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The disruption from global macro factors continues to weigh on broad activity and agencies are seeing softer customer activity as a consequence. WPP’s own issues aside, the themes of client caution and reduced spend dominated the Q3 update. We cut our S4 forecasts yesterday due to these factors, we calibrated Next15 at the end of September (and they reiterated in-line yesterday) leaving only our Saatchi forecasts needing attention. Ex-Australia SAA saw stable trading in H1 (-0.7% LFL), but with industry conditions softening into Q4 we feel we need to factor something into our estimates. We crudely attempt to capture the industry weakness by reducing 2025 and 2026 advertising unit revenue growth assumptions by 3% and 2% respectively. This equates to a 1.4% reduction of our 2025 group revenue forecast and 1.9% for 2026. We cautiously assume it will be harder this late in the year to align costs quickly to protect 2025 significantly. For 2026 it will be more straightforward hence our 2025 EBIT reduces by 7.7% but only 6.3% in 2026. One outcome from our assumptions is a faster favourable mix change between the high margin Specialisms and lower margin Advertising businesses. The development in Sports, Middle East and US should add to this and we look for further positive updates on progress. We maintain Buy with a reduced TP of 200p.
M&C Saatchi plc
Following press speculation, the Company has confirmed that it received an unsolicited approach for the Performance division from Brave Bison. The Board has taken the view that the offer fundamentally undervalues the business and does not reflect its future prospects and confirms that no discussions are ongoing. We see the unit as a fundamental part of the Group and M&C Saatchi offer. The unit is also fast growing in the key US market and is a growth hedge in a tough macro environment as marketeers focus more on performance media. Given this and the reverse gearing effect a disposal would have, the implied price (c6.0x EBITDA/c8X P/E) looks very low. It does however underscore the attractions of the assets and value within the M&C Saatchi portfolio.
The Company has announced the acquisition of WSG, a women’s sports specialist advisory and media rights consultancy. This helps further expand the high margin sport and entertainment capability within the Passions & PR practice thereby raising the growth potential of M&C Saatchi. The WSG acquisition follows the H1 acquisition of Dune 23 (focused on the high growth Middle East sports and entertainment market) and the recent launch of M&C Saatchi Football partnering with Jamie Redknapp. The WSG acquisition will help further expand the breadth and depth of SAA’s ability to deliver end-to-end services across sports rights, marketing, representation, and partnerships. The announcement also provides a positive update (see below) on activity within Sports & Entertainment that highlights many high-profile clients and strong geographic development. Raising exposure to less macro-sensitive secular growth trends is another positive for the group. We maintain our Buy rating.
H1 LFL revenue decline of 5.1% reflects the macro and tariffs pressure felt across the global economy and sector in Q2 along with a very tough environment in Australia. Excluding Australia, the business was relatively stable (LFL growth -0.7%) while Australia fell 26.5%. Management has reacted to the recent slowdown and tackled Australia aggressively with a repositioning, rightsizing and new management. The Company has guided to a full year LFL revenue decline of mid-single digit and is targeting EBIT in-line with the prior year on a LFL basis (c£34m) supported by an expansion of cost savings programs from £3m to £12m. The stock has already priced in a downgrade given macro and agency sector conditions. We still expect healthy EPS growth in 2025 and this to accelerate in 2026, but with sector valuations down and the more modest growth rate near term we reduce our 12-month TP to 220p. Share price performance potential is high and the business has a favourable mix and strong strategy boding well for the future. This supports our Buy rating.
We have reduced our estimates to reflect the short-term headwinds described in yesterday’s H1 release (FY25F adj. EPS -7%), but see evidence that SAA is making progress in unlocking the benefits of restructuring and repositioning, and in executing its organic growth strategy. Notwithstanding forecast adjustments we expect strong DPS and EPS growth and a growing cash position and view recent share price weakness as a buying opportunity.
The wider industry has seen trading challenges, and this is no different for M&C Saatchi. While the top-line should be more subdued this year, management is taking action to improve profitability. The shares are trading on c.9x FY26 PE. We cut our TP to 185p to reflect the downgrades.
SAA’s interims will provide an opportunity to update the market on client activity, macro conditions, acquisition plans and the outlook for FY25F, and to provide evidence that a repositioned business portfolio and associated initiatives are bearing fruit. We remain positive on the group’s fundamentals and medium-term growth potential and notwithstanding the potential for short-term headwinds, believe recent share price weakness (-13% over 1 month) has strengthened a compelling BUY case.
We have spoken to over 50 investors following our recent initiation on M&C Saatchi. In this note we summarise the principal areas of debate arising from these discussions and highlight an encouraging reaction to our positive investment case. Specifically, we sense that further evidence that the group’s growth strategy is gaining traction would be well received and could act as a catalyst for further share price progress. We retain our 271p target price (45% 12-month TSR) and BUY recommendation.
The Company has provided a short Q1 update providing some comfort in the context of the uncertain macro conditions. Issues and Media have both delivered good performances as we expect in tougher conditions. Strength in the Middle East and Europe have also supported keeping the business stable during the seasonally quietest period of the year. The Company remains confident in achieving market expectations and notes that “Although the global macro and geopolitical situation remains volatile, we have not seen any significant change in client spending in the quarter”. This is in-line with the activity levels being reported elsewhere. Management signal they have adopted an appropriate approach to the uncertainty by maintaining cost base agility. They confirm the existing cost savings plan is on track which in turn underpins the H1 growth investment being made that will skew profit weighting to H2 more than usual this year. Overall, we see today’s update as providing some relief and flag that while the stock has notably outperformed UK peers YTD they have drifted more recently lowering the entry P/E multiple to just 7.8x.
