Ebiquity — Strong revenue growth and improving margin

Ebiquity (AIM: EBQ)

Currency in GBP

Last close As at 24/03/2023

GBP0.52

−0.50 (−0.95%)

Market capitalisation

GBP61m

Research: TMT

Ebiquity — Strong revenue growth and improving margin

Ebiquity’s year-end trading update confirms that revenue continued to grow strongly in H222, delivering a 20% improvement for the full year, with underlying organic growth of 9%. Management is guiding to an underlying operating margin of 12%, implying that FY22 operating profit will be just ahead of our £8.9m forecast, notwithstanding the slight undershoot on revenue. This improvement in margin reflects the two transformative acquisitions made in the year, adding operational capability and efficiency, and scaling the US reach, as well as the increase of digital in the revenue mix. The shares are priced at a substantial discount to both peers and the group’s long-term average EV/EBITDA multiple.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Ebiquity_resized

TMT

Ebiquity

Strong revenue growth and improving margin

Year-end trading update

Media

7 February 2023

Price

53.5p

Market cap

£62m

Net debt (£m) at 31 December 2022

8.9

Shares in issue

116.1m

Free float

82.4%

Code

EBQ

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.9

24.4

(9.7)

Rel (local)

1.6

15.7

(11.7)

52-week high/low

71.5p

43.0p

Business description

Ebiquity is a leading, independent global media consultancy, working for over 70 of the world’s 100 leading brands to optimise their media investments.

Next events

Full year results

March 2023

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

Ebiquity is a research client of Edison Investment Research Limited

Ebiquity’s year-end trading update confirms that revenue continued to grow strongly in H222, delivering a 20% improvement for the full year, with underlying organic growth of 9%. Management is guiding to an underlying operating margin of 12%, implying that FY22 operating profit will be just ahead of our £8.9m forecast, notwithstanding the slight undershoot on revenue. This improvement in margin reflects the two transformative acquisitions made in the year, adding operational capability and efficiency, and scaling the US reach, as well as the increase of digital in the revenue mix. The shares are priced at a substantial discount to both peers and the group’s long-term average EV/EBITDA multiple.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

P/E
(x)

12/20

55.9

(1.3)

(1.9)

0.0

39.5

N/A

12/21

63.1

4.1

2.7

0.0

10.4

20.2

12/22e

77.0

8.1

5.3

0.0

5.2

10.1

12/23e

89.0

11.5

7.0

0.0

4.1

7.7

Note: *PBT and EPS are normalised and fd, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Underlying operating profit on track

We leave our estimates unchanged for now, acknowledging that the mix will be a little divergent from our existing modelling. The direction of travel, with greater emphasis on digital and a growing suite of products that will help deliver scalability, as well as a broader geographic base, points to further accretion on the underlying operating margin, beyond the full year acquisition effect that will benefit the outturn in FY23. While the macroeconomic outlook is patchy, the overarching advertising industry sentiment has improved since the autumn. Brand owners, though, are likely to be very focused on return on investment, which should play to Ebiquity’s strengths.

Higher earn-outs due post good performance

Net debt at the year-end was £8.9m, a little ahead of our modelled figure of £8.0m. With the group’s inherent second half weighting, we would assume that the divergence is attributable to working capital, which would correct in the current year. The statement indicates that the final deferred consideration for Digital Decisions BV in May 2023 will be higher than previously anticipated (H122: £11.4m, of total deferred consideration outstanding of £13.6m) after a strong H222 performance. The group had £8.5m of undrawn facilities at the year-end.

Valuation: Substantial discount persists

Ebiquity’s valuation remains at a marked discount to UK-quoted marketing services peers. Parity across averaged FY22e and FY23e P/E, EV/EBITDA and EV/EBIT would suggest a value of 96.5p, considerably ahead of the current price and well up on the 86p at the time of our end-September update, reflecting the somewhat better sentiment in the sector. Our recent MediaWatch report shows Ebiquity’s current rating to be at a 70% discount to its long-term average EV/EBITDA.

Exhibit 1: Financial summary

£000s

2020

2021

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

55,907

63,091

77,000

89,000

Cost of Sales

(31,219)

(32,652)

(39,655)

(45,657)

Gross Profit

24,687

30,439

37,345

43,343

EBITDA

 

 

1,797

6,833

13,583

17,470

Operating profit (before amort. and excepts.)

