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Research: TMT
As indicated at January’s trading update, YouGov had a strong H119. 18% revenue growth (10% underlying) blends +34% from Products & Services with +4% from Custom. More notable, though, is the step up in adjusted operating margin from 16% in H118 to 19% as the syndicated data model starts to show its value. Management has outlined ambitious new, five-year targets; looking to double group revenue and operating margin and achieve a CAGR of over 30% for EPS. With the continuing investment requirement, we expect stronger progress towards these targets in the second half of the period. Nevertheless, they underpin the valuation.
YouGov |
Activated data |
Interim results |
Media |
2 April 2019 |
Share price performance
Business description
Next event
Analysts
YouGov is a research client of Edison Investment Research Limited |
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As indicated at January’s trading update, YouGov had a strong H119. 18% revenue growth (10% underlying) blends +34% from Products & Services with +4% from Custom. More notable, though, is the step up in adjusted operating margin from 16% in H118 to 19% as the syndicated data model starts to show its value. Management has outlined ambitious new, five-year targets; looking to double group revenue and operating margin and achieve a CAGR of over 30% for EPS. With the continuing investment requirement, we expect stronger progress towards these targets in the second half of the period. Nevertheless, they underpin the valuation.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/EBITDA (x) |
P/E |
Yield |
07/17 |
107.0 |
17.9 |
10.5 |
2.0 |
27.7 |
45.4 |
0.4 |
07/18 |
116.6 |
26.9 |
15.6 |
3.0 |
19.3 |
30.6 |
0.6 |
07/19e |
137.0 |
27.2 |
16.2 |
3.5 |
19.5 |
29.4 |
0.7 |
07/20e |
150.0 |
30.5 |
18.7 |
4.0 |
16.8 |
25.6 |
0.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Operating margin to build over five-year plan
Our revenue forecasts for FY19e and FY20e are pushed ahead by 5–6% on the back of these results, with our current year EBITDA number broadly unchanged and that for FY20e edged up 5%. The rise in the H119 adjusted group operating margin came from improvements both in Data Products, buoyed by growth in YouGov Profiles and reduced use of third-party data collection, and in Custom Research, as the strategy of reducing one-off projects and the benefits of earlier restructuring started to flow through. The newly stated target to double the operating margin by the end of five years would partly be achieved through the change in mix from faster growth of Data Products and Services and partly through operational leverage against a proportion of fixed central costs. However, it will also require further investment in platforms and tools to make the most of the connected data resource for the advantage of clients.
Adjustments to reporting measures flagged
Management has indicated that as of reporting the FY19 results in November, it will alter its definition of adjusted profits and earnings to include the amortisation of intangible assets charged to operating expenses and share-based charges where appropriate. FY18 will be presented in the new format to facilitate comparison.
Valuation: Not yet reflecting full growth potential
The share price has performed well year-to-date (+22%) as the strength of the group's positioning as a data partner to businesses, and in particular to media owners, agencies and brands, has been recognised. This has put YouGov on a rating well ahead of sector peers, but still considerably below the listed SaaS subscription businesses with which it has increasing commonality. On a DCF basis (on a WACC of 6.5% and terminal growth of 2%), the current price is reflecting no margin expansion on mid-term revenue growth of 10%.
Good H119 progress
The divisional results are set out below:
Exhibit 1: Half-year results
£m |
H118 |
y-o-y change |
H218 |
y-o-y change |
FY18 |
y-o-y change |
H119 |
y-o-y change |
Revenue |
||||||||
Data Products |
14.382 |
31% |
16.1 |
12% |
30.445 |
26% |
19.402 |
35% |
Data Services |
13.439 |
22% |
15.5 |
26% |
28.956 |
24% |
17.819 |
33% |
Custom Research |
29.135 |
-2% |
29.5 |
-3% |
58.657 |
-3% |
30.358 |
4% |
Eliminations |
(0.64) |
(0.859) |
(1.499) |
50% |
(1.04) |
62% |
||
Total |
56.96 |
10% |
61.10 |
8% |
116.560 |
9% |
66.54 |
17% |
Operating profit |
||||||||
Data Products |
4.785 |
73% |
6.9 |
61% |
11.659 |
66% |
7.338 |
53% |
Data Services |
3.511 |
41% |
4.5 |
39% |
8.002 |
40% |
4.402 |
25% |
Custom Research |
6.863 |
60% |
7.3 |
57% |
14.121 |
59% |
7.863 |
15% |
TotalL |
15.16 |
59% |
18.62 |
54% |
33.782 |
56% |
19.60 |
29% |
Central costs |
(6.329) |
(7.779) |
(14.108) |
(7.124) |
||||
Divisional operating margin |
||||||||
Data Products |
33.3% |
42.8% |
38.3% |
37.8% |
||||
Data Services |
26.1% |
28.9% |
27.6% |
24.7% |
||||
Custom Research |
23.6% |
24.6% |
24.1% |
25.9% |
||||
Group operating margin |
15.5% |
17.7% |
16.9% |
18.8% |
Source: Company data
The improvement in operating margin for Data Products from 33.3% in H118 to 37.8% in H119 is particularly noteworthy as it shows the first benefits of integrating the established BrandIndex product with the newer YouGov Profiles to provide a powerful planning and tracking tool for media campaigns. This is now available in 19 of BrandIndex’s 38 territories. The US market produced 28% underlying growth in Data Products revenue in the period, up 39% with acquisitions included. The UK grew 29%, albeit that this was a slower pace than the prior year and shows no signs of maturity as yet.
