The Pebble Group — Improved operational readiness

The Pebble Group (LSE: PEBB)

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Research: TMT

The Pebble Group — Improved operational readiness

Pebble’s H124 results put it on track to meet FY24 EBITDA market forecasts, set against continuing cautious industry sentiment. Management has been strengthening operations, including appointing a chief product officer at Facilisgroup and a global marketing director at Brand Addition. Client retention remains strong and forward indicators are positive at Facilisgroup. At Brand Addition, macro uncertainties mean clients remain circumspect, but financial performance is helped by better gross margins. The global promotional products market opportunity is substantial, and Pebble is well placed to make further inroads. Net cash of £4.9m at end June is expected to increase to £15.0m by the year-end.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

The Pebble Group

Improved operational readiness

H124 results

Media

9 September 2024

Price

59.5p

Market cap

£99m

Net cash (£m) at 30 June 2024 (excluding lease debt)

4.9

Shares in issue

166.1m

Free float

63.5%

Code

PEBB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.3

4.4

(34.6)

Rel (local)

4.4

5.7

(40.7)

52-week high/low

98p

51p

Business description

The Pebble Group provides digital commerce, products and related services to the global promotional products industry through two focused, complementary and differentiated businesses: Facilisgroup and Brand Addition.

Next events

FY24 results

March 2025

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

The Pebble Group is a research client of Edison Investment Research Limited

Pebble’s H124 results put it on track to meet FY24 EBITDA market forecasts, set against continuing cautious industry sentiment. Management has been strengthening operations, including appointing a chief product officer at Facilisgroup and a global marketing director at Brand Addition. Client retention remains strong and forward indicators are positive at Facilisgroup. At Brand Addition, macro uncertainties mean clients remain circumspect, but financial performance is helped by better gross margins. The global promotional products market opportunity is substantial, and Pebble is well placed to make further inroads. Net cash of £4.9m at end June is expected to increase to £15.0m by the year-end.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/22

134.0

12.4

5.8

0.6

10.3

1.0

12/23

124.2

9.9

4.6

1.2

13.0

2.0

12/24e

125.6

10.4

4.7

1.4

12.6

2.3

12/25e

130.0

11.2

5.1

1.5

11.8

2.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Margins edged ahead

H124 revenue is 4% down on the prior year, although this partly reflects the translation of Facilisgroup US dollar results into sterling. Underlying revenues here were flat, with adjusted EBITDA margin improving slightly from 46.6% to 47.7%. Brand Addition’s revenue was down 4%, but it improved its gross margin to 35.3%, from 33.2%, and its adjusted EBITDA margin lifted from 8.2% to 8.8%. We have made a small reduction to our anticipated FY24 revenue from £128.5m to £125.6m, and for FY25 from £133.0m to £130.0m, with the better gross margins meaning that our adjusted EBITDA and PBT forecasts are unchanged. Our model also reflects the share buyback to date (1.3m shares at time of writing at a cost of £0.8m), nudging FY25e EPS up from 5.0p to 5.1p.

Focus now on sales and delivery

The peak spend on developing the Facilisgroup technology product suite is now passed and investment has been shifted to drive sales and delivery opportunities. Technology subscription fees are set based on prior year gross merchandise value (GMV), so the key drivers for revenue growth are increasing the number of clients in year and growing the percentage of spend with the preferred supplier base. At Brand Addition there has been some recovery in spend by technology clients, but consumer sector clients remain cautious and decision making remains sluggish.

Valuation: Sum-of-the-parts dips as peers struggle

Difficult trading conditions have weighed on the share prices of the peer sets we use for both Facilisgroup and Brand Addition in our sum-of-the-parts valuation. The former has been more affected as US SaaS stocks have struggled over the year-to-date, with share prices dropping 14% on average. Our implied valuation for the group is now 72.4p/share, which is 22% ahead of the current level.

H124 figures show resilience in difficult markets

The health of the promotional products industry is closely tied to corporate confidence, and it is North American sentiment that sets the tone. Here uncertainty over the macroeconomic backdrop is stalling decision making. Pebble has been managing its operations closely to put them in the strongest position when the conditions improve.

At Facilisgroup, this involves paying close attention to Partner (client) relationships, borne out in high levels of retention. Partner numbers as at 6 September were 239, from 242 at the year-end, but this masks 12 new wins offset by nine Partners being acquired. GMV was 5% ahead of H123 (which bodes well for increases in technology subscription fees for FY25), while the amount transacted through preferred suppliers grew 6%, which benefits margins. Group CEO Chris Lee has been very much ‘hands on’ at Facilisgroup over recent months, and this arrangement is being reviewed for the next stage of its development. The appointment of the chief product officer to manage the technology and innovation strategy is a good step forward.

Exhibit 1: Summary H124 performance

£m

H123

H124

change

Facilisgroup revenue

9.2

8.9

-2.9%

Brand Addition revenue

54.2

51.9

-4.2%

Group revenue

63.3

60.8

-4.0%

Facilisgroup adjusted EBITDA

4.3

4.2

-0.6%

Brand Addition adjusted EBITDA

4.5

4.6

2.3%

Group adjusted EBITDA

7.5

7.4

-1.7%

Brand Addition adjusted EBITDA margin

8.2%

8.8%

Facilisgroup adjusted EBITDA margin

46.6%

47.7%

Group adjusted EBITDA margin

11.8%

12.1%

Source: The Pebble Group accounts

At Brand Addition, the global brands that typically comprise its customer base are also still holding fire until confidence rebuilds. The tech clients that were the main factor in H223’s downturn have been performing better, with the consumer segment clients now the primary cause of the softer revenues. The new business pipeline is good, but conversion remains – for now – sluggish.

