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Last close As at 08/06/2023
GBP0.94
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Market capitalisation
GBP157m
Research: TMT
The Pebble Group’s FY22 results show strong progress on revenue (+16% on FY21) and adjusted EBITDA, +17%. Facilisgroup, its North American SaaS business, is making particularly good progress with revenues up 31%. It is still early days but the opportunity is substantial. This inevitably requires investment to take full advantage, restraining short-term earnings growth, but should drive recurring revenues and build value, in our view. The more established part of the group, Brand Addition, lifted revenues 15% on the prior year to £117.4m, well ahead of market growth (ASI: +11%), building its base with major global brands. Pebble’s good share price performance has narrowed the valuation gap with peers, but momentum remains good, and we see further upside potential.
The Pebble Group |
Good progress and a maiden dividend |
FY22 results |
Media |
21 March 2023 |
Share price performance
Business description
Next events
Analysts
The Pebble Group is a research client of Edison Investment Research Limited |
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The Pebble Group’s FY22 results show strong progress on revenue (+16% on FY21) and adjusted EBITDA, +17%. Facilisgroup, its North American SaaS business, is making particularly good progress with revenues up 31%. It is still early days but the opportunity is substantial. This inevitably requires investment to take full advantage, restraining short-term earnings growth, but should drive recurring revenues and build value, in our view. The more established part of the group, Brand Addition, lifted revenues 15% on the prior year to £117.4m, well ahead of market growth (ASI: +11%), building its base with major global brands. Pebble’s good share price performance has narrowed the valuation gap with peers, but momentum remains good, and we see further upside potential.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
115.1 |
10.9 |
5.1 |
0.0 |
21.3 |
N/A |
12/22 |
134.0 |
12.4 |
5.8 |
0.6 |
18.9 |
0.6 |
12/23e |
143.0 |
12.9 |
5.8 |
1.3 |
18.9 |
1.2 |
12/24e |
148.0 |
14.0 |
6.3 |
1.9 |
17.5 |
1.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Facilisgroup and Brand Addition both increase reach
Facilisgroup increased its Partner base for its core Syncore product by 9% to 225 at the year-end, with eight more added since. Gross merchandise value (GMV) transacted was up 22% at $1.40bn, demonstrating increasing Partner confidence. The proportion of that GMV spent with preferred suppliers grew from 30% in FY21 to 33% for FY22. Commercio was launched in June 2022 and by the year-end had already signed up 130 Partners, expanding further since to 151. Facilisgroup is developing an order workflow product for distributors transacting revenues of under $2m, to be launched later in the year. The ambition remains to build towards $50m of recurring revenues. Brand Addition benefited from business won in FY21 and FY22, which will also contribute to earnings growth in FY23. Brand Addition’s commitment to ESG is an important element of its commercial differentiation.
Cash positive balance sheet and maiden dividend
Despite the step up in capital investment from £5.0m in FY21 to £7.4m in FY22 (excluding sums capitalised under IFRS 16), the group ended the year with net cash of £15.1m on the balance sheet (and has lease debt only, of £9.1m). This healthy cash position is more than is needed to fund continuing investment and expansion plans, so management is recommending a final dividend of 0.6p/share.
Valuation: Narrowing discount
Based on a sum-of-the-parts using peer group EV/EBITDA multiples of US SaaS companies for Facilisgroup and marketing services companies for Brand Addition, we derive an implied value of 125p/share. This is a little below the 133p at the time of our November initiation, reflecting weaker peer share price performance. Interest in the shares may be boosted by the intended registration on the OTCQX trading platform, giving easier access to the group’s AIM-listed shares for US investors.
FY22 results and prospects
The Pebble Group issued a year-end trading update in January that outlined the key elements of the results, which we commented on in our Flash note at the time. The preliminary results now published are very slightly better, with revenue of £134m, rather than the £133m indicated previously, and adjusted EBITDA of £18.0m, earlier described as ‘approaching’ £18.0m.
