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Research: TMT
After a particularly strong Q421, The MISSION Group’s FY21 results were ahead of market forecasts, with revenue up by 18% (17% organic) and operating margins at 11.1%, from 3.1% in FY20 – substantial progress towards management’s 14% target. The £6.7m of outstanding acquisition payments were met in FY21, with year-end obligations reduced to £3.3m. Net debt of £10.3m is comfortably within leverage targets, giving flexibility to invest further to drive growth. A recommended final dividend of 1.6p means a total payment 4% up on FY19’s 2.3p, indicating management’s confidence in FY22 prospects.
The MISSION Group |
Making the work count
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29 March 2022 |
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After a particularly strong Q421, The MISSION Group’s FY21 results were ahead of market forecasts, with revenue up by 18% (17% organic) and operating margins at 11.1%, from 3.1% in FY20 – substantial progress towards management’s 14% target. The £6.7m of outstanding acquisition payments were met in FY21, with year-end obligations reduced to £3.3m. Net debt of £10.3m is comfortably within leverage targets, giving flexibility to invest further to drive growth. A recommended final dividend of 1.6p means a total payment 4% up on FY19’s 2.3p, indicating management’s confidence in FY22 prospects.
Client longevity signifies confidence
The MISSION has a notable record in client retention, with 47% of FY21 revenues generated by clients who have been with the group for over five years. There are some new names of note on the roster, including Reckitt Benckiser, BMW/ Mini and The Met Office. In terms of segmental performance, the group’s tech-facing business continued to perform well, delivering revenues up 15%, with a strong recovery in the property sector and bounce back in the events business. The amount of cross-referred business is starting to build, accounting for around £2m of revenue in FY21. The shared services model is allowing greater efficiency within the individual agencies, which is even more important given the rising cost of talent industry wide. Since October, The MISSION has had an independent chair following retirements, with a board of three independent and five executive directors.
Investing in key capabilities
Management highlights three key areas for further investment: data and analytics, customer experience and ecommerce, all of which are common themes across the sector. The strengthening balance sheet should help here. Outstanding acquisition obligations reduced from £8.5m at end FY20 to £3.3m and, with year-end net bank debt of £10.3m, the group is well within its KPI of total bank debt and deferred acquisition obligations less than 2.0x (FY21: 1.5x). A new £20m RCF was agreed in April 2021, with a £5m accordion, giving flexibility for organic investment and further bolt-ons, such as that of youth-focused agency Livity in February 2022. FY22 consensus forecasts are unchanged, reflecting some timing benefit in the strong Q421, with a 9% revenue uplift and new FY23 forecasts show further progress.
Valuation: Still well below peers
The MISSION Group’s share price has drifted, having started the year at 63.5p. Other quoted smaller global advertising stocks have dipped c. 9%. Its rating is at a marked discount to peers, which currently trade at a FY22 P/E of 14.1x and EV/EBITDA of 7.8x.
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Consensus estimates
Source: Refinitiv. Note: *Normalised. |
The MISSION Group is a research client of Edison Investment Research Limited.
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Research: TMT
Esker reported 19% y-o-y revenue growth for FY21, with 21% growth in operating profit and 20% growth in normalised diluted EPS. Profitability was below our expectations due to factors including higher sales commissions than expected, related to strong order intake, wage inflation and share-based payment-related taxes. The company continues to favour investment in sustained revenue growth over margin expansion and we have revised our forecasts to reflect a higher level of investment in FY22 and FY23, albeit within the company’s target margin range of 12–15%.