There has been little surprise in trading YTD. While macro uncertainty persists, we believe M&C is partly insulated by the counter-cyclical nature of its Issues division, which continues to grow strongly. The shares are trading on 7x FY26E PE. We maintain our 210p TP and Buy rating.
The Company has announced Zillah Byng-Thorne is stepping down from the Chair position due to her significant other commitments and increased regulatory responsibilities on 15th May (AGM date). She is being replaced by existing Senior Independent Director Dame Heather Rabbatts, which should aid continuity and provide ongoing support for the relatively new executive team (CEO and CFO) that are building on the transformation of the group initiated while Zillah was executive chair of the Company.
M&C recorded a good year of progress in-line with the January update. Management has a well-defined plan to drive revenue growth and operating model efficiency with the latter helping fund the former. £3m of new savings should support the business as it faces macro uncertainty. GDP expectations are being revised down and while our 2025 revenue forecast was not racy, we (note change of covering analyst) perform a review of our inputs and allow for some FX drag due to Sterling strengthening. This shaves a modest 1.1% off net revenue and 4.6% off EPS. We expect another strong year of progress for earnings (+20% EPS). Growing the resilient specialist high margin activities is a key focus and the company is investing in capabilities, products and people. Leveraging these services through increased regional availability creates an important structural growth driver while also taking advantage of the inherent greater efficiency of selling more to existing clients vs the cost of winning all-new clients. M&C is on a robust path of improvement with growth potential likely to keep rising as the group invests and gets stronger. We reiterate our Buy rating and flag the stock is good value vs slower growing peers typically seeing only mid-single digit growth.
The company delivered solid LFL growth in the current climate, in our view. We anticipate that M&C will continue to benefit from its diversified portfolio and ongoing efforts to streamline its structure in 2025. Shares are trading on 9x 2025E PE. We maintain our Buy rating and TP of 210p.
M&C is in better shape following a significant period of transformation. The focused strategy is yielding results, with recent client wins supporting FY25 growth despite muted trading conditions. The shares are trading at 9x FY25E PE. With upside potential of 19%, we upgrade our rating to Buy.
M&C Saatchi’s FY24E update shows the strong operational and financial progress made in the year. Investment into leadership and creative talent is driving mandate win momentum and expanded client remits. LFL net revenue growth of c3.5% (to £243m) is in line with expectations and has been delivered alongside a transformation programme which successfully unlocked £10m of annualised savings. Margins have improved as forecast, yet the key highlight was net cash, which increased to £16m (FY23: £8m) and implies a return of sustainably strong (>80%) cash conversion. Cash tailwinds are to continue into 2025 and provide increasing capital allocation optionality for investment or returns. BUY, 12-month TP 265p/share.
We are seeing improving margins and robust top line performance. Coupled with a new management team, we believe things are looking up for M&C. We anticipate that these factors will boost investor confidence in the company, justifying a higher rating. Consequently, we raise our target price from 192p to 210p, and upgrade our recommendation from Hold to Add.
Top pick M&C Saatchi delivered strong interims, with an accelerating top-line and expanding adj. operating profit (‘AOP’) margins ahead of PL estimates. Like-for-like net revenues grew +6% y/y (H2’23: +1%; H1’23: -6%) with continued Specialisms growth (+7% LFL) now augmented by advertising recovery (+6% LFL). Meanwhile, the Global Efficiencies program has kept underlying opex broadly flat, with scale driving expansion in margins (+340bps to 14.2%). Critically SAA is also back to generating strong FCF (£7.4m; best since FY’20) even in a seasonally softer half. The business continues to hire, doubling down on leadership in creative and core specialisms, positioning the group to further build on an already attractive blue-chip client roster. We adjust numbers for the M&C Saatchi South Africa disposal, leaving underlying numbers broadly unchanged (<4% to AOP and FD EPS). We see sustained LFL net revenue growth mid-term and further margin expansion to come. BUY; TP 265p/share.
This year is progressing as we expected. Given the stronger sentiment towards advertising names and stable estimates, we raise our target multiple from 9x to 10x and increase our TP from 160p to 192p. However, we retain our Hold rating. The shares are trading on c.11x FY24E PE.
We are updating forecasts, primarily to reflect the recent disposals of sub-scale/ loss-making agencies. Disposals are guided to remove ~£9m net revenue and ~£3m of operating losses, although we factor in a smaller benefit to AOP (£1.5m-£2m pa). Other updates include a ~3% underlying net revenue adjustment to factor in ‘centres of excellence’ focus, which we see leading to marginally lower Group revenue at an improved margin. Underlying net revenue and AOP margins move -3%/-3% and +10bps/+50bps for FY25E/FY26E. Overall, adjustments have a net positive impact of <2% on AOP. We remain a strong BUY, with an unchanged 12-month TP of 265p/share underpinned by a 10% FY24E FCF yield.
There has been a lot going on under M&C Saatchi’s operational bonnet, so delivering FY23 results a shade above market forecasts is a good result, especially given the difficult market backdrop. Earlier issues regarding outstanding put option liabilities are in retreat, with minority interests in FY23 down to 13% from 25% in FY22, and most remaining liabilities are expected to be settled in FY24. The focus is now firmly on optimising the operational structure. There has already been good progress, simplifying and achieving greater coherence on a regional-first approach, with better alignment to how clients (and potential clients) want to utilise the group's global capabilities. The incoming CEO, Zaid Al-Qassab, who starts in May, should be taking on the group’s navigation in less stormy waters.
