The Mission Group — Looking out to FY21

The MISSION Group (AIM: TMG)

Last close As at 24/05/2024

46.00

0.00 (0.00%)

Market capitalisation

GBP42m

More on this equity

Research: TMT

The Mission Group — Looking out to FY21

With an improving outlook for advertising spend, The MISSION should see a good bounce in revenues in FY21. Initiatives such as MISSION Made, launched in October, should help drive efficiency, with increasing use of shared central resources and a careful eye on costs also set to lead a rebound in margin. The financial outcome will partially be determined by revenue mix, with the group exposed to high-performing segments, such as tech and pharma, as well as areas with greater COVID-19 related issues, such as property and events. There are no changes to our forecasts at this stage. The group’s valuation remains well below that of peers.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

The MISSION Group

Looking out to FY21

FY21 mission update

Media

10 December 2020

Price

61p

Market cap

£56m

Net debt (£m) at 30 June 2020

0.9

Shares in issue

91.0m

Free float

52.7%

Code

TMG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8

(4.7)

(12.2)

Rel (local)

1.8

(13.4)

(4.6)

52-week high/low

108p

36p

Business description

The MISSION Group is a collective of creative integrated and specialist agencies, employing 1,150 people in the UK, Europe, Asia and the US.

Next events

Trading update

January 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

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

With an improving outlook for advertising spend, The MISSION should see a good bounce in revenues in FY21. Initiatives such as MISSION Made, launched in October, should help drive efficiency, with increasing use of shared central resources and a careful eye on costs also set to lead a rebound in margin. The financial outcome will partially be determined by revenue mix, with the group exposed to high-performing segments, such as tech and pharma, as well as areas with greater COVID-19 related issues, such as property and events. There are no changes to our forecasts at this stage. The group’s valuation remains well below that of peers.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

77.6

9.2

8.5

2.1

7.2

3.4

12/19

81.0

10.2

9.0

0.8

6.8

1.3

12/20e

62.7

0.5

0.7

0.0

N/A

N/A

12/21e

76.1

9.0

7.7

1.8

7.9

3.0

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

Mix gives resilience

Group agencies have continued to win business and run notable campaigns through H220. Since September’s interims, Story UK has worked on campaigns for NHS Scotland and NHS NorthEast, AprilSix has won new business from IQGeo to promote their geospatial data capabilities, and krow has run high-profile campaigns for UNISON and for DFS. Understandably, the events segment remains disrupted, although even here, Bray Leino Events has been working on the UK pavilion for Expo 2020 Dubai, which was pushed out to October 2021. We would expect there to have been some improvement in trading conditions in the mobility vertical, but for the property segment to have stayed subdued, given the limited stock availability.

Market outlook improving but timing uncertain

The consensus is for a good rebound in UK advertising spend in FY21, with the Advertising Association/WARC predicting a rise of 16.6%, assuming that the vaccine roll-out proceeds as planned and a degree of normality is established. This is post a 15.6% fall in spend in the current year, meaning that 2019 levels of spend would not be reached before 2022. However, there are large variations in these growth rates by sector, with out-of-home and cinema showing the strongest forecast rebound. Q121 year-on-year growth will be more difficult, given the stronger comparatives, with recovery much more marked in Q221. We would expect that there would be similar disparity in rates of growth between sector verticals, so the mix will be a crucial factor in MISSION’s financial outcome.

Valuation: Discount to peers persists

As is the case for MISSION, forecasts for peers remain highly subjective to assumptions on the speed and scale of the recovery, so we have looked at an average over FY19, FY20e and FY21e. MISSION’s shares trade at a discount to peers on EV/EBIT (8.1x2021) and P/E on this basis. Parity indicates a share price of 76.9p (from 78.25p in September, reflecting changes in share prices), 26% above the current level.

Making the most of the expected recovery

With the interim results, management set out a number of objectives to help the group to optimise its longer-term positioning and financial returns. These are discussed below.

Realise benefits of office portfolio review

Following acquisitions over the years, the group has had four agency offices within the M25. The pandemic has accelerated a review of this portfolio (some agencies had already co-located) and the number is being reduced to two. We would expect to hear an update on this at the January trading update. Management anticipates that this will release an annualised cost saving of around £0.7m. Our model already builds this into our FY21 forecasts. Other group office requirements have been revisited by management and no further moves are currently anticipated.

Realise benefits of MISSION Made

This initiative was outlined at the interims and described in this interview with CEO James Clifton. Briefly, it is a 24/7 centralised production, product and innovation studio to supply the group agencies with digital and motion graphics capability. By concentrating expertise and resource – and using group agencies in different time zones – MISSION should be able to supply and support its agencies through from pitch to delivery at lower cost and at higher speed, without the duplication inherent in a distributed group structure. By pooling in this way, it should reduce the need for freelancers across the group. It will also be more efficient to develop and resource new skillsets and capabilities to support clients. The initial phase began on 1 October with four agencies involved (krow, Chapter, Mongoose and Solaris).

