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Market capitalisation
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Research: TMT
The MISSION’s H120 results were as indicated at the trading update, with headline pre-tax loss of £2.2m. H220 looks stronger, with new clients and new business and the continuing benefit of a broad agency portfolio across verticals. It is adding central resource to service group agencies efficiently, setting up a digital production studio and using recently acquired Innovationbubble for behavioural consultancy. Careful cash management reduced net debt to £0.9m at end June, with annualised cost savings of £0.7m targeted. Our unchanged PBT and EPS forecasts leave the shares trading below peers.
The MISSION Group |
Shaping up for resuming growth |
Interim results |
Media |
23 September 2020 |
Share price performance
Business description
Next events
Analyst
The MISSION Group is a research client of Edison Investment Research Limited |
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The MISSION’s H120 results were as indicated at the trading update, with headline pre-tax loss of £2.2m. H220 looks stronger, with new clients and new business and the continuing benefit of a broad agency portfolio across verticals. It is adding central resource to service group agencies efficiently, setting up a digital production studio and using recently acquired Innovationbubble for behavioural consultancy. Careful cash management reduced net debt to £0.9m at end June, with annualised cost savings of £0.7m targeted. Our unchanged PBT and EPS forecasts leave the shares trading below peers.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
77.6 |
9.2 |
8.5 |
2.1 |
7.4 |
3.3 |
12/19 |
81.0 |
10.2 |
9.0 |
0.8 |
7.0 |
1.3 |
12/20e |
62.7 |
0.5 |
0.7 |
0.0 |
90.0 |
N/A |
12/21e |
76.1 |
9.0 |
7.7 |
1.8 |
8.2 |
2.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Portfolio benefits
Property and events have obviously been areas most affected by the pandemic, with revenues down 80% at the nadir, but the technology and healthcare segments are performing well, up year-on-year in H120. Longstanding client relationships and the group’s partnership approach have been instrumental in protecting revenues. New assignments and new clients have also been won, with Bray Leino adding two significant client wins: INEOS; and a digital programme in China for Croda Trading. Revenues at April Six, a specialist technology and mobility agency, were +8% over H119, with work for the European Space Agency, Scania Europe and Rimini Street. Healthcare agency, RJW, posted a particularly strong performance, with revenues up 20%. Pathfindr, the group’s asset tracking business, has hit a rich vein with its Safe Distancing Assistant product, attracting over 200 customers to date.
Careful financial management pays
Cash conservation measures, including use of furlough for parts of the business most affected by COVID-19, a shortened working week and voluntary pay reductions all contributed to containing the H1 loss. The balance sheet also benefited from a pause on non-essential capex, use of the Time to Pay scheme (tax and VAT), deferral of the dividend and the delaying of vendor payments. In H120 £1.6m was paid on acquisitions, with a further £0.6m scheduled for H220. A reappraisal of office space will lead to £0.7m of annualised savings. Net debt at the half year was just £0.9m as a result of these measures, but we would expect an unwinding of this in H220. Our year-end projection is for net debt of £8.2m (was £8.3m).
Valuation: Still trading below peers
A degree of visibility is now creeping back into consensus forecasts (albeit highly subjective to assumptions on speed and scale of the recovery). MISSION’s shares trade at a discount to peers on EV/EBIT and P/E averaged over FY19, FY20e and FY21e. Parity indicates a share price of 78.25p, 23% above the current level.
H120: Differing experiences by agency
The broad spread of the agency verticals covers a range of experiences of the commercial consequences of the coronavirus pandemic, which get somewhat lost within the segmental reporting that discloses performance by activity. Detailed descriptions of the underlying business are available in our July initiation report. Agencies such as ThinkBDW, which is a specialist marketer for the property sector, were heavily affected through the Q2 lockdowns, whereas specialist healthcare agency, RJW, was well placed to benefit.
As shown below, overall group operating income (revenue), was 25.7% lower than H119. A 13.2% reduction in operating expenses, through the measures taken as described above, restricted the level of group operating loss to £1.8m, from a profit of £2.6m in the comparative period.
Exhibit 1: Summary H120 income statement
£'000s |
H119 |
H219 |
FY19 |
H120 |
Y-o-y change |
Advertising & Digital |
31,560 |
32,950 |
64,510 |
22,933 |
-27.3% |
Exhibitions & Learning |
2,361 |
2,865 |
5,226 |
1,839 |
-22.1% |
Media Buying |
1,880 |
1,814 |
3,694 |
1,475 |
-21.5% |
PR |
3,359 |
4,183 |
7,542 |
2,833 |
-15.7% |
Total operating income |
39,160 |
41,812 |
80,972 |
29,080 |
-25.7% |
Headline operating expenses |
(35,545) |
(34,674) |
(70,219) |
(30,862) |
-13.2% |
Acquisition adjustments |
(925) |
(395) |
(1,320) |
166 |
|
Start-up costs |
(74) |
(357) |
(431) |
(212) |
|
Loss on investments |
0 |
(109) |
(109) |
0 |
|
Operating (loss) / profit |
2,616 |
6,277 |
8,893 |
(1,828) |
|
PBT |
2,396 |
5,898 |
8,294 |
(2,270) |
|
Headline, diluted EPS (p) |
3.12 |
5.88 |
9.00 |
(1.92) |
Source: Company accounts
Positioning to catch the upside
In the interview below, CEO James Clifton, shares what he thinks the coronavirus pandemic has revealed about the group and its clients, as well as the moves the management team has made to protect the business. He also gives more detail on recent initiatives, such as the MISSION Made digital studio resource and what the Innovationbubble acquisition adds. James then looks at whether the industry will be fundamentally changed by these last few months’ experience.
