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Research: TMT
The mission has again posted good growth in revenue and earnings, with both increasing by 8%, well ahead of FY16 ad spend at 4.4% (WARC). FY17 forecasts are unchanged. Start-ups and acquisitions are adding to the mission’s reach and breadth, increasing opportunities for cross-selling to the loyal client base (20% of revenues are from 20-year+ relationships). Margins should improve as recent start-ups move into profit and investment in technology and software products translate into sales and profit. The shares trade on an overly large discount.
The Mission Marketing Group |
Mission on track
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23 March 2017 |
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The Mission Marketing Group is a research client of Edison Investment Research Limited |
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The mission has again posted good growth in revenue and earnings, with both increasing by 8%, well ahead of FY16 ad spend at 4.4% (WARC). FY17 forecasts are unchanged. Start-ups and acquisitions are adding to the mission’s reach and breadth, increasing opportunities for cross-selling to the loyal client base (20% of revenues are from 20-year+ relationships). Margins should improve as recent start-ups move into profit and investment in technology and software products translate into sales and profit. The shares trade on an overly large discount.
Invest and grow
Continuing to add disciplines and capabilities through start-ups, new product development and acquisitions increases opportunities to take a larger share of client spend, helped by the agencies working more closely together. A central team, Fuse, has been set up to promote the IP and technology products developed within group agencies to broader markets. Net bank debt at year end was £11.3m (FY15: £10.9m), despite deferred consideration payments of £3.2m and capex of £1.7m (including £0.8m on software). With lower acquisition obligations for FY17e at £1.6m and strong underlying cash conversion, there is plenty of fire power to keep investment levels up. The priorities are to back growth in existing agencies and increase exposure to faster growing areas such as data and healthcare.
New KPIs and option targets indicate ambition
The group’s newly published KPIs are for revenue growth of at least 5% and an improvement in operating margins from the current 11.5% to 14% within three years. This would support the PBT CAGR target of 10%, as built into new FY18 forecasts. Over the last five years, revenues have grown at a 12% CAGR, with a faster rise at the pre-tax level as the debt has fallen. The debt KPI is for net bank debt/EBITDA to remain under 2.0x (FY16:1.3x) and total debt to EBITDA below 2.5x (FY16: 1.7x). A new management retention and incentive scheme will only trigger when the share price exceeds 75p/share over 15 consecutive dealing days.
Valuation: Overstated discount
The mission continues to trade in a range of 38-47p, representing a substantial discount to other quoted marketing/comms businesses. The current price puts it on an FY17e EV/EBITDA of 4.4x, compared to the sector at 7.8x, a 44% discount. The size of this discount is difficult to justify given the earnings and dividend growth and the substantial improvement in the state of the balance sheet.
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Consensus estimates
Source: Company accounts, Bloomberg |
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Disclaimer
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Disclaimer
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Prima BioMed has presented encouraging early signs of efficacy from the TACTI-mel trial of IMP321 in combination with Keytruda, with one of the six melanoma patients in the first (1mg/kg) cohort experiencing a complete response. Recruitment in the second cohort is complete and the final cohort is expected to be fully recruited by Q317. Preliminary efficacy data from the 15-patient, run-in phase of the AIPAC breast cancer study are expected mid-year (recruitment in the 226-patient Phase IIb component is ongoing). Our valuation is unchanged at A$252m (12c per share).