Larger contract wins underpin growth

YouGov 25 March 2021 Update
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YouGov

Larger contract wins underpin growth

Interim results

Media

25 March 2021

Price

1,005p

Market cap

£1,118m

$1.37/£

Net cash (£m) at end January 2021

27.5

Shares in issue

111.2m

Free float

91.3%

Code

YOU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

1.5

136.5

Rel (local)

2.8

(2.0)

83.5

52-week high/low

1,150p

508p

Business description

YouGov is an international research data and analytics group. Its data-led offering supports and improves a wide spectrum of marketing activities of a customer base including media owners, brands and media agencies. It works with some of the world’s most recognised brands.

Next events

Y/e trading update

31 July 2021

Final results

12 October 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

YouGov is a research client of Edison Investment Research Limited

Interim results are as indicated at the period end, with 9% underlying growth. As flagged, the closure of the Kurdistan operation and adverse forex weighed on the statutory figures. A strong sales performance gives good momentum into H221 and through to FY22, with a greater number of larger, strategic contracts now on the books. We have lifted our estimated FY21 revenue by 6%, resulting in an uplift to adjusted EPS of 8%. YouGov remains valued towards the top of its peer set, reflecting its strong market positioning, attractive cash generation and cash-positive balance sheet.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

P/E
(x)

Yield
(%)

07/19

136.5

20.4

13.8

4.0

31.0

72.8

0.4

07/20

152.4

24.7

15.7

5.0

26.2

64.1

0.5

07/21e

170.0

30.6

17.4

5.5

22.3

57.7

0.5

07/22e

185.0

37.0

21.3

6.5

18.9

47.2

0.6

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

Improving prospects into FY22

Statutory reported revenue growth of just 3% reflects the ending of the Kurdistan contract, along with the impact of foreign exchange (42% of H121 revenues were generated in the US, at an average rate of $1.32:£ vs $1.27:£ in H120). Stripping out these factors, and the small change due to acquisitions, gives the underlying increase of 9%. At the operating profit level, the statutory number, down 22% at £7.4m, is after deduction of £3.1m in contingent consideration, which is due to a better than anticipated performance from acquisitions. We have edged up our FY21 revenue estimate £5m to £168m, with an unchanged adjusted operating profit due to a higher share-based payments charge than we had previously modelled. In view of management comments on the progress on sales, we have lifted our FY22 revenue and adjusted operating profit numbers by 6% and 8%, respectively.

Stepping up investment in global panel and tech

YouGov spent £6.1m in panel recruitment in H121, expanding its penetration in the US and adding 15 new countries, taking coverage to 59 markets. The group had 15.8m panellists across the globe at end January, up 65% on the prior year. This allows it to target larger, multinational studies, helped by a shift in approach to key client account management. This transition was initially disruptive but is now helping drive up the average contract value, integrating data products and tools. YouGov has also stepped up its investment in its technology platform, spending £5.2m in H121, up 49% on H120, to facilitate the scaling up of the business.

Valuation: Remains at top end of the global peer set

Despite a pause in share price appreciation to date in 2021, YouGov’s valuation multiples remain towards the top end of the global peer group, where the more data and analytics-weighted groups trade at a clear premium. YouGov’s rating also reflects its strong market positioning, attractive cash generation (92% cash conversion of adjusted EBITDA in H121) and cash-positive balance sheet.

Margins set to expand again in H221

YouGov’s business has weathered the ongoing impact of the COVID-19 pandemic well, with agencies holding up and the tech sector continuing to grow. There was also a strong uplift in this reporting period from tactical Data Services projects, as can be seen below. We would estimate that the reduction in the Custom Research revenues is largely, if not totally, attributable to the ending of the Kurdistan contract, which will also have diluted the achieved segmental operating margin.

The overall group achieved adjusted operating margin in H121 of 13.3% (H120: 14.8%) will also have been diminished by:

The shift in business mix towards Data Services, which earns lower gross and operating margins than Data Products. In H121, Data Products gross margin was 92.8% to Data Services’ 83.5%; adjusted operating margin 33.2% to 17%.

The net impact of foreign exchange moves, which management estimates to have cost £0.3m at the operating profit level.

Exhibit 1: Half-year summary

£m

H120

H220

FY20

H121

Change vs H120

Underlying change vs H120

Revenue

Data Products

25.1

26.2

51.3

26.5

6%

8%

Data Services

18.4

19.5

37.8

21.8

19%

18%

Custom Research

33.9

30.7

64.6

30.1

-11%

2%

Eliminations

(0.5)

(0.9)

(1.3)

0.6

Total

76.9

75.5

152.4

79.0

3%

9%

Adjusted operating profit

11.3

10.5

21.8

10.5

-7%

15%

Group adjusted operating margin

14.8%

13.9%

14.3%

13.3%

-10%

5%

Source: Company data

Our full-year estimates build in a recovery in adjusted operating margin to 15.3% for FY21, as the revenue balance shifts away from Data Services and the new, larger integrated project and tracking work comes through. We expect this to drive further adjusted operating margin expansion in FY22e to 18.4%. The group’s FY19–23 published growth plan targets doubling adjusted operating margin across the period.

