Currency in GBP
Last close As at 27/03/2023
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▲ −0.50 (−0.95%)
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GBP61m
Research: TMT
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.
Ebiquity |
Strong revenue growth and improving margin |
Year-end trading update |
Media |
7 February 2023 |
Share price performance
Business description
Next events
Analysts
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 |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
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
|
|
Research: Financials
The trends seen in Numis’s H222 have continued in the first four months of FY23. Capital markets activity and revenues have been subdued but the strong momentum in M&A advisory has also been maintained, underlining the diversification benefits of previous investments in developing this area. A strong balance sheet provides flexibility to take further opportunities to broaden the group’s capabilities, which should support growth and returns through market cycles.
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