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Research: TMT
YouGov’s final results to end July showed strong revenue growth (+10% underlying) and a 200bp increase in operating margins. The continuing drive is on growing Data Products and Services and focusing Custom Research on more profitable business. The ambitious targets to improve profitability set in the original five-year plan have been met. The new five-year plan to FY23 targets doubling both revenue and adjusted operating profit margin, as well as achieving a 30% CAGR in EPS (25% EPS CAGR in the earlier plan). In this context, the valuation premium to slower-growing peers looks well underpinned.
YouGov |
Stretch targets exceeded |
Full-year results |
Media |
21 October 2019 |
Share price performance
Business description
Next events
Analysts
YouGov is a research client of Edison Investment Research Limited |
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YouGov’s final results to end July showed strong revenue growth (+10% underlying) and a 200bp increase in operating margins. The continuing drive is on growing Data Products and Services and focusing Custom Research on more profitable business. The ambitious targets to improve profitability set in the original five-year plan have been met. The new five-year plan to FY23 targets doubling both revenue and adjusted operating profit margin, as well as achieving a 30% CAGR in EPS (25% EPS CAGR in the earlier plan). In this context, the valuation premium to slower-growing peers looks well underpinned.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/EBITDA (x) |
P/E |
Yield |
07/18** |
116.6 |
16.4 |
10.8 |
3.0 |
25.6 |
49.7 |
0.6 |
07/19 |
136.5 |
20.5 |
13.9 |
4.0 |
17.7 |
38.6 |
0.7 |
07/20e |
152.1 |
26.5 |
17.8 |
5.0 |
14.7 |
30.2 |
0.9 |
07/21e |
163.7 |
33.6 |
22.1 |
6.3 |
11.9 |
24.3 |
1.2 |
Notes: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items; **FY18 restated for change in treatment of amortisation and share-based payments.
Data Products lead the way
Like-for-like revenue growth in Data Products and Services of 18% was diluted by 1% growth in Custom Research, but the latter was deliberately constrained by cutting less profitable business from the mix. Data Products (30% group revenue) was up by 25% underlying, with adjusted operating margin climbing from 31% to 34%. YouGov Plan & Track, which integrates BrandIndex and Profiles, is gaining good traction with agencies and brand owners. Data Services like-for-like revenue (27% group) grew 11%, with the US building fast. Margins were diluted from 21% to 20% by including some custom research business re-categorised from the Nordics. The Custom Research segment lifted adjusted operating margin from 20% to 22%.
Five-year growth plan: More of the same but better
The growth plan is predominantly predicated on organic progress, adding new products, enhancing the technologies, adding new countries and new verticals, and improving the sales and marketing function. YouGov is looking to break down internal silos, adding key account management teams, to grow the client base and to cross- and up-sell additional business lines into existing clients. Smaller acquisitions that can accelerate progress on any of these fronts are likely, given the group’s net cash (£37.9m at end July and high levels of operating cash conversation – 124% of adjusted EBITDA in the year just reported). We have updated our FY20 forecasts on these results and introduced FY21 numbers.
Valuation: Reflects ambitious objectives
YouGov’s share price has performed strongly, up by 37% since the start of the year (although 10% off its August peak), giving a 10-year CAGR of 27%. Earnings multiples are at the top end of the range of global peers, although it can be argued that none are directly comparable. On a reverse DCF basis, at our FY21e projected EBITDA margin of 26% (which should prove conservative given the ambitions in the five-year plan), the current share price implies top-line growth of 5.6% in FY22–27, well below the level needed to meet the new growth target.
Clarifying financials
Presentational adjustments
The group has changed the presentation of its financials, as indicated earlier. The changes to adjusted measures mean they now include amortisation of intangible assets charged to operating expenses. This principally relates to the amortisation of panel acquisition costs and internally developed software and software development. Company-adjusted measures are also presented after charging share-based payments. We have altered our presentation to match that of the company to ease comparison. In Exhibit 1, below, ‘Old’ refers to our previously published estimates adjusting for amortisation and share-based payments.
Exhibit 1: Changes to forecasts
Adj EPS (p) |
Adj PBT (£m) |
EBITDA (£m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2019 |
16.2 |
13.9 |
-14 |
27.2 |
20.5 |
-25 |
26.2 |
28.6 |
+9 |
2020e |
18.6 |
17.8 |
-4 |
30.5 |
26.5 |
-13 |
30.1 |
35.4 |
+18 |
2021e |
- |
22.1 |
N/A |
- |
33.6 |
N/A |
- |
42.5 |
N/A |
Source: Company accounts, Edison Investment Research
FY19 EBITDA came in 9% ahead of our earlier forecast, with revenue broadly in line. The company’s pre-close trading update indicated the results were to be ‘comfortably ahead’ of then current market forecasts but we did not move our projections at that stage. At the adjusted PBT level, our forecasts now exclude amortisation of £8.8m.
