“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 25/03/2023
GBP0.52
▲ −0.50 (−0.95%)
Market capitalisation
GBP61m
Research: TMT
Ebiquity has delivered strong first half results, with 7% organic revenue growth boosted to a 16% gain including acquisitions. An increasing proportion of revenues from the higher-margin digital media solutions and rigorous control of costs in the existing business drove a substantial uplift in underlying operating margins from 7.1% in H121 to 13.3% in H122. Full year results are expected to be in line with market expectations and we have reinstated FY22 and FY23 forecasts including the H122 acquisitions. The shares have outperformed peers and the sector, but the valuation remains at a discount.
Ebiquity |
Strong uplift in operating margin |
Interim results |
Media |
28 September 2022 |
Share price performance
Business description
Next events
Analyst
Ebiquity is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
Ebiquity has delivered strong first half results, with 7% organic revenue growth boosted to a 16% gain including acquisitions. An increasing proportion of revenues from the higher-margin digital media solutions and rigorous control of costs in the existing business drove a substantial uplift in underlying operating margins from 7.1% in H121 to 13.3% in H122. Full year results are expected to be in line with market expectations and we have reinstated FY22 and FY23 forecasts including the H122 acquisitions. The shares have outperformed peers and the sector, but the valuation remains at a discount.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
EV/EBITDA |
P/E |
12/20 |
55.9 |
(1.3) |
(1.9) |
0.0 |
40.1 |
N/A |
12/21 |
63.1 |
4.1 |
2.7 |
0.0 |
10.5 |
19.3 |
12/22e |
77.0 |
8.1 |
5.3 |
0.0 |
5.3 |
9.6 |
12/23e |
89.0 |
11.5 |
7.0 |
0.0 |
4.1 |
7.3 |
Note: *PBT and EPS (FD) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Acquisitions boost operations and performance
Improvements in the group’s operating efficiency are underpinned by the GMP365 technology platform acquired with MediaPath earlier in the year (see our April flash note), which has significantly enhanced the scalability of the business. The other sizeable H122 acquisition, MMi, has resulted in a step change in the group’s traction with major US corporate advertisers, opening further opportunities both for existing activities and for cross-selling. North America and Asia-Pacific are the key regions of focus for growth. The increasing scale of Ebiquity’s operations and the use of shared service provision in lower-cost geographies like Spain and India should offset much of the industry-wide pressure on people costs, with margins also supported by increasing digitisation both within the external service offering and internally.
Circumspection on the backdrop
Prospects for the overall advertising sector are dampened by the deteriorating economic backdrop, but this can boost the requirement for advertising spend to be focused on areas with the strongest return on investment. Our reinstated forecasts are cautious for H222 and FY23, reflecting this uncertainty. We do expect good underlying growth from the focus on growing key client accounts and selling the newer digital media products, which will support further margin expansion. Net bank debt was £12.9m at H1, reflecting the acquisitions and associated fund raise, but also a working capital outflow because of invoice phasing. Our year-end projection is for net debt of £8.0m, increasing to £13.0m by end FY23 post earn-out payments.
Valuation: Discount remains despite outperformance
The share price is broadly in line with where it started the year, unlike UK-quoted marketing services peers, which have retrenched by an average of 46% over the year-to-date. Nevertheless, the valuation remains at a discount to those peers. Parity across averaged FY22e and FY23e P/E, EV/EBITDA and EV/EBIT would suggest a value of 86p, well ahead of the current price.
Good progress in H122
Summary segmental results are shown below, alongside the comparative operating margins.
Exhibit 1: Summary segmental results
£’000 |
Media |
% change/ H121 margin |
Analytics & Tech |
% change/ H121 margin |
Reportable segments |
% change/ H121 margin |
Unallocated costs |
% change/ H121 margin |
Total |
% change/ H121 margin |
Revenue |
32,519 |
+21 |
4,726 |
-9 |
37,245 |
+16 |
37 ,245 |
+16 |
||
Operating profit/(loss) |
7,640 |
+45 |
544 |
+26 |
8,184 |
+43 |
(3,224) |
-6 |
4,960 |
+117 |
Operating margin (%) |
23.5 |
19.7 |
11.5 |
8.3 |
22.0 |
17.8 |
13.3 |
7.1 |
Source: Ebiquity. Note: Operating profit/(loss) before highlighted items (see below).
Of the revenue growth reported for the first half, 7% was organic, which of itself represents a good performance, particularly against comparatives that were recovering post COVID-19 lockdowns. £2.8m of revenue was added by acquisitions made in the period, with both the MediaPath and MMi deals completing in April.
With a maiden contribution from the acquisitions to operating profits of £0.8m, effectively for Q2, the operating profit before highlighted items for ‘old’ Ebiquity was £4.2m, with an operating margin of 12%, well ahead of the 7% posted in H121. This reflects the benefit of the growth in the digital media solutions offered by the group to its clients, which are inherently higher margin, as well as the tight control of costs. In the existing business, the uplift in operating expenses was limited to 4%. Revenues in the Analytics and Tech practice were down year-on-year, mostly through a more rigorous approach to pricing and project selection, which also led to a step up in achieved operating margin as shown in the table above.
