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Research: TMT
Ebiquity has had a good first half, with a 20% uplift in revenues and a return to operating profit, with an underlying operating margin of 7%. Our expectations for the full year and for FY22e are edged up, although there remain notes of caution around prospects in some sectors in H2. Ebiquity is making good progress with its digital activities and product solutions, which we expect to support the medium-term growth. The share price performance year-to-date has been strong (up 194%), but the valuation remains at a sizeable discount to peers.
Ebiquity |
Progress in delivery of strategy |
Interim results |
Media |
27 September 2021 |
Share price performance
Business description
Next events
Analysts
Ebiquity is a research client of Edison Investment Research Limited |
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Ebiquity has had a good first half, with a 20% uplift in revenues and a return to operating profit, with an underlying operating margin of 7%. Our expectations for the full year and for FY22e are edged up, although there remain notes of caution around prospects in some sectors in H2. Ebiquity is making good progress with its digital activities and product solutions, which we expect to support the medium-term growth. The share price performance year-to-date has been strong (up 194%), but the valuation remains at a sizeable discount to peers.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
68.1 |
4.7 |
2.9 |
0.0 |
20.2 |
N/A |
12/20 |
55.9 |
(1.3) |
(1.9) |
0.0 |
N/A |
N/A |
12/21e |
63.0 |
3.2 |
3.1 |
0.5 |
18.9 |
0.9 |
12/22e |
69.3 |
5.3 |
4.9 |
1.3 |
11.9 |
2.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY21e and FY22e numbers edged ahead
Ebiquity’s good first half reflects a stronger underlying market as advertising spend has rebounded, with an element of catch-up from work delayed from FY20 and enhanced by the growth from the group’s newer digital media solutions. Ebiquity also had the benefit of new business won in Q421 and the full year effect of work won post Accenture’s withdrawal from the market. Most sectors have recovered strongly, bar the obvious such as transport and tourism, but management notes that supply chain issues in the broader global economy are curbing the recovery in advertising spend in sectors such as automotive and consumer electronics. This slight caution is reflected in our revised forecasts, where we have raised FY21e revenue expectations from £61m to £63m, with £32m achieved in H121. For FY22e, the figure rises by £1m to £69.3m. Adjusted operating profit rises from £3.5m to £4.1m for FY21e and from £5.9m to £6.2m for FY22e, indicating a good uplift in operating margin to 6.5% for the current year and to 8.9% for the next.
Broadening out the geographic profile
Ebiquity’s client roster is of high quality, particularly in the UK and Europe. Management is tackling its under-weighted exposure to the United States (8.4% of FY20 revenues) and new business wins of a leading food and beverage company alongside global business from Amazon should shift the dial here. Progress is also being made in Asia-Pacific, where ‘significant’ business has been won with Huawei and MengNiu in China. The group plans to start to offer services in India in H221.
Valuation: Sizeable discount remains
In the year to date, Ebiquity’s shares are up by 194%, having bottomed at 18.4p in February. Marketing services peers have gained 82% on average as the outlook for advertising spend has firmed up. Parity with these peers for FY22 across P/E, EV/EBITDA and EV/EBIT multiples would suggest a value of 98p. This is a good uplift on the 77p cited in our last report, reflecting the strong sector performance.
Good progress in H121
As can be seen in the table below, Media comprises the main part of revenues (84% of H121). Within this segment, the agency pitch environment was particularly busy, with many selection processes for major brands having been carried over from FY20. New review mandate business was won from Unilever, Ferrero, BMW and Daimler, among others. There was also an element of catch-up in the Contract Compliance activity, with the collation of data and on-site audits made easier by loosening COVID-19 restrictions.
Digital media solutions are starting to make more of an impression, which should be more apparent when progress on the key operational metrics is given for the full year.
The emphasis on growing the revenues from key clients cross-selling more products is also starting to bear fruit, with a 28% uplift in revenues from global, multi-market media projects.
With the prospect of the re-emergence of inflation, clients are especially keen to ensure that they achieve a good return on their marketing spend.
Exhibit 1: H1 segmental split
£m |
Media |
Analytics & Tech |
Total |
||||||
H121 |
H120 |
% change |
H121 |
H120 |
% change |
H121 |
H120 |
% change |
|
Revenue |
26.8 |
21.9 |
22% |
5.2 |
4.9 |
7% |
32.0 |
26.8 |
20% |
Operating profit |
5.3 |
2.4 |
124% |
0.4 |
(0.7) |
N/A |
5.7 |
1.7 |
245% |
Operating margin |
20% |
11% |
8% |
-15% |
18% |
6% |
|||
Unallocated costs |
(3.4) |
(3.0) |
|||||||
Operating (loss)/profit |
2.3 |
(1.4) |
|||||||
Group underlying operating margin |
7% |
-5% |
|||||||
Source: Ebiquity accounts
The Analytics and Tech practice has returned to profit in the first half.