Continue to re-build revenue from loyal client base

MISSION has an enviable record of client longevity, with 50% of group revenue from clients of at least five years’ standing and 20% of group revenue from those working with group agencies for more than 20 years. There is therefore a good level of trust and communication that we believe should see the group benefit as and when confidence increases.

Leverage diverse and complete group skill set

There has already been good progress in building the levels of co-operation between group agencies, which should be accelerated by the MISSION Made initiative. Collaboration moved up a level with the win of My Online Therapy, quickly followed by an executed campaign by four group agencies: krow, Bray Leino, Speed and Story.

Return to pre-pandemic profit levels

As shown in our financial summary below, we are expecting a good recovery in profitability in FY21, although our modelling suggests that FY19 levels will not be recouped until FY22e (as with the UK advertising spend market assumptions). However, this is all down to the mix and the picture will not clarify on that for some months.

Look for growth through acquisition

The MISSION has been built through a combination of acquisition and start-ups, with acquisitions often referred in by existing group agency management teams that may have worked with them as third parties. Vendors tend to stay with their agencies, leveraging group resource and funds to grow, taking equity in part or in whole. This is obviously less easy at the current rating. The rationale for acquisition would generally be to add a capability (krow, the last substantial purchase, made in April 2018, bolstered the group’s creative credentials), to add sector or geographic exposure.

Exhibit 1: Financial summary

£'000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Turnover

 

 

159,916

171,091

128,107

159,535

Cost of Sales

(82,331)

(90,118)

(65,448)

(83,425)

Revenue

77,585

80,972

62,659

76,110

EBITDA

 

 

11,334

12,225

2,636

10,707

Operating Profit (before amort. and except.)

 

9,919

10,753

1,386

9,557

Intangible Amortisation

(1,286)

(1,980)

(1,004)

(1,004)

Headline Adjustments

(546)

(990)

(450)

(500)

Other

(1)

69

85

90

Operating Profit

8,086

7,852

701

8,817

Net Interest

(735)

(668)

(922)

(599)

Profit Before Tax (norm)

 

 

9,183

10,154

549

9,048

Profit Before Tax (FRS 3)

 

 

7,722

8,294

99

7,633

Tax

(1,710)

(1,868)

32

(1,994)

Profit After Tax (norm)

7,473

8,286

581

7,054

Profit After Tax (FRS 3)

6,012

6,426

131

5,639

Average Number of Shares Outstanding (m)

83.3

84.1

88.2

91.1

EPS - normalised (p)

 

 

8.7

9.5

0.7

7.8

EPS - normalised fully diluted (p)

 

 

8.5

9.0

0.7

7.7

EPS - (IFRS) (p)

 

 

7.1

7.5

0.0

6.1

Dividend per share (p)

2.1

0.8

0.0

1.8

Gross Margin (%)

48.5

47.3

48.9

47.7

EBITDA Margin (%)

7.1

7.1

2.1

6.7

Operating Margin (before GW and except.) (%)

6.2

6.3

1.1

6.0

BALANCE SHEET

Fixed Assets

 

 

107,002

107,396

109,241

111,175

Intangible Assets

96,121

95,859

98,304

100,388

Tangible Assets

10,858

11,360

10,760

10,610

Investments/ other

23

177

177

177

Current Assets

 

 

46,476

47,117

34,772

41,567

Stocks

850

1,091

792

1,010

Debtors

39,727

40,998

32,290

38,026

Cash

5,899

5,028

1,690

2,531

Other

0

0

0

0

Current Liabilities

 

 

(40,986)

(40,181)

(34,108)

(39,564)

Creditors

(40,986)

(40,181)

(34,108)

(39,564)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(24,896)

(22,031)

(19,936)

(16,873)

Long term borrowings

(9,886)

(9,927)

(9,927)

(9,927)

Other long term liabilities

(15,010)

(12,104)

(10,009)

(6,946)

Net Assets

 

 

87,596

92,301

89,969

96,305

CASH FLOW

Operating Cash Flow

 

 

11,684

10,454

2,411

8,699

Net Interest

(826)

(626)

(922)

(599)

Tax

(1,906)

(1,805)

32

(1,994)

Capex

(1,361)

(2,169)

(900)

(1,350)

Acquisitions/disposals

(670)

(2,839)

(3,424)

(3,063)

Financing/other

(1,938)

(2,096)

(536)

(319)

Dividends

(1,695)

(1,831)

0

(532)

Net Cash Flow

3,288

(912)

(3,338)

841

Opening net debt/(cash)

 

 

7,348

3,987

4,899

8,237

HP finance leases initiated

0

0

0

0

Other

73

0

0

0

Closing net debt/(cash)

 

 

3,987

4,899

8,237

7,396

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by The MISSION Group and prepared and issued by Edison, in consideration of a fee payable by The MISSION Group. Edison Investment Research standard fees are £49,500 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 2020 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by The MISSION Group and prepared and issued by Edison, in consideration of a fee payable by The MISSION Group. Edison Investment Research standard fees are £49,500 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 2020 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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