Exhibit 1: Summary performance and projections
£m |
2022 |
% growth |
2023e |
% growth |
2024e |
% growth |
Facilisgroup revenue |
16.6 |
31% |
18.9 |
14% |
20.2 |
7% |
Brand Addition revenue |
117.4 |
15% |
124.1 |
6% |
127.8 |
3% |
Group revenue |
134.0 |
15% |
143.0 |
7% |
148.0 |
3% |
Facilisgroup EBITDA |
9.0 |
1% |
9.6 |
7% |
10.7 |
11% |
Brand Addition EBITDA |
11.5 |
19% |
12.2 |
6% |
12.5 |
3% |
Group costs |
(2.4) |
14% |
(2.6) |
5% |
(2.8) |
10% |
Group adjusted EBITDA |
18.0 |
1% |
19.2 |
7% |
20.4 |
6% |
Facilisgroup EBITDA margin |
54% |
51% |
53% |
|||
Brand Addition EBITDA margin |
10% |
10% |
10% |
|||
Group adjusted EBITDA margin |
13.5% |
13.5% |
13.8% |
Source: The Pebble Group, Edison Investment Research
Facilisgroup demonstrated the faster growth of the two parts of the business, but off an obviously smaller revenue base. Its Syncore product, described in our initiation report, still has plenty of growth potential. It is targeted at distributors of promotional products generating revenues of over $2m, of which management estimates that there are around 1,600 in the North American market. With a current (March 2023) customer base of 233, market share is not yet a significant limiting factor. It is still too early to make a meaningful comment on the financial impact of the e-commerce offering, Commercio, launched in H222, but the initial numbers of Partners and new customers signed up are very encouraging.
The launch of Orders, scheduled for the back end of FY23 and targeted at smaller distributors, will mean that Facilisgroup has an offering for each strand of the large promotional product distribution market, estimated by industry body the Advertising Specialty Institute (ASI) to have been worth $25.8bn in North America in FY22. In this context, management’s ambition to build to $50m of recurring revenue for Facilisgroup looks demanding but achievable.
The ongoing investment in platform and product development will constrain the expansion of the adjusted EBITDA margin in the short term, but provides the backdrop for building a larger, sustainable enterprise.
As anticipated, Brand Addition had a slower H222, having posted a particularly buoyant first half as the market rebounded post the impact of COVID-19 lockdowns. It continues to build its client base in its target market of large corporates headquartered in Europe or North America, of which management reckon there are around 800, with c 100 currently on the books. Once recruited, these relationships tend to be long-standing (the top 20 clients in FY22 have been working with Brand Addition for over 10 years).
Clients won in FY22 will contribute to anticipated growth in FY23, but we have remained relatively cautious on revenue growth in view of the high levels of macro uncertainty.
Overall, management states that FY23 has started well and performance to date is in line with its expectations.
Cash generation accelerates the path to dividend payment
Year-end net cash was £15.1m, with the group only carrying debt in the form of leases, totalling £9.1m. With the operating cash conversion inherently positive, this figure is set to build in the absence of M&A. While there may be opportunities on this front, there is sufficient potential in the existing group to generate good growth in the medium term based on the current offering and those in development.
The intended registration on the OTCQX platform has no associated fund-raising.
Management is now recommending a final dividend for FY22 of 0.6p per share. At the time of the initial public offering, a distribution policy was indicated of 30% of normalised net income. We have assumed that this level of distribution is reached in FY24 and that the current year’s payment will be set at around 23%.
Valuation
Pebble is two complementary businesses in one, so it is appropriate to value them separately and then combine them, making an adjustment for central costs. We look at Facilisgroup, which operates in North America, with the US SaaS sector capitalised below $1.5bn and at Brand Addition in comparison with other small- and mid-sized marketing services companies. The US SaaS companies are currently valued at 15.0x current year EV/EBITDA and 12.7x next (using the median values), while the marketing services companies are on significantly lower multiples of 7.5x followed by 6.0x.
