Heading into the pandemic, we had argued that Next Fifteen’s broad spread of digital capabilities and heavy exposure to technology led clients should be a source of relative strength. The H1 trading update has underscored just how resilient the group has been. Yes, there have been impacts but the inevitable hit to organic revenue growth has not been as severe as first thought. Combined with the contribution from strongly performing acquisitions made over the last two years, Next Fifteen will be reporting H1 revenue and profit comfortably ahead of the prior year, which is a remarkable outcome against such a backdrop. Next Fifteen has also announced the acquisition of the innovation consultancy, Mach49, which marks the first concrete step in building the fourth pillar underpinning the group portfolio. The group balance sheet remains a source of strength (H1 net debt to be less than £1m); reflecting both the better than expected profit performance as well as effective cash preservation and working capital management. This positions the group well for any further accretive M&A. The current FY1 PE of 13.0x, falling to 11.3x for FY22 feels undemanding given the positive performance through the pandemic and the subsequent positioning heading into any sustained recovery. The rating also looks undemanding relative to others in the immediate peer group and the broader Small Cap Media sector.
Key headlines were a better than expected trading performance through the pandemic resulting in both revenue and profit for the year expected to be ahead of market expectations. Both revenue and profit for H1 will be +6% / +16% ahead of the prior year respectively.
Next Fifteen has benefited from a less severe impact on organic growth as had first been feared (-6.5% in H1, -2.5% in the US), coupled with a continuing strong performance from acquisitions. Cashflow performance has also been strong, resulting in a largely ungeared balance sheet.
In response to the trading update we have upgraded both our current year and FY22 adjusted PBT estimates by +8% / +13% respectively.
The recent Capital Markets Day also re-affirmed the strength of the group’s positioning and the breadth of the digital capabilities across the group portfolio. In a world where technology trends are being accelerated across the board; Next Fifteen remains at the centre of a number of positive structural themes within the marketing landscape. The move into innovation consulting adds another complimentary string to the bow.