Ebiquity — Progress in delivery of strategy

Ebiquity (AIM: EBQ)

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35.50

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Market capitalisation

49m

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Research: TMT

Ebiquity — Progress in delivery of strategy

Ebiquity has had a good first half, with a 20% uplift in revenues and a return to operating profit, with an underlying operating margin of 7%. Our expectations for the full year and for FY22e are edged up, although there remain notes of caution around prospects in some sectors in H2. Ebiquity is making good progress with its digital activities and product solutions, which we expect to support the medium-term growth. The share price performance year-to-date has been strong (up 194%), but the valuation remains at a sizeable discount to peers.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Ebiquity

Progress in delivery of strategy

Interim results

Media

27 September 2021

Price

58.5p

Market cap

£48m

Net debt (£m) at 30 June 2021 (excludes £0.75m US PPP debt)

9.6

Shares in issue

82.7m

Free float

84.2%

Code

EBQ

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.9)

17

172.1

Rel (local)

0.2

16.7

117.4

52-week high/low

61.0p

18.4p

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

Final results

March 2022

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Max Hayes

+44 (0)20 3077 5700

Ebiquity is a research client of Edison Investment Research Limited

Ebiquity has had a good first half, with a 20% uplift in revenues and a return to operating profit, with an underlying operating margin of 7%. Our expectations for the full year and for FY22e are edged up, although there remain notes of caution around prospects in some sectors in H2. Ebiquity is making good progress with its digital activities and product solutions, which we expect to support the medium-term growth. The share price performance year-to-date has been strong (up 194%), but the valuation remains at a sizeable discount to peers.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

68.1

4.7

2.9

0.0

20.2

N/A

12/20

55.9

(1.3)

(1.9)

0.0

N/A

N/A

12/21e

63.0

3.2

3.1

0.5

18.9

0.9

12/22e

69.3

5.3

4.9

1.3

11.9

2.1

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

FY21e and FY22e numbers edged ahead

Ebiquity’s good first half reflects a stronger underlying market as advertising spend has rebounded, with an element of catch-up from work delayed from FY20 and enhanced by the growth from the group’s newer digital media solutions. Ebiquity also had the benefit of new business won in Q421 and the full year effect of work won post Accenture’s withdrawal from the market. Most sectors have recovered strongly, bar the obvious such as transport and tourism, but management notes that supply chain issues in the broader global economy are curbing the recovery in advertising spend in sectors such as automotive and consumer electronics. This slight caution is reflected in our revised forecasts, where we have raised FY21e revenue expectations from £61m to £63m, with £32m achieved in H121. For FY22e, the figure rises by £1m to £69.3m. Adjusted operating profit rises from £3.5m to £4.1m for FY21e and from £5.9m to £6.2m for FY22e, indicating a good uplift in operating margin to 6.5% for the current year and to 8.9% for the next.

Broadening out the geographic profile

Ebiquity’s client roster is of high quality, particularly in the UK and Europe. Management is tackling its under-weighted exposure to the United States (8.4% of FY20 revenues) and new business wins of a leading food and beverage company alongside global business from Amazon should shift the dial here. Progress is also being made in Asia-Pacific, where ‘significant’ business has been won with Huawei and MengNiu in China. The group plans to start to offer services in India in H221.

Valuation: Sizeable discount remains

In the year to date, Ebiquity’s shares are up by 194%, having bottomed at 18.4p in February. Marketing services peers have gained 82% on average as the outlook for advertising spend has firmed up. Parity with these peers for FY22 across P/E, EV/EBITDA and EV/EBIT multiples would suggest a value of 98p. This is a good uplift on the 77p cited in our last report, reflecting the strong sector performance.

Good progress in H121

As can be seen in the table below, Media comprises the main part of revenues (84% of H121). Within this segment, the agency pitch environment was particularly busy, with many selection processes for major brands having been carried over from FY20. New review mandate business was won from Unilever, Ferrero, BMW and Daimler, among others. There was also an element of catch-up in the Contract Compliance activity, with the collation of data and on-site audits made easier by loosening COVID-19 restrictions.

Digital media solutions are starting to make more of an impression, which should be more apparent when progress on the key operational metrics is given for the full year.

The emphasis on growing the revenues from key clients cross-selling more products is also starting to bear fruit, with a 28% uplift in revenues from global, multi-market media projects.

With the prospect of the re-emergence of inflation, clients are especially keen to ensure that they achieve a good return on their marketing spend.

Exhibit 1: H1 segmental split

£m

Media

Analytics & Tech

Total

H121

H120

% change

H121

H120

% change

H121

H120

% change

Revenue

26.8

21.9

22%

5.2

4.9

7%

32.0

26.8

20%

Operating profit

5.3

2.4

124%

0.4

(0.7)

N/A

5.7

1.7

245%

Operating margin

20%

11%

8%

-15%

18%

6%

Unallocated costs

(3.4)

(3.0)

Operating (loss)/profit

2.3

(1.4)

Group underlying operating margin

7%

-5%

Source: Ebiquity accounts

The Analytics and Tech practice has returned to profit in the first half.