Our FY20 forecasts are based against this higher comparative and we now publish our FY21 estimates, which show continuing top-line growth and margin expansion.
Vesting conditions of new long-term incentive plan
The conditions for the new long-term incentive plan are based on the FY19 base, so over four years, whereas the new corporate five-year growth plan (ending FY23) is based on the FY18 reported figures. The level of awards that can be made ratchet according to growth in adjusted EPS (excluding exceptional and non-recurring items). The threshold for any to be granted is a 10% CAGR over the four years, at which point 10% vest. Over 15% CAGR, this moves up to 25%, with full vesting only occurring if the CAGR over the period exceeds 35%.
Our modelling for FY20e and FY21e is for adjusted EPS CAGR of 26%.
Powering the next stage
Improving coherence
Our last report, published in June, went through the business model and expansion strategy in some depth.
The results presentation focused on delivering a more coherent programme to drive the group towards its aim of being ‘the world’s leading provider of marketing and opinion data’. This does not involve any major adjustments to the overarching strategy, rather a case of doing the same but more and better.
A key part of this is to bring the elements of the group’s commercial and public offerings together on a universal platform that can combine the various websites, apps, interfaces and dashboards. As well as providing greater clarity for the users, there are practical benefits on the back end, allowing greater integration of the data and opening up potential new revenue streams. The proprietary data storage and analytics system, Crunch, is under continual development, currently focused on delivering 3D capability, ie as a time series.
The group is also bringing greater coherence to its sales and marketing efforts, establishing key account management teams. Overall the group has around 3,000 clients but has historically been better at selling them specific products or services than partnering with them to solve problems that could involve a range of solutions. Changes to the internal structures away from P&Ls within teams and segments should help to make better use of cross- and up-selling opportunities.
Big game trackers
The number of multi-year and multi-territory subscription studies is steadily building (partly visible in the 16% increase in the deferred income figure of £14.5m in FY19 from £12.5m the prior year). Winning global tracker studies is a key aim. Developments in upgrading Crunch will be instrumental in driving success here and attracting global companies away from traditional providers such as Nielsen, GFK and Kantar. Having key account managers, as described above, will also make the group look and feel more like global provider from the perspective of the potential clients.
YouGov Direct a possible game-changer
GDPR has challenged the marketing industry in a lot of its assumptions and methodologies and the full impact is not yet being felt. One of YouGov’s key differentiators is its extensive and engaged panel, which, amongst the other benefits of cost and timeliness, allows for far more efficient re-contact studies. As part of the sign-up process, panellists give explicit consent for the way their data can be used.
YouGov Direct takes this one step further, with panellists making their opinion and behavioural data available for research in a marketing context (extending as far as monitoring bank account activity for those happy to do this). Permissioning is accounted for through an encrypted blockchain. Brand owners and agencies can message panellists directly, with initial trials (with the likes of an ad platform, a newspaper brand, an agency and a TV broadcaster) proving ‘highly successful’.
There is considerable potential for this approach to be incorporated within a digital advertising environment; improving targeting and therefore the ROI of marketing spend.
Cash to invest
The proposed dividend of 4p is up one-third on prior year. Conversion of adjusted EBITDA to cash of 124% continues a long-established trend, allowing plenty of scope for investment and acquisitions. The group ended the year with net cash of £37.9m and has no debt. Outstanding contingent consideration is in the balance sheet at £10m (£2.8m short term), with the absolute maximum payable being £41.2m.
We would expect to see continuing growth in the dividend and have assumed capex of £10m in each of our forecast years, a little down from the £12.2m spent in FY19. Factoring this in, we project a year-end net cash figure of £46.6m for July 2020, rising to £58.5m the following year. Acquisitions are likely to be bolt-on rather than substantial.
