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Ebiquity has now received full CMA clearance for the disposal of Ad Intel, which will be transformative for the balance sheet (a net inflow of £20m). As might be expected, the process has been disruptive and absorbed management time. The trading update indicates higher investment levels within the rest of the group, which will supress operating profits in FY18e. Some good new business wins lay the ground for better performance in FY19e, but we have withdrawn our forecasts for now until there is greater clarity. Confidence may take a while to rebuild, but the weakness in the share price may provide an opportunity in a group fundamentally well placed to benefit from changes in the global advertising market.
Ebiquity |
CMA clearance; trading news |
Trading update |
Media |
28 November 2018 |
Share price performance
Business description
Next events
Analysts
Ebiquity is a research client of Edison Investment Research Limited |
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Ebiquity has now received full CMA clearance for the disposal of Ad Intel, which will be transformative for the balance sheet (a net inflow of £20m). As might be expected, the process has been disruptive and absorbed management time. The trading update indicates higher investment levels within the rest of the group, which will supress operating profits in FY18e. Some good new business wins lay the ground for better performance in FY19e, but we have withdrawn our forecasts for now until there is greater clarity. Confidence may take a while to rebuild, but the weakness in the share price may provide an opportunity in a group fundamentally well placed to benefit from changes in the global advertising market.
Year end |
Revenue (£m) |
EBIT* (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
83.6 |
13.0 |
11.8 |
11.3 |
0.65 |
5.3 |
1.1 |
12/17 |
87.4 |
12.0 |
11.0 |
9.4 |
0.71 |
6.4 |
1.2 |
12/18e |
89.0 |
7.5 |
6.3 |
5.2 |
0.75 |
11.5 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Changes to forecasts
Until completion of the disposal, our figures continue to include Ad Intel, but we will update at that point. For the current year, revenue guidance is now for 8% growth in the continuing divisions, bringing our FY18e group forecast down from £91.2m to £89.0m. Our FY18 EBIT estimate is reduced from £10.5m to £7.5m reflecting; the impact of continued uncertainty at Ad Intel while the investigation was ongoing; underperformance of the US analytics business; and delays in anticipated German revenues. Excluding Ad Intel, our indicative pro-forma numbers show FY18e revenues of £69.0m, with EBIT of £5.9m (an EBIT margin of 8.5%). For the moment, we have withdrawn our FY19e forecasts but expect to reinstate shortly when there is greater clarity over the prospects for the continuing business.
Fundamentals unchanged
Ebiquity’s direction of travel, stepping up its offering in contract compliance, advanced analytics and tech advisory, is sensible, given the shifting nature of the advertising market. The transition has proved bumpier than had been hoped. The net proceeds of disposal will substantially reduce balance sheet leverage and facilitate the investment programme.
Valuation: Short-term weakness
We believe the setback in the share price on the back of the trading update could provide a buying opportunity in what remains a profitable and attractive business, with a strong balance sheet and good cash conversion characteristics. The rehabilitation process may take a while and management now needs to deliver on rebased expectations to close the valuation gap with smaller, quoted media companies, which are trading on an FY1 EV/EBITDA of 8.8x vs Ebiquity on 7.6x.