FY23 figures (to Dec) are slightly better vs forecast/guidance with profit c. 2% ahead. Confident outlook despite unclear macros. No material net forecast changes expected. Buy - shares look good value in a de-rated agency sector. While macros remain uncertain, we see stabilisation from here and po
M&C Saatchi delivered a much improved H2, modestly ahead of expectations. LFL net revenue decline decelerated from 7% in H1, to 2% for FY23 (adjusting for disposals) in line with guidance, with AOP margins 1pp ahead in H2 (17%; guidance: 16%; cons: 16%). The transformation programme is ahead of expectations, whilst cash conversion is set to improve as put option liabilities continue to be cleared. Increased management confidence is reflected in a positive outlook statement and increased dividend (1.6p/share; FY22: 1.5p) and is underpinned by strong momentum moving into Q1’24. A stream-lined and more regionally focused model will deliver greater collaboration and margin opportunities in our view, and we remain a strong BUY of this attractive FCF growth story.
Limited surprises today. M&C is making strong progress with the cost-savings programme, with more to come this year. A new CEO starting in May adds certainty. However, the backdrop in trading remains tough. With the shares trading on c.10x FY24E PE, we reiterate our Hold rating for now.
Lower net cash comes as a disappointment but it is reassuring that trading improved in 2H. Further cost saving are in sight but with visibility on client budgets low for 2024, uncertainty still lies ahead. We upgrade our TP from 140p to 160p and maintain our Hold rating. M&C is trading on 9x FY24E PE.
FY23E performance was in-line, with revenues -7% y/y to £252m (LibE: £257m) and implied adj. EBIT of c£30m (LibE: £30m). As with H1, we saw strong growth in Issues and Passions Specialisms offset by headwinds in lower-margin Advertising. Positive mix effect and cost efficiencies drove an adj. EBIT margin rebound to 16% (H1: 8%), up 4pp y/y, whilst the balance sheet further strengthened as put option liabilities were paid down. We leave numbers broadly unchanged, client demand for thought-leading and innovative comms remains resilient, with high-margin areas growing well. An 8% FY’24E FCF yield is compelling. BUY.
FY23 update (to Dec) suggests a better 2H as expected, especially margin. FY figures expected in April. Forecast EPS unchanged – revenues reduce slightly given disposals, but margin is better, cash tweaks down on WC mix. While macros remain uncertain, we see some near term market stability and posi
Meeting Notes - Nov 08 2023
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While macro led pressure is unhelpful, we see a nice management catalyst from here, driving a self-help hedge from the accelerated global efficiency programme vs tough ad markets. We focus on near and longer term strategy, positioning of the Specialism vertical, and look at Advertising challenges i
A tough trading environment combined with internal and leadership changes are weighing on M&C Saatchi. While the new executive chair is spearheading cost savings within the group, for now, given the uncertainty, we maintain our Hold rating. The shares trade on 9x FY23E PE.
M&C Saatchi’s (M&C) H123 results reflect the more challenging agency trading environment, with revenue and operating margin both dipping in the period. Management’s global efficiency programme, implemented in Q1, achieved £0.5m of costs savings in H123 and is expected to deliver annualised savings of £3.8m in FY23, with a target of £10m by end-FY24. The leadership structure has been simplified and M&C continues to invest in its focused specialisms to drive revenue growth. Management remains cautious on the trading outlook for H223, but with the cost savings helping margin momentum through the reminder of the year and through FY24.
M&C Saatchi’s 1H results leave the group with much to do in 2H and we have downgraded PBT estimates by 16%, 9% and 5% for FY23E, 24E and 25E, respectively, haircutting management guidance. The good news is that Zillah Byng-Thorne, Executive Chair, is likely making a positive difference, the benefit of cost actions is building, margin should recover strongly from 2H and a lot of bad news is in the share price. The shares trade on 5x EV/EBITDA and FCF yield of 11% to CY23E, which could be the low in this cycle. We re-iterate our Buy rating, on valuation grounds.
1H figures highlight macro pressures: sales as forecast, margin slightly below. FY23/24E EBIT is -10%/-5% on lower FY23E LFL/margin offset by tax/minorities. Despite tough macros, SAA has a growth and cost plan: we see good value if/as it delivers strategic/financial aspirations. CEO departure adds
The trading environment continues to be challenging for M&C. While there is good visibility into the rest of the year, at this stage it is hard to anticipate whether client spend will improve next year. Given the ongoing risks, we maintain our Hold rating. On the expected changes, M&C trade on 8x FY23E PER.
Today’s news is not ideal given the backdrop for M&C, which is already challenged as highlighted at the recent trading update. With the added uncertainty brought on by the changes at the top, we downgrade our recommendation to Hold. The shares trade on 8.4x FY23E PE.
AGM update suggests the more challenging trading environment, as widely reported across the sector, has continued, especially in Advertising and Media specialisms. We reduce FY23E EPS by c. -8% reflecting more cautious FY assumptions, with profit skewed to 2H as cost efficiencies flow through. Desp
Despite the downgrade for Advertising, it is encouraging to see M&C benefiting from its diverse range of businesses and cost-efficiency programs. The shares are currently trading on c.10x FY23E PE and c.5x EV/EBITDA. We maintain our Buy rating and 260p TP.
M&C Saatchi has published a brief trading statement ahead of today’s AGM. The more challenging macro environment highlighted at its FY22 results has continued. Management now expects l-f-l net revenues to decline yoy in FY23E. We reduce our net revenue growth forecast to -2% from +3%. The main contributor to the decline is the Advertising and Media divisions. Passions, Issues and Consulting continue to perform strongly. Management remains confident in delivering yoy Headline PBT growth. We have pared our FY23E PBT forecast to £33.1m from £37.1m. The shares trade on a CY23E 10.1x P/E based on our new forecasts. While the short-term macro headwinds are disappointing, management remains confident in its medium-term growth targets set out at its CMD in February. We forecast an 18% EPS CAGR FY22-25E which is attractive particularly in the context of the current valuation. Our new TP of 235p implies 35% upside to the current share price.