Using these EV/EBITDA multiples averaged across FY23 and FY24 implies a group value of 125p, a little below the 133p calculated in November and based on FY22 and FY23 multiples.
Exhibit 2: Peer-based valuation
Based on |
EV/sales Yr 1 |
EV/EBITDA Yr 1 |
EV/EBITDA Yr 2 |
EV Facilisgroup (£m) |
46.7 |
144.4 |
135.3 |
EV Brand Addition (£m) |
112.9 |
90.7 |
82.4 |
Total (£m) |
159.6 |
235.2 |
217.8 |
Central cost multiple (x) |
12.0 |
11.0 |
|
Less central costs (£m) |
(30.6) |
(33.7) |
|
The Pebble Group implied EV (£m) |
159.6 |
204.5 |
184.1 |
The Pebble Group implied market cap (£m) |
174.7 |
219.6 |
199.2 |
Implied share price (p) |
104.3 |
131.2 |
118.9 |
Source: Refinitiv, Edison Investment Research
The poor relative share price performance of the comparator peers in marketing services has accelerated the swing towards Facilisgroup in the weighting of contribution of value. In November, and based on FY23 multiples, the split was 55% Facilisgroup, 45% Brand Addition. This ratio is now 61%:39%.
Repeating the DCF exercise that we carried out in our initiation, using a WACC of 10% and a terminal growth rate of 2%, now derives a value of 138.6p (was 133.1p in November 2022), a little ahead of the peer-based methodology.
Exhibit 3: Financial summary
£000s |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
82,374 |
115,101 |
134,025 |
143,000 |
148,000 |
Cost of Sales |
(51,382) |
(73,128) |
(81,279) |
(85,910) |
(88,199) |
||
Gross Profit |
30,992 |
41,973 |
52,746 |
57,090 |
59,801 |
||
Adj. EBITDA |
|
|
9,755 |
15,378 |
18,042 |
19,250 |
20,400 |
Operating profit (before amort. and excepts.) |
|
|
6,225 |
11,475 |
12,896 |
13,350 |
14,250 |
Amortisation of acquired intangibles |
0 |
(894) |
(1,420) |
(1,400) |
(106) |
||
Exceptionals |
(542) |
0 |
0 |
0 |
0 |
||
Share-based payments |
(14) |
(715) |
(1,253) |
(1,500) |
(1,500) |
||
Reported operating profit |
5,669 |
9,866 |
10,223 |
10,450 |
12,644 |
||
Net Interest |
(700) |
(549) |
(520) |
(450) |
(300) |
||
Profit Before Tax (norm) |
|
|
5,525 |
10,926 |
12,376 |
12,900 |
13,950 |
Profit Before Tax (reported) |
|
|
4,969 |
9,317 |
9,703 |
10,000 |
12,344 |
Reported tax |
(889) |
(1,970) |
(2,448) |
(2,150) |
(3,059) |
||
Profit After Tax (norm) |
4,951 |
8,599 |
9,675 |
9,675 |
10,462 |
||
Profit After Tax (reported) |
4,080 |
7,347 |
7,255 |
7,850 |
9,284 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
4,951 |
8,599 |
9,675 |
9,675 |
10,462 |
||
Net income (reported) |
4,080 |
7,347 |
7,254 |
7,850 |
9,284 |
||
Average Number of Shares Outstanding (m) |
167 |
167 |
167 |
167 |
167 |
||
EPS - basic normalised (p) |
|
|
2.96 |
5.14 |
5.78 |
5.78 |
6.25 |
EPS - normalised fully diluted (p) |
|
|
2.96 |
5.12 |
5.77 |
5.77 |
6.23 |
EPS - basic reported (p) |
|
|
2.44 |
4.39 |
4.33 |
4.69 |
5.54 |
Dividend (p) |
0.00 |
0.00 |
0.60 |
1.30 |
1.87 |
||
Revenue growth (%) |
(23.1) |
39.7 |
16.4 |
6.7 |
3.5 |
||
Gross Margin (%) |
37.6 |
36.5 |
39.4 |
39.9 |
40.4 |
||
EBITDA Margin (%) |
11.8 |
13.4 |
13.5 |
13.5 |
13.8 |
||
Normalised Operating Margin |
