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Scaling up

The Mission Marketing Group 22 March 2016 QuickView

The Mission Marketing Group

Scaling up

Media

QuickView

22 March 2016

Price

43.5p

Market cap

£36m

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Share details

Code

TMMG

Listing

AIM

Shares in issue

83.6m

Business description

The mission is a network of entrepreneurial marketing communications agencies in the UK, 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

Client pressure on pricing/procurement.

Bias to H2 limits visibility.

Pressure on global ad-spend forecasts.

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5757

A busy close to the year helped the mission (TMMG) to deliver market-beating revenue and earnings growth of 11% and 17% respectively: a combination of organic and acquisitional progress and particularly strong growth from acquired agencies. It is thriving on its rediscovered confidence, building its capabilities and extending its geographic reach via a low-risk model. The valuation remains at a deep discount to other smaller quoted agencies, on a rating that does not reflect the greater scale and improved quality of its offer nor its strong and loyal client roster.

Strong core growth

FY15 figures show revenue climbing in all divisions bar Events & Learning, which recovered strongly in H2 to end the year flat. Good 8.4% y-o-y growth in the core Branding, Advertising & Digital segment, which makes up 78% of group income, reflects a mix of organic progress and acquisitions kicking in. New business wins have brought in further well-known clients, including BA and BMW, but should not over-shadow that the group has much longer client relationships than is usual in the sector. As TMMG has increased in scale and complexity, so have opportunities for individual agencies to work alongside each other and £1m of 2015 revenues were generated through cross-referrals. To help drive this aspect, the CEO of RLA will be stepping up to a group Commercial Director role.

Investment prioritised

TMMG prioritises investment over debt reduction to build its capabilities through purchases and start-ups to invest in Asia and the US (on the back of existing operations) and increase scale in some sub-optimal agencies. £4m was invested across the group in FY15, with some restructuring to align agencies better with their markets, with an inevitable short-term margin impact. The year-end balance sheet was not helped by less advantageous payment terms from the NHS affecting the working capital position. Nevertheless, year-end net bank debt of £10.9m was well within covenants and headroom and should not overly impact on strategy.

Valuation: Persistent discount

The house broker’s FY16 figures are based on conservative growth assumptions over pro-forma numbers. Forecast earnings growth for the quoted agency sector is currently 11.9%, which looks optimistic given the market backdrop. The mission’s forecast growth rate is the same, yet the market values it on an FY16e P/E of 6.6x, well below peers on 11.8x. On consensus FY16e EV/EBITDA, the mission trades at 4.8x vs peers at 7.4x, despite stronger 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

8.5

2.5

12/15

61.0

6.5

5.9

1.2

7.4

2.8

12/16e

66.6

7.2

6.7

1.3

6.5

3.0

12/17e

71.9

7.8

7.3

1.4

6.0

3.2

Source: Company accounts, Thomson Reuters

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Germany

London +44 (0)20 3077 5700

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United Kingdom

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US

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NSW 2000, Australia

Wellington +64 (0)48 948 555

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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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