FY22 figures as forecast/guidance. Outlook – guarded optimism vs some Tech pressure as peers, but good biz pipeline. SAA expects FY23 adj PTP as market expectations. FFY23E EPS +6% - slightly lower LFL offset by finance costs, tax and minorities. We see good execution under the new management team.
The company expects FY23 PBT to be in line with market expectations. Despite slower forecast top-line growth, we expect PBT to grow 14% due to cost savings within the business. The shares continue to look attractive, trading on FY23E 10x PE. We reiterate our Buy and 260p TP.
FY22 was a record year for revenue and Headline PBT. This is more impressive when considering the two takeover approaches during the year. Revenue grew 8.7% and Headline PBT grew 16.5%. We decrease our FY23E Headline PBT forecast by 3% reflecting the more cautious macro environment. M&C’s recent CMD highlights the attractiveness of the growth profile of the business. Macro uncertainty may prove a short-term headwind but the medium / long term attractiveness remains very high. The shares are trading on an undemanding 9.5x CY23E P/E considering the >20% Headline FD EPS CAGR FY22-25E.
We were impressed with what was presented and have revisited our valuation. We have applied a 20% weighting to a scenario-based target price where all goals are met, resulting in an upgraded TP of 260p (from 200p). We retain our Buy recommendation.
M&C Saatchi, Gattaca, Market Highlights
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M&C Saatchi, Gattaca, SMID Market Highlights
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M&C Saatchi’s CMD outlined an ambitious set of financial targets for the period FY22-27. Management outlined a clear strategy on how it plans to deliver these targets combined with underlying growth of its key markets. Management’s capital allocation plan provides further potential upside to the targets. Management has reaffirmed its Headline PBT target for FY23E and FY22E Headline PBT has come in 3% ahead of Liberum forecasts. The shares are trading on an attractive 9.1x CY23E P/E and a double digit FCF yield. We see c.40% upside from the current share price. Reiterate BUY.
CMD yesterday gave more granular detail on drivers for the new SAA group growth and financial targets. We see good value, positive strategic change, and strong trading performance despite sequential business disruption since 2019. Multiples based PT 230p (unchanged).
We update our FY22E PBT, but leave the outer year forecasts unchanged. We look to learn more on the updated strategy at the CMD. The shares trade on 10x FY23E PE. Buy.
CMD update showcases punchy new growth targets driving +22% headline earnings CAGR to FY27. No material operational forecast changes given macro challenges but positive non-operational items (interest, tax, minorities) imply FY22E EPS +14%. FY23/24E net unchanged, but conservative vs. SAA aspiratio
2023 will be an uncertain year for Advertising, but we expect the high growth specialism segments to continue to grow resiliently. We anticipate further margin improvement, with the cost reduction programme to start reaping rewards. We move to a 200p TP (from 247p), and Buy (from Hold).
Revenue, Headline PBT and net cash have come in line with expectations. Revenue has grown 9% yoy, driven by the high growth specialisms which grew 17% yoy. Headline PBT grew 14% yoy to ≥£31m, which is a record profit generated by the company. Net Cash (Pre-IFRS16) at y/e was £30m. This provides management the ability to resume the dividend, settle the remaining put options (in cash) and satisfy future investment requirements. Gareth Davis, Chair has decided not to seek re-election to the Board. The search for a successor has begun and Gareth will remain in his position until that search is complete. Our forecasts and valuation are unchanged. The shares are trading on an attractive CY23E P/E of 8.3x and our TP implies c.55% upside.
Positive trading update confirms FY22 adj PTP of at least £31m as per previous guidance, with sales growth of +9% and y/e net cash at £30m. Non exec Chair to step down with process to replace him underway. No material forecast changes. We see good value, strategic change, and strong trading perform
CEO Video - Gattaca, SAS Sentiment and Screens, ECI, Housebuilders surveyor, Commodity redEYE, Hammerson, M&C Saatchi, Caledonia Mining, Accrol, SMID Market Highlights
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We reinstate coverage following the lapsing of the offer period for both Next 15 and ADV. M&C Saatchi has continued its strong momentum during this period. FY21 results came in ahead of expectations and our reinstated Headline PBT forecasts for FY22E & 23E are c.30% and c.50% ahead of our final published forecasts. While macro uncertainty has increased, M&C Saatchi’s geographic breadth, diversity of capabilities and counter cyclical elements should underpin its resiliency. Management will host a CMD on 08 February 2023. The shares are trading on 6.4x CY23E P/E which does not reflect the growth profile of the business, we forecast a 35% Headline FD EPS CAGR FY21-24E. We reinstate our BUY recommendation and a 260p target price.
