Ebiquity — Margin boost from digital media solutions

Ebiquity (AIM: EBQ)

Last close As at 22/05/2024

35.50

0.00 (0.00%)

Market capitalisation

49m

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Research: TMT

Ebiquity — Margin boost from digital media solutions

Ebiquity’s trading update shows revenues are in line with our forecasts, but with a much better operating profit performance at £4.7m versus £4.1m. This reflects strong progress made in its newer (higher margin) digital media solutions and prudent cost management, accelerating the timing of modelled margin recovery. It has also translated into faster improvement in the balance sheet, with year-end net debt of £4.8m, against our forecast £8.7m. The group has made a small acquisition in Canada, extending North American capability. The shares have performed very strongly over the last year, yet the rating remains attractive.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Ebiquity

Margin boost from digital media solutions

Trading update

Media

1 February 2022

Price

59.25p

Market cap

£49m

Net debt (£m) at 31 December 2021

4.8

Shares in issue

82.7m

Free float

78.4%

Code

EBQ

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

18.5

13.9

189.0

Rel (local)

19.0

12.2

151.1

52-week high/low

61p

18p

Business description

Ebiquity is a leading, independent global media consultancy, working for over 70 of the world’s 100 leading brands to optimise their media investments.

Next events

FY21 results

25 Mar 22

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Ebiquity is a research client of Edison Investment Research Limited

Ebiquity’s trading update shows revenues are in line with our forecasts, but with a much better operating profit performance at £4.7m versus £4.1m. This reflects strong progress made in its newer (higher margin) digital media solutions and prudent cost management, accelerating the timing of modelled margin recovery. It has also translated into faster improvement in the balance sheet, with year-end net debt of £4.8m, against our forecast £8.7m. The group has made a small acquisition in Canada, extending North American capability. The shares have performed very strongly over the last year, yet the rating remains attractive.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

68.1

4.7

2.9

0.0

20.4

0.0

12/20

55.9

(1.3)

(1.9)

0.0

N/A

0.0

12/21e

63.0

3.8

3.7

0.5

16.0

0.8

12/22e

69.3

5.3

4.9

1.3

12.1

2.2

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

Increased FY21 figures, FY22 maintained

We have raised our FY21 earnings numbers to reflect the trading update, which indicates the digital media solutions have been performing well. With the full-year results on 25 March, we expect Ebiquity to update on the operational KPI metrics (see our September update), which will offer greater granularity, and give more details on products being rolled out. The adjusted operating margin forecast for FY21 was lifted from 5.7% to 6.5% at the interims and is now 7.5%, implying very good cost control and an acceleration of the recovery previously expected to be more weighted to FY22e. We leave our FY22 forecasts unchanged for now, pending publication of the full FY21 results. We anticipate the adjusted operating margin increasing to 8.9% (unchanged) as the mix shifts towards digital solutions.

Front foot from strong cash performance

Good H221 trading has translated into a very strong cash performance, with year-end net debt of £4.8m (being cash of £13.2m and gross debt of £18.0m). This is considerably better than anticipated and reflects tight control of working capital. The group has also announced a small acquisition in Canada of the market’s leading media performance consultancy, with revenues of C$1.1m. While modest, we take this as an indication of greater management confidence.

Valuation: Sizeable discount remains

The share price has trebled from its nadir of 18.4p in February 2021, partly due to the more robust recovery in global advertising markets, but also attributable to much greater confidence in the group’s business model and potential for growth. Despite the strong share price performance, the rating remains at a sizeable discount to marketing service peers. Parity across FY22 P/E, EV/EBITDA and EV/EBIT would suggest a value of 90p, well ahead of the current price.

Exhibit 1: Financial summary

£000s

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

31-Dec

31-Dec

31-Dec

31-Dec

Revenue

 

 

68,133

55,907

63,000

69,300

Cost of Sales

(36,212)

(31,219)

(33,390)

(36,729)

Gross Profit

31,921

24,687

29,610

32,571

EBITDA

 

 

8,603

1,797

6,215

7,650

Operating Profit (before amort. and except.)

