Research: TMT
Next 15 Group’s net revenues grew 2.5% in the year to January, despite difficult markets. Adjusted operating margin rose from 20.2% to 21.0%, helped by head office cost savings. In common with much of the sector, spending by tech clients was soft, down 17% like-for-like. The group did well, though, in growing spend from non-tech clients, up 11%, making for a strong overall performance in a market beset by ongoing macro uncertainty. Next 15 has been building its AI capabilities for some time and this is now starting to show in efficiency and margin. It has the balance sheet strength to keep investing here, internally and through M&A, which should stand it in good stead as client confidence improves.
Next 15 Group |
Baked in AI opportunities
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17 April 2024 |
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Next 15 Group's net revenues grew 2.5% in the year to January, despite difficult markets. Adjusted operating margin rose from 20.2% to 21.0%, helped by head office cost savings. In common with much of the sector, spending by tech clients was soft, down 17% like-for-like. The group did well, though, in growing spend from non-tech clients, up 11%, making for a strong overall performance in a market beset by ongoing macro uncertainty. Next 15 has been building its AI capabilities for some time and this is now starting to show in efficiency and margin. It has the balance sheet strength to keep investing here, internally and through M&A, which should stand it in good stead as client confidence improves.
Holistic solutions from brand to demand
Organic growth was 0.3% in the year, which reflects both tech sector weakness and the dearth of IPOs. Management sees both these factors improving in the current year, with more IPOs post the successful debut of Reddit, although the timing on tech spend is more likely to be H2 weighted. Next 15’s decentralised operating model gives it flexibility to move resource behind market trends, such as the more holistic marketing approach some major global brands are adopting, by integrating brand spend with demand promotion, rather than seeing these as competing pots.
Healthy resource for investment
With year-end net debt of £1.4m and £150m of bank facilities in place, Next 15 has plenty of scope for further M&A. FY24 and FY25 (to date) deals have been at below seven times earnings, in the data/digital space, bringing in an additional annualised £25m of revenue. Internally, the group continues to invest in its AI capabilities, in terms of improving the efficiency and scope of its client offering, while it is now also licensing three products externally. Management views AI as being embedded across service lines, with clients expecting more in areas such as mass personalisation, rather than using it as a tool to beat down on pricing. Products such as SMG’s Plan-Apps, which facilitates retail and commerce media planning, are at the forefront here and are already delivering meaningful growth for retailers and attracting new business.
Valuation: Modest earnings multiple
The share price is up 59% from last August’s low and up 10% year to date, making it one of the better UK sector performers. In a wider context, the rating may be modest, particularly given management’s ambitions to double the size of the group over the next five years while protecting margins. The extension of the share buyback (up to £10m) to end July from end April adds further underpinning.
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Consensus estimates
Source: LSEG. Note: *Operating profit, PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Industrials
Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appears compelling.