Exhibit 2: Financial summary
£'000s |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 July |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
107,048 |
116,559 |
136,487 |
152,076 |
163,678 |
Cost of Sales |
(21,339) |
(21,495) |
(24,206) |
(26,461) |
(27,692) |
||
Gross Profit |
85,709 |
95,064 |
112,281 |
125,615 |
135,986 |
||
EBITDA |
|
|
15,702 |
20,907 |
28,578 |
35,405 |
42,505 |
Operating Profit (before amort., except.) |
|
|
14,528 |
12,650 |
18,288 |
25,021 |
32,121 |
Intangible Amortisation |
(6,483) |
(7,026) |
(8,809) |
(8,809) |
(8,809) |
||
Share based payments |
(1,508) |
(3,571) |
(2,401) |
(1,250) |
(1,250) |
||
Exceptionals |
(488) |
(826) |
1,529 |
0 |
0 |
||
Other |
103 |
204 |
200 |
0 |
0 |
||
Operating Profit |
6,152 |
12,028 |
20,017 |
25,021 |
32,121 |
||
Net Interest |
254 |
(51) |
(361) |
186 |
238 |
||
Profit Before Tax (adj) |
|
|
16,393 |
16,374 |
20,528 |
26,457 |
33,609 |
Profit Before Tax (FRS 3) |
|
|
6,406 |
11,773 |
19,456 |
25,207 |
32,359 |
Tax |
(3,273) |
(3,615) |
(5,085) |
(6,530) |
(8,358) |
||
Profit After Tax (norm) |
13,120 |
12,759 |
15,443 |
19,927 |
25,251 |
||
Profit After Tax (FRS 3) |
3,133 |
8,158 |
14,371 |
17,427 |
22,751 |
||
Average Number of Shares Outstanding (m) |
104.8 |
105.4 |
105.4 |
105.6 |
105.6 |
||
EPS - normalised, fully diluted (p) |
|
|
7.8 |
10.8 |
13.9 |
17.8 |
22.1 |
EPS - FRS 3 (p) |
|
|
3.0 |
7.7 |
14.2 |
16.5 |
21.5 |
Dividend per share (p) |
2.0 |
3.0 |
4.0 |
5.0 |
6.3 |
||
Gross Margin (%) |
80.1 |
81.6 |
82.3 |
82.6 |
83.1 |
||
EBITDA Margin (%) |
14.7 |
17.9 |
20.9 |
23.3 |
26.0 |
||
Operating Margin (before GW and except & share-based payments) (%) |
12.2 |
7.8 |
11.6 |
15.6 |
18.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
64,637 |
78,019 |
98,006 |
98,197 |
98,388 |
Intangible Assets |
54,960 |
65,357 |
82,374 |
82,565 |
82,756 |
||
Tangible Assets |
9,332 |
12,471 |
15,632 |
15,632 |
15,632 |
||
Investments |
345 |
191 |
0 |
0 |
0 |
||
Current Assets |
|
|
54,918 |
66,735 |
72,581 |
92,810 |
108,098 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
30,699 |
34,672 |
33,726 |
45,237 |
48,688 |
||
Cash |
23,481 |
30,621 |
37,925 |
46,643 |
58,480 |
||
Current Liabilities |
|
|
(34,177) |
(41,445) |
(48,503) |
(50,285) |
(53,689) |
Creditors |
(33,915) |
(41,445) |
(48,503) |
(50,285) |
(53,689) |
||
Short term borrowings |
(262) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(4,905) |
(11,238) |
(11,238) |
(11,238) |
(11,238) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(4,905) |
(11,238) |
(11,238) |
(11,238) |
(11,238) |
||
Net Assets |
|
|
80,473 |
92,071 |
110,846 |
129,484 |
141,559 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
18,914 |
23,617 |
35,230 |
35,405 |
42,256 |
Net Interest |
4 |
22 |
183 |
186 |
238 |
||
Tax |
(2,487) |
(5,501) |
(4,520) |
(3,873) |
(5,871) |
||
Capex |
(7,661) |
(8,181) |
(12,166) |
(10,000) |
(10,000) |
||
Acquisitions/disposals |
0 |
(885) |
(6,583) |
(7,000) |
(8,600) |
||
Financing |
175 |
259 |
(3,652) |
(1,500) |
0 |
||
Dividends |
(1,470) |
(2,106) |
(3,327) |
(4,499) |
(6,204) |
||
Net Cash Flow |
7,475 |
7,225 |
5,165 |
8,719 |
11,820 |
||
Opening net debt/(cash) |
|
|
(15,553) |
(23,219) |
(30,621) |
(37,925) |
(46,644) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
191 |
177 |
2,138 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(23,219) |
(30,621) |
(37,925) |
(46,644) |
(58,464) |
Source: YouGov, Edison Investment Research
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Research: TMT
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