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Ebiquity’s FY19 results (delayed by the COVID-19 lockdown) were in line with expectations. The impact of the pandemic on the advertising sector is harsh, but is far from uniform, with some verticals notably more resilient than others. Ebiquity’s leading market position equips it with the data to benchmark and advise. Careful cost management should mitigate some of the COVID-19 related trading difficulties, as reflected in our tentative FY20 forecast, with the balance sheet remaining sound. Management guidance remains withdrawn. The New CEO, Nick Waters, joins on 1 July (see our April flash note).
Ebiquity |
Advising brands through COVID-19 uncertainty |
FY19 results |
Media |
29 May 2020 |
Share price performance
Business description
Next events
Analyst
Ebiquity is a research client of Edison Investment Research Limited |
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Ebiquity’s FY19 results (delayed by the COVID-19 lockdown) were in line with expectations. The impact of the pandemic on the advertising sector is harsh, but is far from uniform, with some verticals notably more resilient than others. Ebiquity’s leading market position equips it with the data to benchmark and advise. Careful cost management should mitigate some of the COVID-19 related trading difficulties, as reflected in our tentative FY20 forecast, with the balance sheet remaining sound. Management guidance remains withdrawn. The New CEO, Nick Waters, joins on 1 July (see our April flash note).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
69.4 |
5.2 |
3.7 |
0.7 |
7.8 |
2.4 |
12/19 |
68.7 |
5.3 |
3.6 |
0.0 |
8.1 |
N/A |
12/20e |
59.5 |
3.3 |
2.5 |
0.7 |
11.6 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Market advantages
In an evolving, uncertain environment, advertisers’ requirement to know the efficacy of their spend is even greater. Ebiquity works with 70 of the top 100 global advertisers, giving it unique insight on spending from its pooled data. Notable FY19 client wins include Amazon and Facebook, underlining that even major tech players still need external appraisal despite their extensive internal data. Accenture’s intended withdrawal from media management audit from August is already beneficial, and the impact should be more marked in H220 and FY21. The Digital Decisions acquisition (January Flash note) bolstered the group’s capabilities in digital media monitoring. It has also added further skills in data handling and presentation that are being leveraged across the group, for example in direct data assimilation and client dashboards, which should improve efficiency for clients.
Tentative FY20 estimates
Given that there are so many current uncertainties, our FY20 estimate is highly tentative. We have assumed Media revenues dip 17% on the year, while the softening in Analytics & Tech is less severe at 10%. We have built in a slightly lower operating margin for the former (21.7% down to 20.8%), but a recovery in that for Analytics & Tech from 6.8% to 8.5%, with no drag from Stratigent, and Advanced Analytics benefiting from new client wins and its growing support centre in Spain. Net debt on this basis remains well within facilities and renegotiated covenants for now are on a simple liquidity check. As at end April, the group had £13m of cash and £19m of debt, with further facilities of £5m available.
Valuation: Awaiting developments
With so much ongoing change, it is more than usually difficult to draw conclusions on valuation. On a P/E basis, the group is trading at a premium to small marcomms peers (on 8.6x) on the current year reduced earnings, but at a discount of around 10% on EV/EBITDA, where peers are trading at around 6.0x.
FY19: A year of reorientation
The FY19 results reflect a very different trading environment, but also a year of significant change at the group post the disposal of AdIntel on 2 January 2019, which transformed the balance sheet with a net cash injection of around £20m. The business is now organised in two segments, Media (79% of FY19 revenues) and Analytics and Tech (21%).
Media performance
Exhibit 1: FY19 Media segment performance
£m / % |
FY19 revenue |
% change |
FY19 underlying operating profit |
% change |
FY19 operating margin |
FY18 operating margin |
Media Performance & Mgmt |
-1% |
|||||
Contract Compliance |
13% |
|||||
Media segment |
54.6 |
1% |
11.8 |
-2% |
21.7% |
22.3% |
Source: Ebiquity
Within Media Performance and Management, the trading patterns were varied. The UK was one of the stronger regions, with revenues up 2% benefiting from new projects from new and existing clients, including Fiat Chrysler and PepsiCo. Italy and France were also strong. Germany and Russia both had weaker results in H1, and both had new management installed, leading to improved performance in H2.
Analytics and Tech performance
Exhibit 2: FY19 Analytics and Tech segment performance
£m / % |
FY19 revenue |
% change |
FY19 underlying operating profit |
% change |
FY19 operating margin |
FY18 operating margin |
Advanced Analytics |
5% |
|||||
Ad Tech |
105% |
|||||
MarTech |
(39%) |
|||||
Analytics and Tech segment |
14.1 |
(7%) |
1.0 |
-31% |
6.8% |
9.2% |
Source: Ebiquity
Exhibit 2 shows the published divisional numbers, but if Stratigent (where US revenues had dropped by 46%) were to be stripped out, then segment revenues would have been up by 11%. Digital balance in Australia also struggled, with its revenues dipping 15%.