Changes to share-based payments, depreciation, amortisation

As we have noted in previous reports, YouGov is reporting under a technical change to the accounting treatment of the share-based payments (non-cash). Under the previous scheme, charges were weighted to the end of the five-year period, whereas for this scheme the accounting will be smoothed. We had already built this into our model, but have now increased the full year level of charge from £2.9m previously to £5.0m to reflect the higher level of share price.

The investment in panel (£6.1m, up 45% on prior year) and in technology (£5.2m, up 49%) mean higher depreciation and amortisation charges in the modelling.

Cash position remains strong

Net cash at the half year-end (end January) was £27.5m (H120: £27.2m) and we now model £40.1m at the end of FY21 (was £40.6m), with the change reflecting the higher levels of investment. The group carries no debt, beyond lease liabilities, which stood at £13.8m at the half year. The balance sheet now shows acquisition-related contingent consideration of £9.5m, all short term. The projection of £48.0m of cash at end FY22 assumes that FY21 will have been the peak investment in panel and platform. This level of funding gives plenty of scope for further M&A to add in attractive niches, such as sports, gaming and e-sports where the group has recently added resource.

Exhibit 2: Financial summary

£'000s

2019

2020

2021e

2022e

Year end 31 July

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

136,487

152,441

170,000

185,000

Cost of Sales

(24,206)

(23,375)

(26,038)

(27,678)

Gross Profit

112,281

129,067

143,962

157,321

EBITDA

 

 

31,698

39,215

47,894

54,319

Operating Profit (before amort. and except.)

 

 

18,492

21,830

25,752

32,177

Intangible Amortisation

(8,809)

(12,885)

(14,300)

(14,300)

Share based payments

(2,401)

(2,900)

(5,000)

(5,000)

Exceptionals

1,529

(6,630)

(3,105)

0

Other

200

0

0

0

Operating Profit

20,221

15,200

22,647

32,177

Net Interest

(665)

7

(175)

(150)

Profit Before Tax (norm)

 

 

20,428

24,737

30,577

37,027

Profit Before Tax (IFRS16)

 

 

19,356

15,207

22,472

32,027

Tax

(5,086)

(5,812)

(8,588)

(12,240)

Profit After Tax (norm)

15,342

18,925

21,988

24,787

Profit After Tax (IFRS16)

14,270

9,395

13,883

19,787

Average Number of Shares Outstanding (m)

105.4

106.7

109.5

110.6

EPS - normalised (p)

 

 

13.8

15.7

17.4

21.3

EPS - IFRS 16 (p)

 

 

14.1

9.0

12.7

17.9

Dividend per share (p)

4.0

5.0

5.5

6.5

Gross Margin (%)

82.3

84.7

84.7

85.0

EBITDA Margin (%)

23.2

25.7

28.2

29.4

Operating Margin (before GW and except) (%)

13.5

14.3

15.1

17.4

BALANCE SHEET

Fixed Assets

 

 

108,534

108,122

112,280

110,638

Intangible Assets

82,374

84,611

87,511

88,211

Tangible Assets

26,160

23,511

24,769

22,427

Investments

0

0

0

0

Current Assets

 

 

72,581

70,255

79,911

90,923

Stocks

0

0

0

0

Debtors

33,726

34,239

38,658

43,082

Cash

37,925

35,309

40,547

47,134

Current Liabilities

 

 

(51,395)

(52,813)

(62,452)

(57,116)

Creditors

(51,395)

(52,813)

(62,452)

(57,116)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(22,277)

(16,226)

(17,446)

(17,446)

Long term borrowings

0

0

0

0

Other long term liabilities

(22,277)

(16,226)

(17,446)

(17,446)

Net Assets

 

 

107,443

109,338

112,293

126,999

CASH FLOW

Operating Cash Flow

 

 

38,115

38,411

46,445

54,059

Net Interest

183

(7)

175

150

Tax

(4,520)

(3,184)

(8,588)

(12,240)

Capex

(12,166)

(18,559)

(21,000)

(17,500)

Acquisitions/disposals

(6,583)

(7,451)

(3,824)

(9,500)

Financing

(3,652)

(4,739)

(2,200)

(2,000)

Dividends

(3,327)

(4,298)

(5,420)

(6,081)

Net Cash Flow

8,050

173

5,588

6,887

Opening net debt/(cash)

 

 

(30,621)

(37,925)

(35,309)

(40,547)

HP finance leases initiated

0

0

0

0

Other

(747)

(2,789)

(350)

(300)

Closing net debt/(cash)

 

 

(37,925)

(35,309)

(40,547)

(47,134)

Source: Company accounts, Edison Investment Research


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

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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United Kingdom

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

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

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

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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