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Exhibit 2: Interview with James Clifton, CEO |
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Source: Edison Investment Research |
Exhibit 3: Financial summary
£'000s |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Turnover |
|
|
159,916 |
171,091 |
128,107 |
159,535 |
Cost of Sales |
(82,331) |
(90,118) |
(65,448) |
(83,425) |
||
Revenue |
77,585 |
80,972 |
62,659 |
76,110 |
||
EBITDA |
|
|
11,334 |
12,225 |
2,636 |
10,707 |
Operating Profit (before amort. and except.) |
|
9,919 |
10,753 |
1,386 |
9,557 |
|
Intangible Amortisation |
(1,286) |
(1,980) |
(1,004) |
(1,004) |
||
Headline Adjustments |
(546) |
(990) |
(450) |
(500) |
||
Other |
(1) |
69 |
85 |
90 |
||
Operating Profit |
8,086 |
7,852 |
701 |
8,817 |
||
Net Interest |
(735) |
(668) |
(922) |
(599) |
||
Profit Before Tax (norm) |
|
|
9,183 |
10,154 |
549 |
9,048 |
Profit Before Tax (FRS 3) |
|
|
7,722 |
8,294 |
99 |
7,633 |
Tax |
(1,710) |
(1,868) |
32 |
(1,994) |
||
Profit After Tax (norm) |
7,473 |
8,286 |
581 |
7,054 |
||
Profit After Tax (FRS 3) |
6,012 |
6,426 |
131 |
5,639 |
||
Average Number of Shares Outstanding (m) |
83.3 |
84.1 |
88.2 |
91.1 |
||
EPS - normalised (p) |
|
|
8.7 |
9.5 |
0.7 |
7.8 |
EPS - normalised fully diluted (p) |
|
|
8.5 |
9.0 |
0.7 |
7.7 |
EPS - (IFRS) (p) |
|
|
7.1 |
7.5 |
0.0 |
6.1 |
Dividend per share (p) |
2.1 |
0.8 |
0.0 |
1.8 |
||
Gross Margin (%) |
48.5 |
47.3 |
48.9 |
47.7 |
||
EBITDA Margin (%) |
7.1 |
7.1 |
2.1 |
6.7 |
||
Operating Margin (before GW and except.) (%) |
6.2 |
6.3 |
1.1 |
6.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
107,002 |
107,396 |
109,241 |
111,175 |
Intangible Assets |
96,121 |
95,859 |
98,304 |
100,388 |
||
Tangible Assets |
10,858 |
11,360 |
10,760 |
10,610 |
||
Investments/ other |
23 |
177 |
177 |
177 |
||
Current Assets |
|
|
46,476 |
47,117 |
34,772 |
41,567 |
Stocks |
850 |
1,091 |
792 |
1,010 |
||
Debtors |
39,727 |
40,998 |
32,290 |
38,026 |
||
Cash |
5,899 |
5,028 |
1,690 |
2,531 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(40,986) |
(40,181) |
(34,108) |
(39,564) |
Creditors |
(40,986) |
(40,181) |
(34,108) |
(39,564) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(24,896) |
(22,031) |
(19,936) |
(16,873) |
Long term borrowings |
(9,886) |
(9,927) |
(9,927) |
(9,927) |
||
Other long-term liabilities |
(15,010) |
(12,104) |
(10,009) |
(6,946) |
||
Net Assets |
|
|
87,596 |
92,301 |
89,969 |
96,305 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
11,684 |
10,454 |
2,411 |
8,699 |
Net Interest |
(826) |
(626) |
(922) |
(599) |
||
Tax |
(1,906) |
(1,805) |
32 |
(1,994) |
||
Capex |
(1,361) |
(2,169) |
(900) |
(1,350) |
||
Acquisitions/disposals |
(670) |
(2,839) |
(3,424) |
(3,063) |
||
Financing/other |
(1,938) |
(2,096) |
(536) |
(319) |
||
Dividends |
(1,695) |
(1,831) |
0 |
(532) |
||
Net Cash Flow |
3,288 |
(912) |
(3,338) |
841 |
||
Opening net debt/(cash) |
|
|
7,348 |
3,987 |
4,899 |
8,237 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
73 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
3,987 |
4,899 |
8,237 |
7,396 |
Source: Company accounts, Edison Investment Research
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|
Research: Healthcare
H120 adjusted EBITDA of £9.1m was the main positive surprise for us in Ergomed’s full interim report released today. We have increased our adjusted EBITDA forecasts to £18.3m (up 8.6%) in 2020 and £20.1m (up 6.8%) in 2021. A strong order book (£151.4m, up 22.0% from the end of 2019) with high visibility into 2021, continued overall business growth and a strong balance sheet should allow Ergomed to successfully navigate the COVID-19 pandemic, invest in organic growth and look for potential strategic acquisitions. Our valuation is upgraded to £409m or 845p/share.