We reinstate coverage with a BUY recommendation and multiples driven PT of 230p. We see very good value, strategic change continues, and trading performance is strong despite sequential business disruption since 2019. Key near term risks are macro downturn and possible share overhang post the lapse
Meetings reconvened and offer unlikely to go through M&C shareholder meetings to vote for the proposed acquisition by Next 15 will be reconvened for 31 October 2022. Both companies have highlighted that the continued weakness of Next 15’s share price has resulted in the offer price remaining low. As a result, they believe Vin Murria and Advt are unlikely to change their stance and will reject the offer – thus the chance of success is very low. We are now moving into the final phase of this long drawn out acquisition process for M&C. While the outcome may not be the one for everyone, the removal of uncertainty will be a significantly positive step for all stakeholders to move forward. Jessica.Pok@peelhunt.com
M&C Saatchi plc Next 15 Group plc
Acceleration statement: Moving things along AdvancedAdvT (ADVT) has published an acceleration statement for its offer for M&C Saatchi, moving the date for the final offer to be satisfied to 30 September. Following the volatility in the market, ADVT’s offer is above Next 15’s. While we believe Next 15’s offer provides more for M&C Saatchi from a strategic perspective, we cannot dismiss the current valuation gap between the two bids. Since ADVT and Vin Murria are voting against Next 15’s offer as it currently stands, shareholders need to decide between M&C Saatchi being a standalone business or being under the leadership of ADVT. Jessica.Pok@peelhunt.com
1H results – reiteration of PBT guidance A good statement with solid top line growth and margin improvement for 1H. This was driven by the high growth and margin specialism areas offsetting weakness in Advertising and CRM. The board reiterates its PBT forecast of £31m for FY22E and £41m in FY23E. We maintain our P&L forecasts today, but our net cash increases to £42m (from £26m) due to lower put option costs and no interim dividend. Dividends expected to be reinstated at full year. Two takeover offers are on the table, from AdvancedADVT and Next 15. The uncertainty continues to weigh on the share price. The stock trades on 10x FY23E PER. Jessica.Pok@peelhunt.com
Trading update – in line 1H trading was in line with the board’s expectations. Net revenues grew 10% YoY, driven by a strong performance in the high specialism divisions. Regionally the UK, Americas and Asia were flagged as strong performers. No PBT number was provided but the statement highlighted that new business and cost controls have supported confidence in meeting the £31m PBT target for the full year. Net cash at the end of the period was £38.5m. The interims will be announced in September. We leave our forecasts unchanged. M&C currently has two takeover offers in play, one from Next 15 and one from AdvancedAdvt. Jessica.Pok@peelhunt.com
AGM trading: in line SAA issued a short AGM statement, indicating that its accelerated strategy is delivering continued strong trading. As a result, it expects headline FY22E PBT to be in line with the £31m forecast issued earlier this year. This is in line with PHe, which we leave unchanged for now. M&C Saatchi’s shares have fallen c.25% since the announcement that AdvancedAdvT was interested in the business back in January. The shares are now trading on 3.7x FY23E EV/EBITDA and 9.4x PE. The next expected event is the deadline for M&C Saatchi shareholders to vote on AdvancedAdvT’s offer on 13 August. Jessica.Pok@peelhunt.com
The saga continues The directors of M&C Saatchi have changed their tone, and are now recommending shareholders do not vote in favour of the offer from Next 15, due to the decline in its value as a result of the fall in Next 15’s shares. They also continue to reject AdvancedAdvT’s bid, while still considering Next 15’s offer superior when assessing the two bids in isolation. At this stage, we would not rule out the possibility of another acquirer appearing. We continue to believe M&C Saatchi is a good asset with strong reputation in the creative world that would be further strengthened with right investment into adding digital capabilities. Jessica.Pok@peelhunt.com
A window of opportunity Post its trading update and offer for M&C Saatchi we update our forecasts for Next 15, which leads to an EPS increase for FY23E of 7% and FY24E of 8%. In this note we discuss the attractions, risks of the deal and provide investors with insight as to how the combined group could look financially. Per our forecasts, the deal is accretive by an added c.4% for FY24E. We believe our estimates for M&C are conservative, assuming that management’s projections for FY24E might be met with other bullish assumptions, then the accretion rises to c.9%. We apply a SOTP valuation for Next 15, maintain our target price of 1,580p and upgrade from Add to Buy. Jessica.Pok@peelhunt.com 12-page note
Next 15 makes an offer for M&C Saatchi Next 15 announced an offer for M&C Saatchi of 0.1637 Next 15 shares and 40p in cash. At yesterday’s closing price, this values M&C Saatchi at 247.2p per share, or £310m for the business. On our estimates, this equates to 17.5x forward PE. We are surprised by the offer this morning, but believe the deal makes strategic sense. Next 15, combined with Engine UK, and now M&C Saatchi, could transform the group into a stronger player in the near future. Next 15 expects the deal to be materially earnings enhancing in the first year of ownership. We increase our target price for M&C Saatchi from 208p to 247p and reiterate Hold. Jessica.Pok@peelhunt.com
A formal offer AdvancedAdvt (Advt) launched a formal offer for M&C this morning, without the support of the latter’s independent directors.The offer is 2.043 new Advt shares and 40p in cash, or 2.530 new Advt shares; at Advt’s last closing price both offers value each M&C Saatchi share at 207.5p. Advt has secured c.42% shareholder support for the deal. The offer price is less than we expected, reflecting the headwinds being faced in a challenging market, but we believe that the deal could go ahead. We reduce our target price from 230p to 208p and downgrade our recommendation from Buy to Hold. Jessica.Pok@peelhunt.com 5-page note
Yet another PUSU extension M&C Saatchi has granted a new PUSU extension to AdvancedAdvT (AdvT) in relation to its proposed takeover. The new deadline is 10 May 2022. What is interesting in this instance is the new deadline is much shorter than previously. While AdvT can still apply for another PUSU if more time is needed, we hope to see a resolution as soon as possible, as the ongoing process continues to drag on share price performance. As a reminder, our fundamental target price for M&C Saatchi is 230p, without a bid premium. Jessica.Pok@peelhunt.com