The operating margin of the acquired businesses in the period was over 32%, with the bulk of revenue and profits falling within Ebiquity’s Media reporting segment. Project costs were also reduced by the third (smaller) acquisition made in H121, that of Forde & Semple in Canada, which had previously been an external supplier.
Central costs were down 6%, benefiting from tight control but also with a forex tailwind.
Highlighted items mostly acquisition-related
Highlighted items of £5.6m comprise:
■
£3.4m accrual for post-date remuneration payable for Digital Decisions. The current estimate of the deferred contingent consideration here is £14.0m, of which £11.8m has already been accrued over this and previous reporting periods, discounted to a fair value of £11.4m. The final accrual will be taken in H222.
■
£1.7m for acquisition and integration costs, including costs relating to the £14.4m net equity fundraise (at 53p) and bank finance renegotiations.
■
£0.4m impairment on the value of Ebiquity Russia (negotiations are ongoing for the divestment of the majority stake).
■
£0.4m of acquired intangible amortisation.
■
£0.2m share-option charge.
Working capital outflow set to reverse in H222
There was an underlying cash outflow in the first half of £1.6m, with a working capital outflow of £8.8m, with the phasing of billing in the existing business and the novation of MMi’s client contracts to Ebiquity Inc., causing a short-term increase in receivables. Net bank debt at the half year was £12.9m, being cash of £9.3m less bank debt of £22.5m (the balancing item being prepaid loan arrangement fees). By end August, collections had reduced the net bank debt balance to £10.7m. Our forecast for the year-end is for net bank debt of £8.0m.
Progress against strategy
Management has identified four key strands. The progress against each is summarised below.
Develop higher-value strategic relationships with more clients
The group now works with 28 of the world’s 30 largest advertisers, with senior account directors focused on cementing and growing each relationship. Notable new business wins in the reporting period have included Brown-Forman Corporation (the major wine and spirits company, with an extensive portfolio of brands including Jack Daniels) in the United States and PepsiCo in India, an important win given that India is already the 10th largest advertising market globally and set to move up the rankings.
Agency selection work remains a highly competitive market but is attractive because of the opportunities it presents for continuing revenue generation. Here, Ebiquity has won the multinational agency selection programmes for Jaguar Land Rover and for BMW. It is worth pointing out that although automotive advertising has been under pressure from industry supply chain issues and from consumers being more circumspect in their spending, brand campaigns remain important, and promotion of electric vehicles is a high priority.
Develop productised solutions for the digital market
Revenue from the seven products now in the market was £2.9m in the period, so is already making a meaningful impact, particularly given that they deliver operating profit margins around 50%. The group is ahead of target on the number of digital ad impressions being analysed and the number of countries where the solutions are offered.
New solutions are being developed for Advanced TV, where the rule books are only now starting to be written, and for Retail Media, which is developing rapidly across multiple channels. The Advanced TV solution is set to be piloted in the United States in Q422. The Responsible Media Solution is now being rolled out and is currently available in 11 countries, with Scope 3 data now incorporated across all digital advertising – an increasingly important feature.
Creating a more efficient business
As described above, the Madrid-based service and support functions are reducing duplication and freeing up other teams for more revenue-generating activities, with the potential to develop and increase in India to support the growing Asia-Pacific business. The introduction of the BMP365 platform acquired with MediaPath means adapting to new ways of working, with the efficiency benefits likely to be coming through from H123 and more strongly in H223. The digital media solutions are inherently more scalable than the traditional consultancy, with the benefit already being reflected in group operating margin.
Growing the regional presence
The MMi acquisition has provided a major step up for the group’s US-based activities. This is the world’s largest market and there is obviously considerable potential for expansion. Management is also focused on growing the scale of activities in Asia-Pacific, notably China, India, Singapore and Australia, with the first three the likely priorities. Performance in Continental Europe is also worth noting, as revenues were ahead by 13% in what are perceived to be relatively mature markets for the group. This is both with national clients (Italy, France, Spain) and with some good international and global accounts being added to the roster.
Exhibit 2: Financial summary
£000s |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
31-Dec |
31-Dec |
31-Dec |
31-Dec |
||
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 |
5,446 |
8,662 |
||
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 |
76,592 |
Intangible Assets |
34,698 |
32,700 |
58,876 |
68,381 |
||
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 |
46,313 |
Minority interests |
442 |
269 |
290 |
290 |
||
Shareholders' equity |
|
|
30,304 |
22,735 |
44,383 |
46,023 |
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: TMT
1Spatial (SPA) delivered another period of robust results in H123, with annualised recurring revenue (ARR) up 29% y-o-y, revenues growing 11% and EBITDA rising 10%. 1Spatial’s success in driving transformational growth was marked by several contract wins with significant amounts of recurring revenue, the expansion of smart partnerships and further penetration of the US market. We maintain our FY23 and FY24 estimates and watch for catalysts that signal 1Spatial’s plan is continuing to bear fruit. Although 1Spatial trades at a discount to peers, we expect there could be a reduction in the gap if management continues successfully executing its growth strategy.
Get access to the very latest content matched to your personal investment style.
