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Research: TMT
YouGov is continuing to deliver on its growth strategy, with FY17 revenues up 21% y-o-y (9% in constant currency). Data products and services now represent 44% of group revenues. This concentration on its core strengths, using its own proprietary panel, is increasing group margins and giving better visibility to earnings through subscription income. Cash conversion remains strong, allowing continued investment in data analytics, geographic expansion and panel recruitment. The dividend has been stepped up 43%, reflecting the greater maturity of the business model and the cash-rich balance sheet. These strengths are reflected in the continuing valuation premium to peers.
YouGov |
Positive branding |
Preliminary results |
Media |
16 October 2017 |
Share price performance
Business description
Next events
Analysts
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YouGov is continuing to deliver on its growth strategy, with FY17 revenues up 21% y-o-y (9% in constant currency). Data products and services now represent 44% of group revenues. This concentration on its core strengths, using its own proprietary panel, is increasing group margins and giving better visibility to earnings through subscription income. Cash conversion remains strong, allowing continued investment in data analytics, geographic expansion and panel recruitment. The dividend has been stepped up 43%, reflecting the greater maturity of the business model and the cash-rich balance sheet. These strengths are reflected in the continuing valuation premium to peers.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
07/16 |
88.2 |
13.3 |
8.5 |
1.4 |
38.1 |
0.4 |
07/17 |
107.0 |
16.4 |
10.5 |
2.0 |
30.9 |
0.6 |
07/18e |
115.1 |
18.3 |
12.4 |
2.3 |
26.1 |
0.7 |
07/19e |
125.1 |
20.9 |
13.2 |
2.5 |
24.5 |
0.8 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Step up in margins
YouGov’s organic (constant currency) revenue growth of 9% is made up of 29% growth in data products and 19% growth in data services, well ahead of the market, offset by flat revenues from custom research. Within data products and services, BrandIndex grew 20% (constant currency) to £20m, while YouGov Profiles is proving its value to marketing professionals, more than doubling its revenues to £4m. Custom research revenues were flat as it focused on projects that utilised its own panel resource and pared back work in Germany and the Middle East that no longer fit with the model. The change in mix, and the focus on custom research projects that utilise own-panel resource, drove group gross margin up from 78% to 80%, while operating margins climbed from 12.4% to 13.6%. CFO Alan Newman retires at the end of December and the search for a successor is underway.
FY19e forecasts initiated
Our first estimates for FY19 show a continuation of the pattern of growth from data products and services. We are showing 9% revenue growth and an improvement in adjusted operating margin to 14.6% from 13.7% in FY18e. Normalised earnings per share in our model grow 6%, (+18% in FY18e), with a progressive dividend policy.
Valuation: Premium growth reflected in rating
YouGov’s rating remains towards the top of the ranking of global peers. Much of the traditional market research sector still struggles with legacy infrastructures. YouGov continues to refine and productise its offerings, driving a higher earnings CAGR than the sector and funding a progressive dividend stream. The group’s clear and consistent strategy is translating into profits and, at least as importantly, into cash.
Key points from FY17
The key features of the FY17 results are as follows:
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top-line growth of 21% (9% in constant currency)
■
adjusted operating profit up 33%; 24% growth in adjusted EPS
■
growing subscription revenue base
■
BrandIndex now 18% of group revenue, up 20% in constant currency
■
Profiles significant in its own right, with £4m of revenues; also increasingly sold in combination with BrandIndex
■
Omnibus also growing well (up 23% in constant currency) increasing its multi-country studies, especially Asia Pacific.
■
Custom research flat in constant-currency terms as the business is reoriented; operating margin increased from 12.6% to 14.8%
■
legacy and non-core custom research business in Germany and Middle East is wound down or disposed
■
the conspicuous success of the new methodology used for the 2017 UK General Election, which built up from a micro level by constituency and correctly predicted a hung parliament – this approach has potentially significant commercial applications
■
dividend up 43%, with cover now just over 5 times
■
net cash of £23.2m from £15.6 at end-July 2016, £15m at end-January 2017
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Exhibit 1: FY17 operating profit by geography |
Exhibit 2: FY17 operating profit by segment |
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|
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Source: Company accounts, Edison |
Source: Company accounts, Edison |
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Exhibit 1: FY17 operating profit by geography |
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Source: Company accounts, Edison |
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Exhibit 2: FY17 operating profit by segment |
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Source: Company accounts, Edison |
Cash gives options
The group’s inherently strong cash conversion inevitably prompts questions on capital allocation priorities. Acquisitions have not been a focus over recent periods, especially given the potential for premium growth from developing the internally generated business opportunities and by rolling them out internationally. With the increased scale of the business, the lower dividend cover is appropriate and does not compromise the ability to invest. With the current rapid pace of innovation in data science and analytics, YouGov has the firepower to ensure that it can invest organically in order to keep the group at the forefront of developments and to make incremental acquisitions, if necessary.