Another PUSU extension There is another "Put Up or Shut Up" (PUSU) extension for Advanceadvt, to 5pm on 28 April 2022. This is the third PUSU extension. No revised offers have been made since the rejected proposals on 3 February which valued M&C at 230p per share. Discussions have been ongoing between Advanceadvt and the directors of M&C. The company should be announcing its FY21 results in due course, but no date has been set. A resolution is very much needed to see new interest in the stock. The shares are trading below the last bid price at 166p and on a FY22E PER of 15x. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
Another extension to the ’put up or shut up’ deadline Today was the PUSU deadline for AdvancedAdvT (AdvT) to make a formal bid for M&C Saatchi. However, with the discussions still ongoing, the panel has now approved another extension until 5pm on 31 March 2022. Since AdvT’s offer on 3 February, worth 230p per share for M&C, was rejected by the board, no further proposals have been made. At 230p, M&C is valued on 5.5x FY22E EV/EBITDA and 21x PE. The prolonged discussions to continue to weigh on the share price. With the outcome of the takeover uncertain, the shares have been trading in a range of 165-187p. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
Extension of ’put up or shut up’ deadline The Takeover Panel has approved an extension for the deadline by when AdvancedAdvT (AdvT) can propose a formal offer to M&C Saatchi shareholders, from COB today to 5pm on 3 March. The company received a revised proposal from AdvT on 27 January, which it has again rejected. This rejected proposal included 1.939 new AdvT shares and 40p in cash for each M&C Saatchi share (with an option to mix and match the proportions of cash/shares), and also an all share offer of 2.347p. Both offers valued M&C Saatchi at 230p per share. Our fundamental target price for M&C is 230p, but that doesn’t include a bid premium. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
An improved offer from AdvT AdvancedAdvT has submitted new merger terms to M&C Saatchi, which the board has rejected. The improved terms comprise of: (1) an all-share offer of 2.245 new AdvT shares for each M&C share; or (2) 1.633 new AdvT shares and 40p in cash for each M&C share. This values M&C’s shares at 220p and 200p, respectively. However, it is still lower than our fundamental target price of 230p. Given the recent strong trading update and the closure of the FCA investigation, we believe it would take a further improved offer for stakeholder support. AdvT has until 3 February to provide a formal offer. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
FCA closes investigation and trading update The FCA investigation into accounting issues has been closed with no enforcements. In addition, the trading update suggests that FY21E PBT will be materially ahead of expectations. We increase FY21E PBT by c.18% to £25m to reflect this. We move our fundamental TP (assuming an absence of a bid) to 230p from 200p. M&C has recently received an informal offer from AdvT, which its independent directors have not supported. The strong performance and closure of the FCA investigation further support a much-improved offer, which will be needed for full stakeholder support. AdvT has until 3 Feb to make a formal bid. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
CFO resigns Mickey Kalifa has resigned as the CFO of M&C Saatchi for personal reasons. He will remain in his role until the completion of the 2021 audit. The group is currently searching for his replacement. Mr Kalifa has been instrumental in the recovery of the business since the accounting issues were discovered. His resignation places M&C Saatchi in a difficult position, in our opinion, given the recent takeover approach. As suggested recently, we believe AdvT will need to improve its recent informal offer to gain stakeholder support. AdvT has until 3 February to provide a formal offer. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
Bid for M&C Saatchi, more to come Last week, M&C Saatchi received an informal offer from AdvancedAdvT, an acquisition vehicle led by Vin Murria, who sits on the board as deputy chair and NED. The offer was 1.86 AdvT shares for each M&C share, which M&C Saatchi’s independent directors rejected as not reflecting the group’s full potential. AdvT has until 3 February to make a formal offer. This note discusses the deal and possible outcomes. In our view, the informal bid does not reflect the group’s fundamentals. Our 200p TP is in absence of a bid; we believe a premium of 15-25% to our TP would be needed to gain wider stakeholder support. Jessica.Pok@peelhunt.com,Malcolm.Morgan@peelhunt.com 3-page note
Estimate changes post trading update We update our numbers again for M&C Saatchi. For FY21E, even though our revenues increase by only 3%, a large drop through to profits leads to both PBT and EPS increasing by 20%. We have seen a very strong recovery in the financial performance of M&C Saatchi, with both PBT and EPS for FY21E now forecast to be higher than FY19 levels by 25% and 6%, respectively. However, in our view the share price performance has yet to reflect the potential of further improvement in the group. We maintain our 200p target price and Buy recommendation. The shares trade on 18x FY22E PER. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Another strong trading upgrade Following on from the positive trading update on 23 November, M&C Saatchi has issued another positive trading statement, noting that a good final quarter should see results materially ahead of expectations. Trading was good, especially in the performance media and global and social issues operations. The better than expected performance in 4Q is pointing to a 3% upgrade in FY21E revenue but as there are no material increases in costs, despite revenues improving, on initial estimates EPS is likely to increase by 20%. We welcome this strong outperformance. M&C Saatchi trades on 18x FY22E PE. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
M&C Saatchi has released an adhoc trading update highlighting that trading has been stronger than expected heading into year end. As such, management expects operating profit to be significantly ahead of current expectations. As a result, we have increased our Sales estimates for FY2021E by 2% and our EBIT and PBT estimates by 18% and 21% as this incremental revenue drops through at a high rate due to the businesses high operating leverage. The upgrade to FY2021E feeds through to FY22 and 23E PBT estimates which we increase by 19% and 7% respectively and we think these could prove conservative if this positive underlying trading conditions persist into 2022 and beyond. We increase our TP to 260p (from 240p) reflecting the increase to estimates and we think the shares are attractively priced at 19.3x CY22 PER.