Key objectives should drive revenue and margin
As presented with the final results (covered in out March update note), management has set out clear objectives and operational metrics. With these H121 figures, it has disclosed the baselines for the metrics as at end December 2020, which will be reported against annually. However, an indication was given of broad progress, as shown in the table below.
Exhibit 2: Progress on metrics
Operational metric |
Baseline measure in 2020 |
Current progress |
Number of clients buying two or more service lines |
59 clients |
In line |
Number of clients buying one or more products from the new digital solutions portfolio |
10 clients |
Ahead |
Volume of digital impressions processed, analysed and reported on the platform |
112bn impressions |
Ahead |
Value of digital advertising processed, analysed, and reported on the platform |
US$0.46bn |
Ahead |
Proportion of revenue relating to digital media (media performance and media management service lines) |
25% |
In line |
Source: Ebiquity
Regarding the three core objectives, the roll-out of the productised digital services – key to scaling the business – continues, with the first, ‘Sourcing and Monitoring’, launched in H121 and two more, ‘Governance’ and ’Audience Data Assessment’, launched in July. Of these, the Sourcing and Monitoring is likely to achieve the greatest scale, although the Governance objective (which tracks and monitors through automated ingestion and reporting) could achieve similar revenues. Audience Data Assessment, which relates to online audience targeting, is more project-based. A solution targeted at ‘Responsible Media Investment’ is also being piloted currently. More products are in development and set to be rolled-out through H221 and H122.
The increased focus on strategic high-value clients is also starting to deliver. Client partners have been put in place in New York and Amsterdam, with a third to be appointed in Paris in Q421. The drive to internationalise the business referred to above is being supported by additional resource in North America and Asia-Pacific.
The group has been reorganised along geographic reporting lines, which increases operational efficiency and facilitates a more client-centric model and increases cross-selling opportunities. This objective is also being implemented through greater use of off-shoring and near-shoring, particularly using the Madrid-based Media Operations Centre, with some support for the US market possibly being transferred to Guatemala.
Increased deferred consideration for Digital Decisions
The group is taking a £2.4m charge to accrue for post-date remuneration payable relating to the acquisition of Digital Decisions, bought in January 2020. This is contingent on the principal vendor, Ruben Schreurs, remaining in the group’s employment. He was appointed group chief product officer in February 2021, in charge of the Digital Innovation Centre. The contingent consideration is based on the average profit to be generated from that unit over FY21 and FY22 on a multiple of six times. This is currently estimated at £10.2m, to be paid in FY23 and therefore beyond our current modelling horizon.
Strong cash conversion buoys balance sheet
Underlying cash from operations in H121 of £3.4m represented conversion of 149% of underlying operating profit (reported operating cash flow of £2.9m was after £0.5m of payments made for items accrued as at 31 December 2020, mainly relating to severance or re-organisation costs). Net debt at the half-year was £9.6m. The additional US Paycheck Protection Program ‘debt’ of £0.7m was forgiven post period end and will therefore convert to a grant in H221. From this month, the group will revert to bank covenants based on EBITDA leverage from the liquidity covenants put in place to reflect the onerous trading conditions during the pandemic. The group is trading comfortably within these leverage covenants.
Increase to forecasts
We had signalled at the trading update that the pressure on forecasts was likely to be on the upside. Our new FY21 revenue forecast of £63m implies H221 revenue of £31m, which would be a 6% uplift on H220. While this is considerably lower than the 20% growth posted for H121, we note that (as described above) there looks to have been a degree of catching up in those figures. There is also a degree of caution regarding the outlook for advertising spend by the automotive sector and other segments of the global economy affected by the current supply chain issues.