 

 

5,567

(334)

4,700

6,200

Amortisation of acquired intangibles

(1,169)

(1,122)

(1,122)

(1,122)

Highlighted items

(9,044)

(3,325)

(3,153)

0

Share-based payments

(117)

1,906

(150)

(150)

Reported operating profit

(4,763)

(2,875)

275

4,928

Net Interest

(898)

(875)

(884)

(900)

Joint ventures & associates (post tax)

0

0

0

0

Forex

0

(137)

0

0

Profit Before Tax (norm)

 

 

4,669

(1,346)

3,815

5,300

Profit Before Tax (reported)

 

 

(5,661)

(3,887)

(610)

4,028

Reported tax

(1,477)

150

(916)

(1,272)

Profit After Tax (norm)

2,738

(1,372)

2,900

3,364

Profit After Tax (reported)

(7,138)

(3,737)

(1,525)

2,756

Minority interests

(451)

(186)

76

(137)

Discontinued operations

(1,018)

220

0

0

Net income (normalised)

2,275

(1,557)

2,978

3,230

Net income (reported)

(8,156)

(3,703)

(1,449)

2,619

Average Number of Shares Outstanding (m)

79.5

81.6

80.6

78.6

EPS - normalised (p)

 

 

2.9

(1.9)

3.7

4.9

EPS - normalised continuing diluted (p)

 

 

2.8

(1.9)

3.7

4.9

EPS - basic reported (p)

 

 

(10.8)

(4.8)

(1.8)

3.3

Dividend per share (p)

0.00

0.00

0.50

1.25

EBITDA Margin (%)

12.6

3.2

9.9

11.0

Normalised Operating Margin

8.2

-0.6

7.5

8.9

BALANCE SHEET

Fixed Assets

 

 

47,060

44,322

42,899

41,728

Intangible Assets

35,172

34,698

33,461

32,289

Tangible Assets

10,902

8,199

8,013

8,014

Tax, receivables, Investments & other

986

1,425

1,425

1,425

Current Assets

 

 

35,074

35,610

36,952

40,568

Stocks

0

0

0

0

Debtors

26,838

24,318

23,612

29,429

Cash & cash equivalents

8,236

11,121

13,200

11,000

Other

0

171

140

140

Current Liabilities

 

 

(21,195)

(22,189)

(26,329)

(27,268)

Creditors

(14,659)

(15,986)

(17,574)

(18,513)

Tax and social security

(4,424)

(1,953)

(1,953)

(1,953)

Short term borrowings (incl. positive loan fees)

22

45

45

45

Other incl lease liabilities

(2,134)

(4,295)

(6,847)

(6,847)

Long Term Liabilities

 

 

(23,047)

(26,997)

(24,293)

(24,293)

Long term borrowings

(13,868)

(19,675)

(18,045)

(18,045)

Other long term liabilities

(9,179)

(7,322)

(6,248)

(6,248)

Net Assets

 

 

37,892

30,746

29,230

30,736

Minority interests

1,179

442

425

425

Shareholders' equity

 

 

36,713

30,304

28,805

30,311

CASH FLOW

Op Cash Flow before WC and tax

8,603

1,797

6,215

7,650

Working capital

(702)

4,171

2,248

(4,877)

Exceptional & other

(2,962)

(3,325)

(520)

0

Tax

(1,345)

(2,285)

(914)

(1,272)

Operating Cash Flow

 

 

3,594

358

7,029

1,502

Capex

(3,235)

(1,316)

(1,500)

(1,499)

Acquisitions/disposals

23,862

(2,118)

(486)

(460)

Net interest

(718)

(550)

(884)

(900)

Equity financing

253

0

0

0

Dividends

(1,052)

(444)

(450)

(843)

Other

0

0

0

0

Net Cash Flow

22,704

(4,070)

3,709

(2,200)

Opening net debt/(cash)

 

 

27,486

5,610

8,509

4,800

FX

(204)

117

0

0

Other non-cash movements

(624)

1,055

0

0

Closing net debt/(cash)

 

 

5,610

8,509

4,800

7,000

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Ebiquity and prepared and issued by Edison, in consideration of a fee payable by Ebiquity. 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 2022 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 Ebiquity and prepared and issued by Edison, in consideration of a fee payable by Ebiquity. 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 2022 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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