In Data Services, revenues were ahead by 33%, but some of this was business reallocated from the Custom business, which diluted the published operating margin. Underlying revenue growth from Omnibus (which makes up 96% of the segment) was 10%.
The quality of the Custom Research book continues to improve as it focuses more on multi-country, multi-wave studies and makes increasing use of Cube data. Its financial performance was also boosted by last year’s restructuring of the Custom business in Germany and the Middle East.
Modest changes to forecasts
The new five-year growth targets would seem to imply that there needs to be a faster ramp up in performance than is indicated by our forecasts, but we would expect the faster growth to be back-end loaded, as it was with the previous five-year plan, which matures with the end of the financial year in September.
To achieve this degree of progress, YouGov needs to continue to invest in its technology platform, its people, its toolset and its panel. There is also some cost to be borne in respect of developing the Public Data offering, which will give greater utility to the participating panellists and to others wishing to use the data, as well as providing content for media owners and supporting the YouGov brand.
Exhibit 2: Revisions to estimates
EPS (p) |
PBT (£m) |
EBITDA (£m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
FY18 |
15.6 |
15.6 |
N/A |
26.9 |
26.9 |
N/A |
24.6 |
24.6 |
N/A |
FY19e |
17.2 |
16.2 |
-6 |
27.5 |
27.2 |
-7 |
26.5 |
26.2 |
-1 |
FY20e |
18.3 |
18.7 |
+2 |
29.5 |
30.5 |
+3 |
28.7 |
30.2 |
+5 |
Source: Company accounts, Edison Investment Research
Doubling revenue to £230m by FY23e equates to a CAGR of just below 15%, which in the context of the group’s recent financial history, seems a slightly less aggressive target than the doubling of operating margin to 30%. More challenging than either, though, will be the EPS CAGR target of over 30%. It should be borne in mind that these are intended to be targets, not budgets.
Plenty of cash resource
As at the half year, the balance sheet had £25.0m of net cash (there is no debt), down from £30.6m at the year end. In the six months, though, the group spent £2.3m on acquisitions, a similar amount on continuing development of the technology platform, £2.2m on panel recruitment and £2.2m on property, plant and equipment. The total deferred consideration payable on future earnouts now stands at £16.0m which is clearly very comfortably covered by operating cash flow.
Our modelling indicates a cash balance of around £31m at end FY19e, rising to £33.5m by the close of the following year despite acquisition spend of £4.5m followed by £7.0m and share buybacks of £3.2m in FY19e followed by £1.5m in FY20e.
Divergent peer valuations favour data
Exhibit 3: Peer set valuations
% ytd |
Market |
EV/Sales |
P/E |
EV/EBITDA |
FCF yield |
||||||
performance |
cap (m) |
FY1 (x) |
Last (x) |
FY1 (x) |
FY2 (x) |
Last (x) |
FY1 (x) |
FY2 (x) |
FY1 (%) |
||
Nielsen Holdings |
US$23.67 |
1.46 |
US$8,413m |
2.54 |
24.66 |
13.95 |
12.66 |
9.05 |
8.92 |
8.48 |
7.48 |
Ipsos |
€22.32 |
8.67 |
€992m |
0.81 |
N/A |
N/A |
N/A |
7.41 |
6.89 |
6.60 |
10.86 |
Ebiquity |
42.5p |
-34.62 |
£31.9m |
0.78 |
9.86 |
10.37 |
8.60 |
4.41 |
7.65 |
6.85 |
4.07 |
System1 Group |
195p |
-9.30 |
£24.5m |
0.78 |
20.53 |
10.07 |
7.70 |
8.92 |
5.23 |
4.01 |
N/A |
Next Fifteen Communications Group |
562p |
14.93 |
£470.0m |
2.18 |
20.22 |
17.10 |
15.09 |
14.30 |
11.65 |
10.06 |
4.21 |
GlobalData |
595p |
1.28 |
£703.4m |
4.35 |
30.23 |
25.84 |
22.62 |
28.88 |
18.48 |
16.49 |
4.55 |
Forrester Research |
US$48.35 |
8.17 |
US$890m |
1.62 |
35.55 |
29.97 |
24.01 |
21.23 |
15.88 |
11.43 |
1.19 |
Average |
1.87 |
23.51 |
17.88 |
15.11 |
13.46 |
10.67 |
9.13 |
5.39 |
|||
YouGov |
477.5p |
21.66 |
£503.6m |
3.74 |
30.61 |
28.72 |
25.75 |
19.25 |
18.32 |
16.48 |
2.84 |
Premium |
101% |
30% |
61% |
70% |
43% |
72% |
80% |
-47% |
|||
Source: Refinitiv, Edison Investment Research. Note: Prices as at 1 April 2019.