Key objectives should drive revenue and margin

As presented with the final results (covered in out March update note), management has set out clear objectives and operational metrics. With these H121 figures, it has disclosed the baselines for the metrics as at end December 2020, which will be reported against annually. However, an indication was given of broad progress, as shown in the table below.

Exhibit 2: Progress on metrics

Operational metric

Baseline measure in 2020

Current progress

Number of clients buying two or more service lines

59 clients

In line

Number of clients buying one or more products from the new digital solutions portfolio

10 clients

Ahead

Volume of digital impressions processed, analysed and reported on the platform

112bn impressions

Ahead

Value of digital advertising processed, analysed, and reported on the platform

US$0.46bn

Ahead

Proportion of revenue relating to digital media (media performance and media management service lines)

25%

In line

Source: Ebiquity

Regarding the three core objectives, the roll-out of the productised digital services – key to scaling the business – continues, with the first, ‘Sourcing and Monitoring’, launched in H121 and two more, ‘Governance’ and ’Audience Data Assessment’, launched in July. Of these, the Sourcing and Monitoring is likely to achieve the greatest scale, although the Governance objective (which tracks and monitors through automated ingestion and reporting) could achieve similar revenues. Audience Data Assessment, which relates to online audience targeting, is more project-based. A solution targeted at ‘Responsible Media Investment’ is also being piloted currently. More products are in development and set to be rolled-out through H221 and H122.

The increased focus on strategic high-value clients is also starting to deliver. Client partners have been put in place in New York and Amsterdam, with a third to be appointed in Paris in Q421. The drive to internationalise the business referred to above is being supported by additional resource in North America and Asia-Pacific.

The group has been reorganised along geographic reporting lines, which increases operational efficiency and facilitates a more client-centric model and increases cross-selling opportunities. This objective is also being implemented through greater use of off-shoring and near-shoring, particularly using the Madrid-based Media Operations Centre, with some support for the US market possibly being transferred to Guatemala.

Increased deferred consideration for Digital Decisions

The group is taking a £2.4m charge to accrue for post-date remuneration payable relating to the acquisition of Digital Decisions, bought in January 2020. This is contingent on the principal vendor, Ruben Schreurs, remaining in the group’s employment. He was appointed group chief product officer in February 2021, in charge of the Digital Innovation Centre. The contingent consideration is based on the average profit to be generated from that unit over FY21 and FY22 on a multiple of six times. This is currently estimated at £10.2m, to be paid in FY23 and therefore beyond our current modelling horizon.

Strong cash conversion buoys balance sheet

Underlying cash from operations in H121 of £3.4m represented conversion of 149% of underlying operating profit (reported operating cash flow of £2.9m was after £0.5m of payments made for items accrued as at 31 December 2020, mainly relating to severance or re-organisation costs). Net debt at the half-year was £9.6m. The additional US Paycheck Protection Program ‘debt’ of £0.7m was forgiven post period end and will therefore convert to a grant in H221. From this month, the group will revert to bank covenants based on EBITDA leverage from the liquidity covenants put in place to reflect the onerous trading conditions during the pandemic. The group is trading comfortably within these leverage covenants.

Increase to forecasts

We had signalled at the trading update that the pressure on forecasts was likely to be on the upside. Our new FY21 revenue forecast of £63m implies H221 revenue of £31m, which would be a 6% uplift on H220. While this is considerably lower than the 20% growth posted for H121, we note that (as described above) there looks to have been a degree of catching up in those figures. There is also a degree of caution regarding the outlook for advertising spend by the automotive sector and other segments of the global economy affected by the current supply chain issues.

Exhibit 3: Summary financial changes

EPS (p)

PBT (£m)

EBITDA (£m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020

(1.9)

-

(1.3)

-

1.8

-

2021e

2.5

3.1

+24

2.6

3.2

+23

5.0

5.6

+12

2022e

4.7

4.9

+4

5.0

5.3

+6

7.4

7.7

+4

Source: Ebiquity accounts, Edison Investment Research

Exhibit 4: Financial summary

£000s

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

68,133

55,907

63,000

69,300

Cost of Sales

(36,212)

(31,219)

(33,705)

(36,729)

Gross Profit

31,921

24,687

29,295

32,571

EBITDA

 

 

8,603

1,797

5,615

7,650

Operating Profit (before amort. and except.)