Exhibit 1: Financial summary
£000s |
2016 |
2017 |
2018e |
||
31-December |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
31-Dec |
31-Dec |
31-Dec |
||
Revenue |
|
|
83,569 |
87,374 |
89,000 |
EBITDA |
|
|
14,574 |
14,035 |
9,743 |
Operating Profit (before amort. and except.) |
|
|
12,959 |
12,026 |
7,500 |
Amortisation of acquired intangibles |
(1,865) |
(1,952) |
(1,950) |
||
Exceptionals |
(2,777) |
(3,801) |
(1,600) |
||
Share-based payments |
(560) |
(738) |
(1,000) |
||
Reported operating profit |
7,757 |
5,535 |
2,950 |
||
Net Interest |
(1,132) |
(1,044) |
(1,200) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
11,827 |
10,982 |
6,300 |
Profit Before Tax (reported) |
|
|
6,625 |
4,491 |
1,750 |
Reported tax |
(2,230) |
(2,043) |
(1,512) |
||
Profit After Tax (norm) |
9,257 |
8,085 |
4,788 |
||
Profit After Tax (reported) |
4,395 |
2,448 |
238 |
||
Minority interests |
(245) |
(384) |
(585) |
||
Discontinued operations |
0 |
0 |
0 |
||
Net income (normalised) |
9,012 |
7,701 |
4,203 |
||
Net income (reported) |
4,150 |
2,064 |
(347) |
||
Average Number of Shares Outstanding (m) |
77.2 |
77.9 |
78.1 |
||
EPS - normalised (p) |
|
|
11.7 |
9.7 |
5.4 |
EPS - normalised fully diluted (p) |
|
|
11.3 |
9.4 |
5.2 |
EPS - basic reported (p) |
|
|
5.4 |
2.7 |
(0.4) |
Dividend per share (p) |
0.65 |
0.71 |
0.75 |
||
EBITDA Margin (%) |
17.4 |
16.1 |
10.9 |
||
Normalised Operating Margin |
15.5 |
13.8 |
8.4 |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
|
75,855 |
75,771 |
74,978 |
Intangible Assets |
72,079 |
72,440 |
71,947 |
||
Tangible Assets |
2,438 |
1,829 |
1,529 |
||
Investments & other |
1,338 |
1,502 |
1,502 |
||
Current Assets |
|
|
35,078 |
37,241 |
37,665 |
Stocks |
0 |
0 |
0 |
||
Debtors |
19,291 |
20,978 |
21,607 |
||
Cash & cash equivalents |
6,662 |
4,732 |
4,527 |
||
Other |
9,125 |
11,531 |
11,531 |
||
Current Liabilities |
|
|
(25,912) |
(24,549) |
(24,771) |
Creditors |
(17,809) |
(20,066) |
(20,288) |
||
Tax and social security |
(1,850) |
(1,598) |
(1,598) |
||
Short term borrowings |
(4,476) |
(1,572) |
(1,572) |
||
Other |
(1,777) |
(1,313) |
(1,313) |
||
Long Term Liabilities |
|
|
(32,728) |
(35,481) |
(34,231) |
Long term borrowings |
(30,210) |
(32,000) |
(30,750) |
||
Other long term liabilities |
(2,518) |
(3,481) |
(3,481) |
||
Net Assets |
|
|
52,293 |
52,982 |
53,641 |
Minority interests |
761 |
1,040 |
1,040 |
||
Shareholders' equity |
|
|
53,054 |
54,022 |
54,681 |
CASH FLOW |
|||||
Op Cash Flow before WC and tax |
14,574 |
14,035 |
9,743 |
||
Working capital |
(2,835) |
(2,002) |
(407) |
||
Exceptional & other |
(957) |
(4,085) |
(1,600) |
||
Tax |
(166) |
(2,207) |
(1,512) |
||
Net operating cash flow |
|
|
10,616 |
5,741 |
6,224 |
Capex |
(2,351) |
(2,231) |
(2,500) |
||
Acquisitions/disposals |
(4,431) |
(3,082) |
(900) |
||
Net interest |
(1,074) |
(921) |
(1,200) |
||
Equity financing |
26 |
160 |
0 |
||
Dividends |
(838) |
(495) |
(579) |
||
Other |
(1,017) |
(46) |
0 |
||
Net Cash Flow |
931 |
(874) |
1,045 |
||
Opening net debt/(cash) |
|
|
28,661 |
28,024 |
28,840 |
FX |
(633) |
58 |
0 |
||
Other non-cash movements |
339 |
0 |
|||
Closing net debt/(cash) |
|
|
28,024 |
28,840 |
27,795 |
Source: Company accounts, Edison Investment Research
|
|
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