There is a clear divergence on valuation amongst the peers, with those whose business model is predicated on data modelling being significantly more highly rated by the market, helped also by their greater scale. In this context, YouGov’s rating looks more appropriate.
Exhibit 4: Financial summary
£'000s |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 July |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
107,048 |
116,560 |
137,000 |
150,000 |
Cost of Sales |
(21,339) |
(21,496) |
(26,780) |
(27,650) |
||
Gross Profit |
85,709 |
95,064 |
110,220 |
122,350 |
||
EBITDA |
|
|
17,210 |
24,551 |
26,194 |
30,176 |
Operating Profit (before amort. and except.) |
|
|
16,036 |
23,320 |
24,694 |
28,601 |
Intangible Amortisation |
(6,483) |
(7,026) |
(8,000) |
(8,000) |
||
Share based payments |
(1,508) |
(3,646) |
(2,500) |
(1,800) |
||
Exceptionals |
(488) |
(826) |
(800) |
0 |
||
Other |
103 |
2 |
0 |
0 |
||
Operating Profit |
7,660 |
11,824 |
13,394 |
18,801 |
||
Net Interest |
254 |
(51) |
25 |
137 |
||
Profit Before Tax (norm) |
|
|
17,901 |
26,917 |
27,219 |
30,538 |
Profit Before Tax (FRS 3) |
|
|
7,914 |
11,773 |
13,419 |
18,938 |
Tax |
(3,273) |
(3,615) |
(5,036) |
(6,108) |
||
Profit After Tax (norm) |
13,120 |
19,858 |
19,683 |
22,631 |
||
Profit After Tax (FRS 3) |
4,641 |
8,158 |
8,383 |
12,629 |
||
Average Number of Shares Outstanding (m) |
104.8 |
105.4 |
113.4 |
113.4 |
||
EPS - normalised and fully diluted (p) |
|
|
10.5 |
15.6 |
16.2 |
18.7 |
EPS - FRS 3 (p) |
|
|
4.5 |
7.7 |
7.4 |
11.1 |
Dividend per share (p) |
2.0 |
3.0 |
3.5 |
4.0 |
||
Gross Margin (%) |
80.1 |
81.6 |
80.5 |
81.6 |
||
EBITDA Margin (%) |
16.1 |
21.1 |
19.1 |
20.1 |
||
Operating Margin (before GW and except & share-based payments) (%) |
13.6 |
16.9 |
16.2 |
17.9 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
64,637 |
78,019 |
77,768 |
77,517 |
Intangible Assets |
54,960 |
65,357 |
65,331 |
65,305 |
||
Tangible Assets |
9,332 |
12,471 |
12,246 |
12,021 |
||
Investments |
345 |
191 |
191 |
191 |
||
Current Assets |
|
|
54,918 |
66,735 |
71,743 |
79,590 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
30,699 |
34,672 |
39,122 |
44,619 |
||
Cash |
23,481 |
30,621 |
31,179 |
33,529 |
||
Current Liabilities |
|
|
(34,177) |
(41,445) |
(47,613) |
(51,653) |
Creditors |
(33,915) |
(41,445) |
(47,613) |
(51,653) |
||
Short term borrowings |
(262) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(4,905) |
(11,238) |
(11,238) |
(11,238) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(4,905) |
(11,238) |
(11,238) |
(11,238) |
||
Net Assets |
|
|
80,473 |
92,071 |
90,660 |
94,216 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
18,914 |
23,617 |
27,100 |
28,700 |
Net Interest |
4 |
22 |
25 |
137 |
||
Tax |
(2,487) |
(5,501) |
(5,703) |
(5,304) |
||
Capex |
(7,661) |
(8,181) |
(10,000) |
(8,750) |
||
Acquisitions/disposals |
0 |
(885) |
(4,500) |
(7,000) |
||
Financing |
175 |
259 |
(3,200) |
(1,500) |
||
Dividends |
(1,470) |
(2,106) |
(3,166) |
(3,934) |
||
Net Cash Flow |
7,475 |
7,225 |
557 |
2,350 |
||
Opening net debt/(cash) |
|
|
(15,553) |
(23,219) |
(30,621) |
(31,177) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
191 |
177 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(23,219) |
(30,621) |
(31,177) |
(33,527) |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
The FY18 results provide evidence that Secure Trust Bank’s (STB’s) strategy of combining de-risking and selective growth is working. Adjusted EPS rose 39% y-o-y while loan growth was a robust 27%; ROE increased from 8.9% to 13.1%. STB targets further strong growth in 2019 and is investing in areas such as a new motor finance platform, treasury and risk management to underpin this. STB has entered 2019 with good momentum, healthy capital and proven flexibility to adapt to opportunities and challenges that may occur in the macro and political environment.
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