 

 

(334)

4,737

8,900

12,800

Amortisation of acquired intangibles

(1,122)

(1,065)

(1,250)

(1,105)

Highlighted items

(3,325)

(8,431)

(6,043)

(3,436)

Share-based payments

1,906

(319)

(380)

(380)

Reported operating profit

(2,875)

(5,078)

1,227

7,879

Net Interest

(875)

(862)

(1,056)

(1,337)

Joint ventures & associates (post tax)

0

0

0

0

Forex

(137)

229

250

0

Profit Before Tax (norm)

 

 

(1,346)

4,104

8,093

11,463

Profit Before Tax (reported)

 

 

(3,887)

(5,711)

420

6,542

Reported tax

150

(1,206)

(1,961)

(2,866)

Profit After Tax (norm)

(1,372)

2,367

5,469

8,597

Profit After Tax (reported)

(3,737)

(6,917)

(1,540)

3,676

Minority interests

(186)

(117)

(26)

61

Discontinued operations

220

0

0

0

Net income (normalised)

(1,557)

2,250

5,443

8,658

Net income (reported)

(3,703)

(7,032)

(1,566)

3,737

Average Number of Shares Outstanding (m)

81.6

82.6

106.5

120.3

EPS - normalised (p)

 

 

(1.9)

2.7

5.5

7.2

EPS - normalised fully diluted (p)

 

 

(1.9)

2.7

5.3

7.0

EPS - basic reported (p)

 

 

(4.8)

(8.5)

(1.5)

3.1

Dividend per share (p)

0.00

0.00

0.00

0.00

EBITDA Margin (%)

3.2

10.8

17.6

19.6

Normalised Operating Margin

-0.6

7.5

11.6

14.4

BALANCE SHEET

Fixed Assets

 

 

44,322

40,297

67,507

76,591

Intangible Assets

34,698

32,700

58,876

68,380

Tangible Assets

8,199

6,054

7,249

6,829

Tax, receivables, Investments & other

1,425

1,543

1,382

1,382

Current Assets

 

 

35,610

35,214

46,248

41,573

Stocks

0

0

0

0

Debtors

24,318

21,934

29,627

29,952

Cash & cash equivalents

11,121

13,134

16,340

11,340

Other

171

146

281

281

Current Liabilities

 

 

(22,189)

(29,146)

(34,414)

(37,183)

Creditors

(15,986)

(25,875)

(31,687)

(33,259)

Tax and social security

(1,953)

(764)

(1,516)

(1,516)

Short term borrowings (incl. positive loan fees)

45

59

96

96

Other incl lease liabilities

(4,295)

(2,566)

(1,307)

(2,504)

Long Term Liabilities

 

 

(26,997)

(23,361)

(34,669)

(34,669)

Long term borrowings

(19,675)

(17,960)

(24,436)

(24,436)

Other long term liabilities

(7,322)

(5,401)

(10,233)

(10,233)

Net Assets

 

 

30,746

23,004

44,673

46,312

Minority interests

442

269

290

290

Shareholders' equity

 

 

30,304

22,735

44,383

46,022

CASH FLOW

Op Cash Flow before WC and tax

1,797

6,833

13,583

17,470

Working capital

4,171

2,768

(7,257)

1,248

Exceptional & other

(3,325)

784

(3,000)

(4,572)

Tax

(2,285)

(2,492)

(1,961)

(2,866)

Operating Cash Flow

 

 

358

7,893

1,365

11,280

Capex

(1,316)

(1,200)

(2,071)

(2,000)

Acquisitions/disposals

(2,118)

(1,971)

(16,525)

(12,859)

Net interest

(550)

(619)

(1,056)

(1,337)

Equity financing

0

34

14,360

0

Dividends

(444)

(157)

(280)

(300)

Other

0

134

0

0

Net Cash Flow

(4,070)

4,114

(4,207)

(5,216)

Opening net debt/(cash)

 

 

5,610

8,509

4,767

8,000

FX

117

(372)

662

0

Other non-cash movements

1,055

0

312

216

Closing net debt/(cash)

 

 

8,509

4,767

8,000

13,000

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Ebiquity and prepared and issued by Edison, in consideration of a fee payable by Ebiquity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Ebiquity and prepared and issued by Edison, in consideration of a fee payable by Ebiquity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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