YouGov’s final results to end July showed strong revenue growth (+10% underlying) and a 200bp increase in operating margins. The continuing drive is on growing Data Products and Services and focusing Custom Research on more profitable business. The ambitious targets to improve profitability set in the original five-year plan have been met. The new five-year plan to FY23 targets doubling both revenue and adjusted operating profit margin, as well as achieving a 30% CAGR in EPS (25% EPS CAGR in the earlier plan). In this context, the valuation premium to slower-growing peers looks well underpinned.
Like-for-like revenue growth in Data Products and Services of 18% was diluted by 1% growth in Custom Research, but the latter was deliberately constrained by cutting less profitable business from the mix. Data Products (30% group revenue) was up by 25% underlying, with adjusted operating margin climbing from 31% to 34%. YouGov Plan & Track, which integrates BrandIndex and Profiles, is gaining good traction with agencies and brand owners. Data Services like-for-like revenue (27% group) grew 11%, with the US building fast. Margins were diluted from 21% to 20% by including some custom research business re-categorised from the Nordics. The Custom Research segment lifted adjusted operating margin from 20% to 22%.
The growth plan is predominantly predicated on organic progress, adding new products, enhancing the technologies, adding new countries and new verticals, and improving the sales and marketing function. YouGov is looking to break down internal silos, adding key account management teams, to grow the client base and to cross- and up-sell additional business lines into existing clients. Smaller acquisitions that can accelerate progress on any of these fronts are likely, given the group’s net cash (£37.9m at end July and high levels of operating cash conversation – 124% of adjusted EBITDA in the year just reported). We have updated our FY20 forecasts on these results and introduced FY21 numbers.
YouGov’s share price has performed strongly, up by 37% since the start of the year (although 10% off its August peak), giving a 10-year CAGR of 27%. Earnings multiples are at the top end of the range of global peers, although it can be argued that none are directly comparable. On a reverse DCF basis, at our FY21e projected EBITDA margin of 26% (which should prove conservative given the ambitions in the five-year plan), the current share price implies top-line growth of 5.6% in FY22–27, well below the level needed to meet the new growth target.