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Research: TMT
The Marketing Group (TMG) achieved revenues of €7.2m and an EBITDA of €0.125m in Q117, with the strong performance by the majority of group companies diluted by weaker performance from others. The newly-configured board is currently addressing these issues and is working through the development of a revised strategy that will be presented to the market with the interim results in mid-August. Management expects the group’s financial performance to improve as the year progresses. With no market forecasts as yet, forward-looking valuation metrics are not usable and the historic FY16 P/E of 6.5x is on part-year earnings.
The Marketing Group |
New board, strategy being refreshed
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16 May 2017 |
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The Marketing Group is a research client of Edison Investment Research Limited |
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The Marketing Group (TMG) achieved revenues of €7.2m and an EBITDA of €0.125m in Q117, with the strong performance by the majority of group companies diluted by weaker performance from others. The newly-configured board is currently addressing these issues and is working through the development of a revised strategy that will be presented to the market with the interim results in mid-August. Management expects the group’s financial performance to improve as the year progresses. With no market forecasts as yet, forward-looking valuation metrics are not usable and the historic FY16 P/E of 6.5x is on part-year earnings.
Full, experienced board team in place
TMG now has a full executive and non-executive team in position. The new non-executives confirmed at April’s AGM are: Glen Fraser, principal and owner of Third Eye, an Australia-based brand strategy consultancy, with an extensive marketing services background (Australia/New Zealand: 32% of TMG’s FY16 revenues); and Martin Blair, who has experience as CFO across a number of quoted businesses and who also adds IT systems expertise. Don Elgie (founder of Creston) is non-executive chairman and Mike McElhatton (ex-Havas) was appointed CFO on 1 March. Directors who have now stood down (holding a total of 20.2% of the equity) have entered into orderly market arrangements for three years post the expiry of earlier lock-ins.
Mixed outcome from Q117
The first phase post TMG’s June 2016 listing involved a rapid spate of acquisitions of specialist marketing companies for paper, building to 17 subsidiaries across eight countries by end FY16. The new board’s priority in this second phase has been to evaluate those companies and how they can best work collaboratively, without stifling their entrepreneurial spirit with restrictive bureaucracy. The consolidated financial results for Q117 are disappointing, but the statement indicates that the core businesses generated €563k of EBITDA, so a resolution through turnaround or disposal of the more problematic group companies would improve returns as the year progresses. Net cash at end March was €0.3m, from €1.4m at end FY16.
Valuation: Early-stages
With such a short financial record, no estimates as yet and a totally new board, valuation is inevitably subjective, particularly given the degree of uncertainty ahead of the publication of the strategic review due in August. A 6.5x historic P/E (on a few months, rather than one year, of earnings) looks to be heavily discounting the risks, but much depends on the timing and scale of the turnaround of the underperforming assets.
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Source: Company accounts |
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Research: Energy & Resources
Hurricane Energy’s 2016/17 drilling programme has significantly increased understanding of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) hydrocarbon accumulations. Initial data analysis suggests that the GLA is one large accumulation including the Halifax and Lancaster basement oil discoveries contained between the Westray Fault Zone and Brynhild Fault Zone. RPS resource estimates for Lancaster alone range from 157-1,166mmbbls recoverable (P50 523mmbbls), making it a giant oil field and one of the largest discoveries on the UKCS over the last decade. Incorporating wider GLA and GWA resource is likely to take this figure to upwards of 1bnbbls, 100% owned by Hurricane. Management expects first oil from a Lancaster early production system (EPS) in 2019, with the company looking at equity and debt funding options. We assume a 60/40 equity to debt split in our latest Lancaster NAV of 102p/share, rising to 134p/share including risked Halifax/Lincoln upside.