The half-year net cash position (lease debt only) was £4.9m, since increased to £6.6m (6 September). Pebble always absorbs working capital in H1, before releasing it in H2 (for more detail see our last Outlook note). Management is indicating a likely year-end balance of around £15m, after a £2m share buyback. We build this into our model as those shares are acquired. This robust balance sheet means the group is well-funded to finance the upturn, when it comes.

Valuation

We appraise Pebble’s valuation on a sum-of-the-parts basis, using a selection of quoted US stocks with a predominantly SaaS business model for Facilisgroup and a peer set of UK marketing services companies for Brand Addition.

When we last did this exercise at the start of May, the US stocks had decreased on average by 7.3% over the year-to-date. Since then, the performance has worsened and share prices are now on average 14.0% behind where they stood at the start of the year.

The UK marketing stocks were posting gains of 8.5% but this has now narrowed to 4.8%.

As a result, the valuation we derive for The Pebble Group comes back from 92.2p to 72.4p, with Facilisgroup comprising 60% of the total, down from 64%. This is still 22% ahead of the current market price.

Exhibit 2: Financial summary

£000s

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

134,025

124,171

125,600

130,000

Cost of Sales

(81,279)

(69,988)

(69,355)

(71,897)

Gross Profit

52,746

54,183

56,245

58,103

EBITDA

 

 

18,042

15,978

16,300

17,200

Operating profit (before amort. and excepts.)

 

 

12,896

10,447

10,850

11,550

Amortisation of acquired intangibles

(1,420)

(1,901)

(2,200)

(500)

Exceptionals

0

0

0

0

Share-based payments

(1,253)

(548)

(1,250)

(1,250)

Reported operating profit

10,223

7,998

7,400

9,800

Net Interest

(520)

(589)

(450)

(348)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

12,376

9,858

10,400

11,202

Profit Before Tax (reported)

 

 

9,703

7,409

6,950

9,452

Reported tax

(2,448)

(1,614)

(1,668)

(2,363)

Profit After Tax (norm)

9,674

7,709

7,904

8,402

Profit After Tax (reported)

7,255

5,795

5,282

7,089

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

9,674

7,709

7,904

8,402

Net income (reported)

7,254

5,795

5,282

7,088

Average Number of Shares Outstanding (m)

167

167

167

166

EPS - normalised (p)

 

 

5.78

4.60

4.74

5.06

EPS - normalised fully diluted (p)

 

 

5.77

4.59

4.73

5.04

EPS - basic reported (p)

 

 

4.33

3.46

3.17

4.27

Dividend (p)

0.60

1.20

1.35

1.50

Revenue growth (%)

16.4

(7.4)

1.2

3.5

Gross Margin (%)

39.4

43.6

44.8

44.7

EBITDA Margin (%)

13.5

12.9

13.0

13.2

Normalised Operating Margin (%)

9.6

8.4

8.6

8.9

BALANCE SHEET

Fixed Assets

 

 

69,786

69,579

70,879

73,179

Intangible Assets

60,002

60,991

62,991

65,891

Tangible Assets

9,492

8,306

7,606

7,006

Investments & other

292

282

282

282

Current Assets

 

 

65,198

57,907

58,929

62,325

Stocks

15,447

11,852

12,560

13,000

Debtors

34,693

30,158

29,938

31,342

Cash & cash equivalents

15,058

15,897

16,431

17,982

Other

0

0

0

0

Current Liabilities

 

 

39,045

30,840

30,377

31,422

Creditors

36,413

28,965

28,502

29,547

Tax and social security

1,063

381

381

381

Short term borrowings / leases

1,569

1,494

1,494

1,494

Other

0

0

0

0

Long Term Liabilities

 

 

10,350

8,495

8,495

8,495

Long term borrowings / leases

7,490

6,130

6,130

6,130

Other long term liabilities

2,860

2,365

2,365

2,365

Net Assets

 

 

85,589

88,151

90,936

95,587

Minority interests

0

0

0

0

Shareholders' equity

 

 

85,589

88,151

90,936

95,587

CASH FLOW

Operating Cash Flow

18,061

15,960

16,300

17,700

Working capital

(3,362)

708

(951)

(800)

Exceptional & other

19

(18)

0

0

Tax

(1,712)

(2,517)

(1,668)

(2,363)

Net operating cash flow

 

 

13,006

14,133

13,681

14,537

Capex

(8,379)

(8,530)

(7,900)

(7,900)

Acquisitions/disposals

0

0

0

0

Net interest

(520)

(589)

(450)

(348)

Equity financing

0

(395)

(792)

0

Dividends

0

(1,005)

(2,005)

(2,238)

Other (including lease payments)

(1,737)

(165)

(2,000)

(2,000)

Net Cash Flow

2,370

3,449

534

2,051

Opening net debt/(cash)

 

 

(4,279)

(5,999)

(8,274)

(8,809)

FX

655

(1,192)

0

0

Other non-cash movements

(1,305)

18

0

0

Closing net debt/(cash)

 

 

(5,999)

(8,274)

(8,809)

(10,860)

Closing net debt/(cash) excluding leases

 

 

(15,058)

(15,897)

(16,431)

(17,982)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by The Pebble Group and prepared and issued by Edison, in consideration of a fee payable by The Pebble Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by The Pebble Group and prepared and issued by Edison, in consideration of a fee payable by The Pebble Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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