Exhibit 3: Financial summary
£000s |
2015 |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 July |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
76,110 |
88,202 |
107,048 |
115,064 |
125,075 |
Cost of Sales |
(17,472) |
(19,476) |
(21,339) |
(25,314) |
(27,517) |
||
Gross Profit |
58,638 |
68,726 |
85,709 |
89,750 |
97,559 |
||
EBITDA |
|
|
9,273 |
11,736 |
15,218 |
17,687 |
20,193 |
Operating Profit (before amort. and except). |
|
|
8,529 |
10,921 |
14,515 |
16,984 |
19,490 |
Intangible Amortisation |
(4,633) |
(5,478) |
(6,483) |
(6,500) |
(6,500) |
||
Share based payments |
(669) |
(1,138) |
(1,508) |
(1,200) |
(1,200) |
||
Exceptionals |
(1,072) |
(1,108) |
(488) |
0 |
0 |
||
Other |
41 |
(4) |
116 |
0 |
0 |
||
Operating Profit |
2,196 |
3,193 |
6,152 |
9,284 |
11,790 |
||
Net Interest |
(220) |
1,199 |
254 |
162 |
169 |
||
Profit Before Tax (norm) |
|
|
9,019 |
13,254 |
16,393 |
18,346 |
20,859 |
Profit Before Tax (FRS 3) |
|
|
1,976 |
4,392 |
6,406 |
9,446 |
11,959 |
Tax |
580 |
(2,111) |
(4,912) |
(4,678) |
(6,258) |
||
Profit After Tax (norm) |
9,640 |
11,139 |
13,107 |
13,667 |
14,914 |
||
Profit After Tax (FRS 3) |
3,266 |
3,415 |
4,641 |
5,765 |
7,214 |
||
Average Number of Shares Outstanding (m) |
101.0 |
103.9 |
105.5 |
105.5 |
105.5 |
||
EPS - normalised & fully diluted (p) |
|
|
6.7 |
8.5 |
10.5 |
12.4 |
13.2 |
EPS - FRS 3 (p) |
|
|
3.2 |
3.3 |
4.4 |
5.4 |
6.8 |
Dividend per share (p) |
1.0 |
1.4 |
2.0 |
2.3 |
2.5 |
||
Gross Margin (%) |
77.0 |
77.9 |
80.1 |
78.0 |
78.0 |
||
EBITDA Margin (%) |
12.2 |
13.3 |
14.2 |
15.4 |
16.1 |
||
Operating Margin (before GW and except & share-based payments) (%) |
10.3 |
11.1 |
12.2 |
13.7 |
14.6 |
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BALANCE SHEET |
|||||||
Fixed Assets |
|
|
53,726 |
62,366 |
64,637 |
64,534 |
64,534 |
Intangible Assets |
46,145 |
53,140 |
54,969 |
54,969 |
54,969 |
||
Tangible Assets |
7,377 |
8,984 |
9,323 |
9,323 |
9,323 |
||
Investments |
204 |
242 |
345 |
242 |
242 |
||
Current Assets |
|
|
33,329 |
45,339 |
54,918 |
61,476 |
72,164 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
22,507 |
28,643 |
30,699 |
32,338 |
35,151 |
||
Cash |
10,017 |
15,553 |
23,481 |
28,400 |
36,275 |
||
Current Liabilities |
|
|
(22,983) |
(27,823) |
(34,177) |
(36,989) |
(40,207) |
Creditors |
(22,983) |
(27,823) |
(33,915) |
(36,989) |
(40,207) |
||
Short term borrowings |
0 |
0 |
(262) |
0 |
0 |
||
Long Term Liabilities |
|
|
(2,449) |
(5,793) |
(4,905) |
(4,905) |
(4,905) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(2,449) |
(5,793) |
(4,905) |
(4,905) |
(4,905) |
||
Net Assets |
|
|
61,623 |
74,089 |
80,473 |
84,116 |
91,586 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
10,091 |
14,139 |
18,914 |
19,064 |
22,156 |
Net Interest |
(233) |
11 |
4 |
162 |
169 |
||
Tax |
(730) |
(2,365) |
(2,487) |
(4,854) |
(4,995) |
||
Capex |
(5,754) |
(6,076) |
(7,661) |
(7,000) |
(7,000) |
||
Acquisitions/disposals |
(470) |
(171) |
0 |
0 |
0 |
||
Financing |
454 |
16 |
175 |
0 |
0 |
||
Dividends |
(773) |
(1,028) |
(1,470) |
(2,202) |
(2,465) |
||
Net Cash Flow |
2,585 |
4,526 |
7,475 |
5,170 |
7,865 |
||
Opening net debt/(cash) |
|
|
(7,245) |
(10,017) |
(15,553) |
(23,219) |
(28,400) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
187 |
1,010 |
191 |
11 |
0 |
||
Closing net debt/(cash) |
|
|
(10,017) |
(15,553) |
(23,219) |
(28,400) |
(36,265) |
Source: Company accounts, Edison Investment Research
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Research: TMT
EQS has accelerated its investment plans to take advantage of the timing opportunity as new and complex regulations regarding data privacy, corporate governance, compliance and risk are introduced. With additional spend of €2.2m planned in the current financial year and €5.8m over the following three years, this obviously has an impact on short-term profitability. However, it opens up a broader set of revenue streams from a greater number of potential clients. We have revised our numbers to reflect the financial impact. The share price has reacted positively to the news and the valuation is now broadly in line with global peers.