Exhibit 3: Summary financial changes
EPS (p) |
PBT (£m) |
EBITDA (£m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2020 |
(1.9) |
- |
(1.3) |
- |
1.8 |
- |
|||
2021e |
2.5 |
3.1 |
+24 |
2.6 |
3.2 |
+23 |
5.0 |
5.6 |
+12 |
2022e |
4.7 |
4.9 |
+4 |
5.0 |
5.3 |
+6 |
7.4 |
7.7 |
+4 |
Source: Ebiquity accounts, Edison Investment Research
Exhibit 4: Financial summary
£000s |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
68,133 |
55,907 |
63,000 |
69,300 |
Cost of Sales |
(36,212) |
(31,219) |
(33,705) |
(36,729) |
||
Gross Profit |
31,921 |
24,687 |
29,295 |
32,571 |
||
EBITDA |
|
|
8,603 |
1,797 |
5,615 |
7,650 |
Operating Profit (before amort. and except.) |
|
|
5,567 |
(334) |
4,100 |
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) |
(325) |
4,928 |
||
Net Interest |
(898) |
(875) |
(924) |
(917) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Forex |
0 |
(137) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
4,669 |
(1,346) |
3,176 |
5,283 |
Profit Before Tax (reported) |
|
|
(5,661) |
(3,887) |
(1,249) |
4,011 |
Reported tax |
(1,477) |
150 |
(762) |
(1,268) |
||
Profit After Tax (norm) |
2,738 |
(1,372) |
2,414 |
3,351 |
||
Profit After Tax (reported) |
(7,138) |
(3,737) |
(2,011) |
2,743 |
||
Minority interests |
(451) |
(186) |
100 |
(137) |
||
Discontinued operations |
(1,018) |
220 |
0 |
0 |
||
Net income (normalised) |
2,275 |
(1,557) |
2,516 |
3,217 |
||
Net income (reported) |
(8,156) |
(3,703) |
(1,911) |
2,606 |
||
Average Number of Shares Outstanding (m) |
79.5 |
81.6 |
80.6 |
78.6 |
||
EPS - normalised (p) |
|
|
2.9 |
(1.9) |
3.1 |
4.9 |
EPS - normalised continuing diluted (p) |
|
|
2.8 |
(1.9) |
3.1 |
4.9 |
EPS - basic reported (p) |
|
|
(10.8) |
(4.8) |
(2.4) |
3.3 |
Dividend per share (p) |
0.00 |
0.00 |
0.50 |
1.25 |
||
EBITDA Margin (%) |
12.6 |
3.2 |
8.9 |
11.0 |
||
Normalised Operating Margin |
8.2 |
-0.6 |
6.5 |
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 |
37,325 |
41,136 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
26,838 |
24,318 |
26,236 |
29,429 |
||
Cash & cash equivalents |
8,236 |
11,121 |
10,950 |
11,568 |
||
Other |
0 |
171 |
140 |
140 |
||
Current Liabilities |
|
|
(21,195) |
(22,189) |
(24,859) |
(25,547) |
Creditors |
(14,659) |
(15,986) |
(16,759) |
(17,446) |
||
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) |
(6,192) |
(6,193) |
||
Long Term Liabilities |
|
|
(23,047) |
(26,997) |
(26,997) |
(26,997) |
Long term borrowings |
(13,868) |
(19,675) |
(19,675) |
(19,675) |
||
Other long term liabilities |
(9,179) |
(7,322) |
(7,322) |
(7,322) |
||
Net Assets |
|
|
37,892 |
30,746 |
28,368 |
30,320 |
Minority interests |
1,179 |
442 |
425 |
425 |
||
Shareholders' equity |
|
|
36,713 |
30,304 |
27,943 |
29,895 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
8,603 |
1,797 |
5,615 |
7,650 |
||
Working capital |
(702) |
4,171 |
(1,144) |
(2,505) |
||
Exceptional & other |
(2,962) |
(3,325) |
(520) |
0 |
||
Tax |
(1,345) |
(2,285) |
(762) |
(1,268) |
||
Operating Cash Flow |
|
|
3,594 |
358 |
3,188 |
3,877 |
Capex |
(3,235) |
(1,316) |
(1,500) |
(1,499) |
||
Acquisitions/disposals |
23,862 |
(2,118) |
(486) |
0 |
||
Net interest |
(718) |
(550) |
(924) |
(917) |
||
Equity financing |
253 |
0 |
0 |
0 |
||
Dividends |
(1,052) |
(444) |
(450) |
(843) |
||
Other |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
22,704 |
(4,070) |
(172) |
618 |
||
Opening net debt/(cash) |
|
|
27,486 |
5,610 |
8,509 |
8,680 |
FX |
(204) |
117 |
0 |
0 |
||
Other non-cash movements |
(624) |
1,055 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
5,610 |
8,509 |
8,680 |
8,062 |
Source: Ebiquity accounts, Edison Investment Research
|
|
Research: TMT
1Spatial continued its streak of winning big contracts in the UK and today announced the award of an £8m new multi-year contract, in partnership with a consortium and following a competitive tender, with a department of the UK government. We believe this is its biggest win in company history, two weeks after announcing its c £6.5m contract with the UK government’s Geospatial Commission. The contract will deliver a multi-year digital transformation programme for the department, and we expect management will provide further details on the contract when it releases interim results on 29 September. As a result, we plan to adjust our FY22 and FY23 forecasts once those are announced. Our attention remains on the long-term growth of the geospatial market, with growth rates likely to increase from FY22 through FY23. We are encouraged by the contract momentum and see scope for acceleration, as the UK government’s ‘Build back better and greener’ initiative continues to provide tailwinds for the spatial data market.