At a group level, operating costs (before highlighted items) were down 1%, despite a 3% pay increase and having to carry on with some of the costs relating to AdIntel to support its transition to Nielsen. Year-end staff numbers reduced by 3% over the prior year.
The group’s London office has been moved following the end of its previous lease, with an associated cost of £0.5m taken within the highlighted items on continuing operations of £9.9m. The largest constituent of this sum was a £6.8m impairment taken on the goodwill on loss-making US MarTech business Stratigent of £5.8m and Digital Balance of £0.9m, with a further £1.3m on severance and reorganisation (including group management) and the costs relating to winding down Stratigent in the US from August. A further £1.0m of highlighted items related to the last costs associated with the AdIntel sale.
Post the year-end the group has made two strategic investments, in Digital Decisions (see our January Flash note) and in buying in the 49% minority in its Italian business for €3.6m on the retirement of the founders.
Business in the time of COVID-19
The group works with clients globally across a range of sector verticals. Clients within them vary significantly in how they are addressing the challenges. Although the split of Ebiquity’s exposure is not disclosed, we regard fast-moving consumer goods (FMCG) to be the largest, followed by automotive. It also has significant exposure to the technology, media, and telecom (TMT), retail and fast-food, and finance sectors. Major brands have adopted different approaches to their media spend in the face of the pandemic, with the FMCG likely to have adopted the most proactive tactics. Automotive customers are likely to have been more cautious and business here tends to be lumpier. Travel and leisure and non-food retail have obviously been facing particular difficulties in adjusting their business models and, consequently, their marketing strategies.
Overall business development is complicated by the physical restrictions on pitching and cancelled trade events but has started to pick up again as clients get used to new ways of doing business. With Accenture’s exit from the media audit market, there has again been a range of responses, from traditional competitive tender processes to more direct approaches. Ebiquity could reasonably expect to pick up a good proportion of this (unquantified) business, with the main competition coming from other global consultants such as PWC and from strong players in local markets such as France and Spain.
The transition to remote working through the group has been smooth, with employees in China and in Germany now making a staged return to their offices. Client service has continued throughout.
Financial impact
The group has made sensible moves to protect its finances, with salary reductions, use of furlough schemes and pay and hiring freezes. The balance of payment for the Italian minority interest is now being spread across 10 months. Payment of the FY19 dividend has also been deferred.
It has also modified its banking covenants for a year, starting from May 2020, having refinanced its facilities in September 2019. The requirement is now a simple liquidity test, with the group needing to maintain a month-end cash position of £5m.
Year-end net debt of £5.6m comprised cash of £8.2m less debt of £13.8m. At end April 2020, Ebiquity had net debt of £6m, with cash of £13m and a further undrawn facility of £5m. These figures exclude the lease liabilities of £9.6m.
Tentative forecast reinstated
Having withdrawn our FY20 forecast as the pandemic took hold and management withdrew guidance, we now make a hesitant attempt to reinstate a current year projection. This is based on industry estimates of the impact of the situation on advertising spend, with a better performance from Analytics and Tech. Our assumptions are as follows:
Exhibit 3: Working forecast assumptions
FY20 assumptions |
% change |
Media revenue growth |
-17% |
Analytics & Tech revenue growth |
-10% |
Operating margin: |
|
Media |
20.8% |
A&T |
8.5% |
FY20 assumptions |
Media revenue growth |
Analytics & Tech revenue growth |
Operating margin: |
Media |
A&T |
% change |
-17% |
-10% |
|
20.8% |
8.5% |
Source: Edison Investment Research
This results in a group revenue projection of £59.5m, with operating profit of £3.8m and year-end net debt of £10.7m, comfortably within borrowing limits. We would expect that performance in H220 would be markedly improved on H120 as the market reopens and the Accenture benefit kicks in more strongly.