Strong trading continues in 4Q
Update of forecasts We update our forecasts post the recent trading update. While our revenues only increase by 1% for FY21E, our EPS increases by 5% due to stronger margin expansion. Similar to its peers in the marketing services industry, M&C is having a strong year with 1H trends continuing into 2H, with all parts of the business growing well. The recovery of the group continues to be evidenced by the outperformance in the numbers. We expect to see further progress, in particular on profitability, into next year. We maintain our Buy recommendation and target price of 200p. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Consistent trend of better trading A trading update today noted better revenue, margin and profit performance compared to market expectations. These improvements have been seen across all territories and all group practices, and reflect a year-long trend in consistent broad-based outperformance. We welcome the company’s emerging track record of over-delivery, after a turbulent period. We expect to increase PBT for the current year by c.5% to £17.8m, giving 6.2p of earnings. We leave FY22E unchanged. We make no change to our Buy recommendation or 200p target price. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
M&C Saatchi has released an unscheduled trading update this morning highlighting that the company has continued to deliver strong performance since the latest trading update. Management now believes that PBT will come in ahead of consensus expectations. We slightly increase our FY21E revenue estimate reflecting the continued positive performance in Global & Social and Performance Media. Additionally, we increase our FY21E EBIT and PBT estimates by 10% and 13% respectively. M&C Saatchi has extended relationships with TikTok and Whoop and received new assignments from clients, such as, Apple and Mars. We leave our outer year estimates unchanged and retain our 240p target price, which implies c.45% upside to the current share price. The shares continue to trade on an attractive 0.7x CY22E EV/Sales. Reiterate BUY.
Positive update
18 - 22 October 2021
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Strong 1H figures. Put options to be settled in cash
Interims – margin expansion leads to outperformance M&C generated 21% organic net revenue growth for 1H, albeit there were weaker comps from last year. However, the spotlight will be focused on the strong margin expansion seen in the period. Operating margins improved from 5% for FY20 to 10% for 1H21. Management now expects the full year to be substantially ahead of consensus. It was also confirmed that cash will be used to settle put options from now on. For our forecasts, this results in an FY21E operating profit upgrade of 14%, but EPS increases 37% due to the lower expected share count. In our view, M&C’s share price is yet to reflect the progress in the recovery of the business. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 2-page note
M&C’s outlook for the full year is materially ahead of market expectations both on PBT and earnings driven by a strong beat at the HY, broader advertising spend strength and execution against the new digital strategy outlined at the CMD. Additionally, management has announced the commitment to settle the outstanding put options with cash opposed to paper as they expire, which compounded with PBT upgrades, delivers FD EPS upgrades of 40/50% in FY21/22, respectively. Furthermore, there are multiple avenues for future consensus upgrades, and we continue to highlight M&C Saatchi as a key BUY – TP 240p (from 235p).
What is the right price? The performance of M&C Saatchi’s shares has been relatively muted despite its recent strong trading update. We believe the company is on the road to recovery, with potential to outperform in 2H as global client spend on marketing services remains buoyant. We revisit the company’s valuation in this note and analyse the price we believe investors should pay for the risks associated with the stock’s recovery. In addition, we update our forecasts to reflect the company’s recent strong performance and increase FY21E EPS by 15%. We upgrade our recommendation from Add to Buy and our target price from 170p to 200p. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 8-page note
M&C have far exceeded our expectations posting FY20 PBT 54% ahead of our forecasts which capped an extremely encouraging set of results with multiple positives. One area of excitement is the bullish commentary and fast start to FY21, with £10m of PBT expected by HY (we have £13.3m for the FY) driving a c.19% hike to our FY21 EBIT forecast. Elsewhere, the group has highlighted they can deploy cash to address concerns about minority put options, which could reduce potential dilution from 19% to 5% in the medium term from a healthy £33m net cash position at FY20 YE. Strong BUY, TP 235p (from 210p).
Trading for the first five months ahead M&C Saatchi announced its FY20 results, where there was a strong beat of 35% on our PBT forecasts but a marginal beat of 1% on EPS. This is due to a higher minority charge than we expected. For FY21E, trading is going well and the full-year numbers are now expected to be ahead of market expectations. On initial estimates, we look to increase our FY21E EPS by c.14%. It is encouraging to see strong trading in the first half. While management suggests H2 is not expected to fully match H1, we believe there is potential for further outperformance as global marketing spend continues to be buoyant. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
FY20 above forecast and current trading strong
Updating forecasts We update our forecasts for M&C Saatchi following an encouraging trading update for the first four months, where there was robust client activity. Our FY21E EPS increases by 14%. Given the strong trading across the industry, we believe that client spending momentum could continue into the rest of the year, leading to further upgrades for the group. We have updated our sum-of-the-parts and multiple-based valuation and raise our target price from 145p to 170p. We maintain our Add recommendation. We expect FY20 results towards the end of June. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Trading update Trading for the first four months of the year has been stronger than anticipated, therefore the board now expects full year results to be ahead of consensus expectations. A number of new client wins have supported trading, including UK Census Campaign, Tinder (performance marketing in Southeast Asia) and Origin (creative work for Australia PCW). Full year results for FY20 will be published at the end of June. M&C Saatchi is performing well at the revenue level but profitability has been stronger than expected, therefore we look to increase our PBT forecast by c.10%. A reassuring trading update from the company. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
SAS Podcast, FTSE Index review, Thungela - Anglo spin off, Shaftesbury, M&C Saatchi, Market Highlights
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M&C’s new strategy presented at the CMD is already paying dividends, with new business wins and expanding mandates with existing clients resulting in the first 4 months of FY21 trading ahead of market expectations. Further, the group have secured a new line of credit with NatWest & Barclays that supports the already healthy £30m net cash position. We upgrade our FY21 PBT estimate by 22% to reflect higher margin connected marketing mandates, and anticipate further upgrades as marketing budgets recover and management execute against the connected strategy.
Strong start to this year and new RCF
Controls strengthened and ambitious targets
Looking to life post C-19
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We re-introduce our recommendation with BUY (U/R previously) and SOTP-based PT at 194p. SAA has experienced a tough 18 months during its reporting review and, more recently, C-19 disruption. However, client relationships remain good, evidenced by business wins/retention, and the brand has retained
Meeting Notes - Mar 08 2021
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We initiate with a BUY on M&C Saatchi with a 210p target price, offering 60% upside. Under new management, the company has rebalanced its portfolio towards digital assets and plans to deliver a 6% revenue CAGR and an 18% operating profit margin by 2025. An FY21 EV/Sales of 0.5x (vs. peers on c.1.5x) not only overlooks the strategy to deliver accelerated growth, but also the c.£50m of cash we forecast the company can generate over the next five years, that will be used for digital organic investment, strategic M&A or returned to shareholders via a reinstated dividend.