7.6 |
10.0 |
9.6 |
9.3 |
9.6 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
63,611 |
63,901 |
69,786 |
73,908 |
80,689 |
Intangible Assets |
54,016 |
55,674 |
60,002 |
61,587 |
65,731 |
||
Tangible Assets |
9,102 |
7,927 |
9,492 |
12,029 |
14,666 |
||
Investments & other |
493 |
300 |
292 |
292 |
292 |
||
Current Assets |
|
|
40,992 |
51,566 |
65,198 |
69,616 |
73,563 |
Stocks |
12,109 |
10,093 |
15,447 |
16,481 |
17,058 |
||
Debtors |
20,988 |
29,422 |
34,693 |
37,016 |
38,310 |
||
Cash & cash equivalents |
7,066 |
12,051 |
15,058 |
16,118 |
18,195 |
||
Other |
829 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
27,109 |
31,469 |
39,045 |
41,120 |
42,145 |
Creditors |
25,775 |
30,065 |
36,413 |
38,488 |
39,513 |
||
Tax and social security |
0 |
20 |
1,063 |
1,063 |
1,063 |
||
Short term borrowings / leases |
1,334 |
1,384 |
1,569 |
1,569 |
1,569 |
||
Long Term Liabilities |
|
|
11,212 |
9,423 |
10,350 |
10,350 |
10,350 |
Long term borrowings / leases |
7,645 |
6,388 |
7,490 |
7,490 |
7,490 |
||
Other long term liabilities |
3,567 |
3,035 |
2,860 |
2,860 |
2,860 |
||
Net Assets |
|
|
66,282 |
74,575 |
85,589 |
92,054 |
101,757 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
66,282 |
74,575 |
85,589 |
92,054 |
101,757 |
CASH FLOW |
|||||||
Operating Cash Flow |
9,212 |
15,378 |
18,061 |
19,250 |
20,400 |
||
Working capital |
(1,747) |
(2,861) |
(3,362) |
(1,283) |
(845) |
||
Exceptional & other |
0 |
(13) |
19 |
0 |
0 |
||
Tax |
(1,313) |
(521) |
(1,712) |
(2,150) |
(3,059) |
||
Net operating cash flow |
|
|
6,152 |
11,983 |
13,006 |
15,817 |
16,495 |
Capex |
(5,677) |
(5,282) |
(8,379) |
(9,200) |
(9,300) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Net interest |
(700) |
(549) |
(520) |
(450) |
(300) |
||
Equity financing |
0 |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
(1,730) |
(2,495) |
||
Other |
(1,141) |
(1,360) |
(1,737) |
(1,737) |
(1,737) |
||
Net Cash Flow |
(1,366) |
3,898 |
2,370 |
2,700 |
2,663 |
||
Opening net debt/(cash) |
|
|
(2,521) |
1,913 |
(4,279) |
(5,999) |
(8,699) |
FX |
(429) |
193 |
655 |
0 |
0 |
||
Other non-cash movements |
(2,639) |
1,207 |
(1,305) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
1,913 |
(4,279) |
(5,999) |
(8,699) |
(11,362) |
Closing net debt/(cash) excluding leases |
|
|
(7,066) |
(12,051) |
(15,058) |
(16,358) |
(18,915) |
Source: Company accounts, Edison Investment Research
|
|
Research: Industrials
We are raising our earnings estimates for Mytilineos and increasing our valuation 29% from €28/share to €36/share. Cyclical factors helped earnings acceleration in 2022, but we see underlying organic growth (particularly in Energy) resetting earnings to €1bn/year from FY24. Mytilineos is simplifying its story around two key activities in a roughly 70/30 earnings mix: Energy (renewables, generation and natural gas supply) and Metallurgy (aluminium smelting). Its renewables business is particularly well positioned to benefit from European policy initiatives.
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