Exhibit 4: Financial summary
£000s |
2017 |
2018 |
2019 |
2020e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
31-Dec |
31-Dec |
31-Dec |
31-Dec |
||
Revenue |
|
|
64,228 |
69,368 |
68,733 |
59,454 |
EBITDA |
|
|
10,840 |
7,761 |
9,203 |
5,178 |
Operating Profit (before amort. and except.) |
|
|
8,992 |
6,342 |
6,167 |
3,760 |
Amortisation of acquired intangibles |
(1,231) |
(1,240) |
(1,169) |
(562) |
||
Exceptionals |
(3,405) |
(6,233) |
(9,044) |
0 |
||
Share-based payments |
(578) |
(223) |
(117) |
(117) |
||
Reported operating profit |
3,778 |
(1,354) |
(4,163) |
3,081 |
||
Net Interest |
(1,044) |
(1,151) |
(898) |
(431) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
7,948 |
5,191 |
5,269 |
3,329 |
Profit Before Tax (reported) |
|
|
2,734 |
(2,504) |
(5,061) |
2,650 |
Reported tax |
(1,753) |
(1,985) |
(1,931) |
(866) |
||
Profit After Tax (norm) |
5,531 |
3,413 |
3,338 |
2,464 |
||
Profit After Tax (reported) |
981 |
(4,489) |
(6,538) |
1,785 |
||
Minority interests |
(384) |
(489) |
(451) |
(475) |
||
Discontinued operations |
1,467 |
(845) |
(1,018) |
0 |
||
Net income (normalised) |
4,951 |
3,551 |
2,875 |
1,990 |
||
Net income (reported) |
2,064 |
(5,334) |
(7,556) |
1,310 |
||
Average Number of Shares Outstanding (m) |
77.9 |
78.6 |
79.5 |
79.5 |
||
EPS - normalised continuing (p) |
|
|
6.4 |
3.7 |
3.6 |
2.5 |
EPS - normalised (p) |
|
|
6.2 |
3.5 |
3.6 |
2.5 |
EPS - basic reported (p) |
|
|
2.7 |
(7.4) |
(10.1) |
1.6 |
Dividend per share (p) |
0.71 |
0.71 |
0.00 |
0.71 |
||
EBITDA Margin (%) |
16.9 |
11.2 |
13.4 |
8.7 |
||
Normalised Operating Margin |
14.0 |
9.1 |
9.0 |
6.3 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
75,771 |
45,400 |
47,060 |
49,573 |
Intangible Assets |
72,440 |
43,251 |
35,172 |
38,579 |
||
Tangible Assets |
1,829 |
1,170 |
10,902 |
10,008 |
||
Investments & other |
1,502 |
979 |
986 |
986 |
||
Current Assets |
|
|
37,241 |
65,935 |
35,822 |
29,172 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
32,509 |
29,408 |
27,586 |
26,062 |
||
Cash & cash equivalents |
4,732 |
8,793 |
8,236 |
3,111 |
||
Other |
0 |
27,734 |
0 |
0 |
||
Current Liabilities |
|
|
(24,549) |
(27,539) |
(21,195) |
(16,416) |
Creditors |
(20,066) |
(18,150) |
(14,659) |
(12,342) |
||
Tax and social security |
(1,598) |
(1,681) |
(4,424) |
(1,962) |
||
Short term borrowings |
(1,572) |
(2,314) |
36 |
36 |
||
Other |
(1,313) |
(5,394) |
(2,148) |
(2,148) |
||
Long Term Liabilities |
|
|
(35,481) |
(36,282) |
(23,047) |
(21,047) |
Long term borrowings |
(32,000) |
(33,965) |
(13,868) |
(13,868) |
||
Other long term liabilities |
(3,481) |
(2,317) |
(9,179) |
(7,179) |
||
Net Assets |
|
|
52,982 |
47,514 |
38,640 |
41,283 |
Minority interests |
1,040 |
992 |
1,179 |
1,179 |
||
Shareholders' equity |
|
|
51,942 |
46,522 |
37,461 |
40,104 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
10,840 |
7,761 |
9,203 |
5,178 |
||
Working capital |
(2,002) |
(367) |
(1,302) |
(793) |
||
Exceptional & other |
(890) |
(6,233) |
(2,244) |
0 |
||
Tax |
(2,207) |
(1,952) |
(1,345) |
(2,866) |
||
Operating Cash Flow |
|
|
5,741 |
(791) |
4,312 |
1,519 |
Capex |
(2,231) |
(1,784) |
(3,235) |
(1,800) |
||
Acquisitions/disposals |
(3,082) |
(858) |
23,862 |
(3,354) |
||
Net interest |
(921) |
(1,068) |
(718) |
(431) |
||
Equity financing |
160 |
252 |
253 |
(810) |
||
Dividends |
(495) |
(791) |
(1,256) |
(250) |
||
Other |
(46) |
0 |
0 |
0 |
||
Net Cash Flow |
(874) |
(5,040) |
23,218 |
(5,125) |
||
Opening net debt/(cash) |
|
|
28,024 |
28,840 |
27,486 |
5,596 |
FX |
58 |
(91) |
(204) |
0 |
||
Other non-cash movements |
6,485 |
(1,124) |
||||
Closing net debt/(cash)* |
|
|
28,840 |
27,486 |
5,596 |
10,721 |
Source: Company accounts, Edison Investment Research. Note: *Net debt excludes lease liabilities.
|
|
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