All change, all change M&C Saatchi recently unveiled its new strategy, together with new financial targets for the next five years aimed at growing its high-margin and digital practices. We discuss these new plans and the challenges ahead in detail in this note. Although the stock has now recovered partially since its accounting issues, it is still 60% below the highs of 2019. That said, we believe the M&C Saatchi brand is still very much intact in the creative world, with some solid gems in its portfolio, but it must now prove itself in the financial sphere. We maintain our Add recommendation and 145p target price. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 13-page note
M&C Saatchi has reset its proposition under new CEO, Moray MacLennan, outlined at a capital markets day (CMD), with speakers from across the group’s activities and geographies. With eight agency mergers and 14 loss-making entities closed and much-strengthened governance, the group is now well placed to build on its strengths, aligning creative with technology and data. The financial upheaval has not affected client retention or restrained new business performance, which has been strong. The five-year plan sets out targets for 6% revenue CAGR to FY25, with an increase in the operating margin to 18%, three times the current level. Year-end net cash was £33m.
Connected approach drives meaningful change
Trading update and financial targets ahead of CMD Ahead of the CMD today, M&C Saatchi issued a trading update which suggests that strong trading was seen in Q4 and while no P&L financials were given, FY20 results will be ahead of the guidance given at the interim stage. Net cash was significantly ahead at £33m (vs >£4m guided). The company has also issued new financial targets for FY2020 to FY2025. M&C’s share price has taken a big hit since the accounting issues were found. We look to hear on the new strategy, and how it will achieve the financial targets, today at the CMD. Our forecasts, price target and recommendation are currently under review. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
New Meaningful Change Strategy
Best Ideas - 2018 H1 Review
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M&C held a very positive meeting highlighting the strong entrepreneurial culture and success of dynamic units that stand profitably on their own two feet. M&C is able to differentiate itself from the large global agencies who are struggling to grow at present. Their targeted approach to offices, lower exposure to FMCG/broad sector diversification and minimal exposure to traditional media buying is proving itself. The growth dynamics of the services they offer was on show with Mobile, Talent and Sports & Entertainment units explaining their positioning and attractive dynamics. M&C has continued to deliver over the long term; it weathered the credit crisis and has gone on to outperform the market. The shares look good value and we see 400p as the next objective. Quality and consistency remain highly attractive traits. M&C is on the path to becoming a rare beast, a mid-cap agency. BUY.
Brady (BRY LN) Building a platform for superior growth and margin | Devro (DVO LN) We see 3 key sentiment drivers for FY17 | EMIS Group (EMIS LN) In line prelims, investment in patient a short term drag | M&C Saatchi (SAA LN) 9.3% LFL revenue growth, 3% profit beat, dividend +15% | Northgate (NTG LN) Strategy refresh expected in June | Oxford BioMedica (OXB LN) Full year results; anticipate CTL019 launch later this year
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In overall terms the trading for 2015 was good, albeit the shape of progress varies a bit from our expectations at the division levels. Headline operating profit is £0.5m light and interest higher but associate income is £0.8m better meaning PBT is essentially in-line. EPS has beat despite a higher share count as tax was markedly lower than expected due to higher profits on the US where the Company is able to utilise tax losses. Businesses with minorities (US, Aus, Germany, Italy, Brazil) performed much better offsetting some of the outperformance at the net attributable earnings level. The success of the US SS&K stake is such that the Company has moved early and increased its stake to 51% for another US$4m (will now be consolidated). The US is being further bolstered by the acquisition of 51% in MCD Partners, a US specialist. This looks an excellent move given the existing strength in CRM (LIDA) and should help progress the roll out of this service further to support the US. The Company has confirmed it is progressing the incentivisation of the UK agency management by selling them a 30% stake. The recent investor day showed the strength of the equity model, culture and focus on rolling out services geographically and today highlights further execution against this. The trading outlook is positive and there appears to be little tangible sign of any macro related issued (maybe a little BREXIT). Given this and the transactions we expect EPS to rise c6% to c21p for FY16 (N1Se current 19.8p) With good momentum we reiterate our Buy rating and flag scope for the stock to test 400p in the coming year.
M&C Saatchi held an investor day yesterday and there were three key take always from our perspective (i) sport has matured into a strong leading player in its segment capable of attracting very large clients, (ii) there is traction internationally through an expanded range of capabilities (and critically in the US) and (iii) the attractions of the strong entrepreneurial culture and structure that underpins the group. The group is looking at incentivising the management of the UK agency to give it the lift that has proven to work for the group (most recently in Australia). We would welcome this from a medium term perspective. The shares have drifted off recently and are bouncing along in the middle of the last few years. With earnings catching up sharply the shares are now likely to move in to a new phase and break new ground. Our TP is based on 2015e and provided the upcoming results (18th March) confirm that trading in 2016 is on track our TP can rise towards the 400p level. At 304p the stock is looking attractive. BUY
H1 results are good and raise confidence in achieving full year expectations. The US investment in SS+K appears is gaining momentum with the two notable wins so far (JW Marriott and Comcast). Mobile has performed well for the group and is a key driver. Continuing to roll out higher value services through the regional offices remains a top strategic priority and supports our positive stance. The shares have perked up again and upside is now more limited. However the shares are likely to remain strong given trading strength. We look forward to more detail at the analyst meeting.
Actual Experience (ACT LN) Verizon contract – powerful endorsement and significant channel | M&C Saatchi (SAA LN) Good interims
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