) rather than its prospects. TRUTH’s potential value alone might be equivalent to the group’s current market capitalisation. Small/mid-cap marketing stocks are once again trading at discount to the holding companies (10% on FY18e EV/EBITDA) and are valued at 7.3x EV/EBITDA for FY19e. This would back out to a share price for TMG of €0.49, more than double the current level.
Exhibit 1: Financial summary
€000s |
2016 |
2017 |
2018e |
2019e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
8,592 |
22,860 |
24,825 |
26,581 |
Cost of Sales |
(2,854) |
(8,074) |
(8,937) |
(9,436) |
||
Net Revenue |
5,738 |
14,786 |
15,888 |
17,145 |
||
EBITDA |
|
|
1,566 |
1,471 |
1,455 |
2,138 |
Operating profit (before amort. and except). |
|
1,509 |
1,328 |
1,305 |
1,938 |
|
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
||
Exceptionals |
(3,800) |
(11,920) |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Reported operating profit |
(2,291) |
(10,592) |
1,305 |
1,938 |
||
Net Interest |
(41) |
(101) |
(30) |
(21) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
1,468 |
1,227 |
1,275 |
1,916 |
Profit Before Tax (reported) |
|
|
(2,332) |
(10,693) |
1,275 |
1,916 |
Reported tax |
(88) |
(142) |
(319) |
(381) |
||
Profit After Tax (norm) |
1,380 |
1,085 |
956 |
1,535 |
||
Profit After Tax (reported) |
(2,420) |
(10,835) |
956 |
1,535 |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
610 |
(34,657) |
0 |
0 |
||
Net income (normalised) |
1,380 |
1,085 |
956 |
1,535 |
||
Net income (reported) |
(1,810) |
(45,492) |
956 |
1,535 |
||
Average Number of Shares Outstanding (m) |
18 |
32 |
35 |
35 |
||
EPS - normalised (c) |
|
|
7.81 |
3.43 |
2.74 |
4.39 |
EPS - basic reported (€) |
|
|
(13.71) |
(143.65) |
2.74 |
4.39 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
166.1 |
8.6 |
7.1 |
||
Gross Margin (%) |
66.8 |
64.7 |
64.0 |
64.5 |
||
EBITDA/Gross Profit Margin (%) |
27.3 |
9.9 |
9.2 |
12.5 |
||
Normalised Operating/Gross Profit Margin |
26.3 |
9.0 |
8.2 |
11.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
74,184 |
33,766 |
32,816 |
32,716 |
Intangible Assets |
73,598 |
32,927 |
32,027 |
32,027 |
||
Tangible Assets |
540 |
363 |
313 |
213 |
||
Investments & other |
46 |
476 |
476 |
476 |
||
Current Assets |
|
|
9,031 |
7,321 |
7,331 |
9,106 |
Stocks |
379 |
0 |
0 |
0 |
||
Debtors |
6,234 |
5,176 |
5,508 |
5,718 |
||
Cash & cash equivalents |
2,418 |
2,145 |
1,822 |
3,389 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(11,447) |
(6,421) |
(6,324) |
(6,565) |
Creditors |
(5,749) |
(5,491) |
(5,394) |
(5,635) |
||
Tax and social security |
(773) |
(253) |
(253) |
(253) |
||
Short term borrowings |
(843) |
(277) |
(277) |
(277) |
||
Other |
(4,082) |
(400) |
(400) |
(400) |
||
Long Term Liabilities |
|
|
(557) |
(2,097) |
(397) |
(397) |
Long term borrowings |
(163) |
(117) |
(117) |
(117) |
||
Other long term liabilities |
(394) |
(1,980) |
(280) |
(280) |
||
Net Assets |
|
|
71,211 |
32,569 |
33,425 |
34,860 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
71,211 |
32,569 |
33,425 |
34,860 |
CASH FLOW |
||||||
*Operating Cash Flow |
1,566 |
1,471 |
1,455 |
2,138 |
||
Working capital |
(864) |
72 |
(429) |
32 |
||
Exceptional & other |
(540) |
0 |
0 |
0 |
||
Tax |
162 |
(687) |
(319) |
(381) |
||
Operating Cash Flow |
|
|
324 |
856 |
707 |
1,788 |
Capex |
(136) |
(445) |
(1,000) |
(200) |
||
Acquisitions/disposals |
2,410 |
(372) |
0 |
0 |
||
Net interest |
(56) |
(101) |
(30) |
(21) |
||
Equity financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(410) |
(112) |
0 |
0 |
||
Net Cash Flow |
2,132 |
(174) |
(323) |
1,567 |
||
Opening net debt/(cash) |
|
|
434 |
(1,412) |
(1,751) |
(1,428) |
FX |
(306) |
0 |
0 |
0 |
||
Other non-cash movements |
20 |
513 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(1,412) |
(1,751) |
(1,428) |
(2,995) |
Source: Company accounts, Edison Investment Research
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