 

 

5,567

(334)

4,100

6,200

Amortisation of acquired intangibles

(1,169)

(1,122)

(1,122)

(1,122)

Highlighted items

(9,044)

(3,325)

(3,153)

0

Share-based payments

(117)

1,906

(150)

(150)

Reported operating profit

(4,763)

(2,875)

(325)

4,928

Net Interest

(898)

(875)

(924)

(917)

Joint ventures & associates (post tax)

0

0

0

0

Forex

0

(137)

0

0

Profit Before Tax (norm)

 

 

4,669

(1,346)

3,176

5,283

Profit Before Tax (reported)

 

 

(5,661)

(3,887)

(1,249)

4,011

Reported tax

(1,477)

150

(762)

(1,268)

Profit After Tax (norm)

2,738

(1,372)

2,414

3,351

Profit After Tax (reported)

(7,138)

(3,737)

(2,011)

2,743

Minority interests

(451)

(186)

100

(137)

Discontinued operations

(1,018)

220

0

0

Net income (normalised)

2,275

(1,557)

2,516

3,217

Net income (reported)

(8,156)

(3,703)

(1,911)

2,606

Average Number of Shares Outstanding (m)

79.5

81.6

80.6

78.6

EPS - normalised (p)

 

 

2.9

(1.9)

3.1

4.9

EPS - normalised continuing diluted (p)

 

 

2.8

(1.9)

3.1

4.9

EPS - basic reported (p)

 

 

(10.8)

(4.8)

(2.4)

3.3

Dividend per share (p)

0.00

0.00

0.50

1.25

EBITDA Margin (%)

12.6

3.2

8.9

11.0

Normalised Operating Margin

8.2

-0.6

6.5

8.9

BALANCE SHEET

Fixed Assets

 

 

47,060

44,322

42,899

41,728

Intangible Assets

35,172

34,698

33,461

32,289

Tangible Assets

10,902

8,199

8,013

8,014

Tax, receivables, Investments & other

986

1,425

1,425

1,425

Current Assets

 

 

35,074

35,610

37,325

41,136

Stocks

0

0

0

0

Debtors

26,838

24,318

26,236

29,429

Cash & cash equivalents

8,236

11,121

10,950

11,568

Other

0

171

140

140

Current Liabilities

 

 

(21,195)

(22,189)

(24,859)

(25,547)

Creditors

(14,659)

(15,986)

(16,759)

(17,446)

Tax and social security

(4,424)

(1,953)

(1,953)

(1,953)

Short term borrowings (incl. positive loan fees)

22

45

45

45

Other incl lease liabilities

(2,134)

(4,295)

(6,192)

(6,193)

Long Term Liabilities

 

 

(23,047)

(26,997)

(26,997)

(26,997)

Long term borrowings

(13,868)

(19,675)

(19,675)

(19,675)

Other long term liabilities

(9,179)

(7,322)

(7,322)

(7,322)

Net Assets

 

 

37,892

30,746

28,368

30,320

Minority interests

1,179

442

425

425

Shareholders' equity

 

 

36,713

30,304

27,943

29,895

CASH FLOW

Op Cash Flow before WC and tax

8,603

1,797

5,615

7,650

Working capital

(702)

4,171

(1,144)

(2,505)

Exceptional & other

(2,962)

(3,325)

(520)

0

Tax

(1,345)

(2,285)

(762)

(1,268)

Operating Cash Flow

 

 

3,594

358

3,188

3,877

Capex

(3,235)

(1,316)

(1,500)

(1,499)

Acquisitions/disposals

23,862

(2,118)

(486)

0

Net interest

(718)

(550)

(924)

(917)

Equity financing

253

0

0

0

Dividends

(1,052)

(444)

(450)

(843)

Other

0

0

0

0

Net Cash Flow

22,704

(4,070)

(172)

618

Opening net debt/(cash)

 

 

27,486

5,610

8,509

8,680

FX

(204)

117

0

0

Other non-cash movements

(624)

1,055

0

0

Closing net debt/(cash)

 

 

5,610

8,509

8,680

8,062

Source: Ebiquity 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 £49,500 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.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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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

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 £49,500 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 2021 Edison Investment Research Limited (Edison).

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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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1Spatial — Another big UK contract win for 1Spatial

1Spatial continued its streak of winning big contracts in the UK and today announced the award of an £8m new multi-year contract, in partnership with a consortium and following a competitive tender, with a department of the UK government. We believe this is its biggest win in company history, two weeks after announcing its c £6.5m contract with the UK government’s Geospatial Commission. The contract will deliver a multi-year digital transformation programme for the department, and we expect management will provide further details on the contract when it releases interim results on 29 September. As a result, we plan to adjust our FY22 and FY23 forecasts once those are announced. Our attention remains on the long-term growth of the geospatial market, with growth rates likely to increase from FY22 through FY23. We are encouraged by the contract momentum and see scope for acceleration, as the UK government’s ‘Build back better and greener’ initiative continues to provide tailwinds for the spatial data market.

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