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Past the worst: The recent trading update gave some reassuring signs that operational momentum has stabilised and is starting to improve, most notably with US advertising picking up (helped by an easy comparable). Although the comparable toughens in Q4, we note recent data from Google suggesting that digital ad yields – particularly in the US – have seen robust growth yoy in recent times, which should provide ongoing support. eCommerce trends may not yet be picking up meaningfully (as witnessed in Prime Day trends), but Go.Compare may now be past the worst, with Q324 the toughest comp for car insurance. We believe the drag from Go.Compare could disappear next year as the market stabilises and as the management focus on conversion rates / vertical diversification has a more visible effect. Structural fears overdone: A shifting search ecosystem rightly creates debates and challenges for Future to navigate, but we believe fears in this regard are being somewhat overstated. Trade press reports suggest that Future may even have benefited from the recent Google search algorithm update, that the eventual roll-out of Google Discover to desktop browsers could support traffic, and that the impact of AI Overviews could be less detrimental than assumed, given the opinion / editorial / entertainment content intrinsic to many of their trusted leading brands. Plenty of value to be had: Future currently trades at c.4x CY26E EBITDA, offering a FCF yield of 16%. Management have already demonstrated their willingness to deploy this cash generation to share buybacks, and more of these are possible – total FCF over the next 3 years represents half the current market cap. We believe private / trade buyers could also take advantage of the opportunity to crystallise value / utilise these cash-flows.
Future plc
FUTR has seen a strong recovery in the remainder of Q3 US advertising and flipped from -10% in April to +5% for the quarter, much better than we had assumed. The March shock can now be categorised as a blip. UK advertising is also trending better, and Magazines is yet again doing better than we assume. GoCo and other affiliates are a bit soft, but this doesn’t outweigh the advertising and mags driver. The update helps sure up confidence in forecasts and importantly is a first step on rebuilding the US advertising yield improvement strategy execution story, something we are bullish on. Future’s valuation is nothing short of daft, unless you think Armageddon is around the corner, and we don’t. We nudge TP to a round 1800p. Buy.
The return to growth in US Direct advertising since March is encouraging. However, the key concern of weakness in traffic remains. This plays into investor concerns over the impact of AI search, which we believe is likely to persist in the near term. Future is trading on FY26E 5x PE and a 20% FCF yield. We maintain our 1,090p TP and Buy rating.
Future has taken its first foray into the bond market by issuing a £300m 5-year unsecured bond. In addition, it has arranged a £300m 4-year RCF. We re-model our net finance costs which doesn’t reduce our FY25 EPS, but it does reduce FY26 and FY27 EPS by 3.3% and 7.1% respectively as the new structure will keep the gross debt balance higher (at £300m) in the outer years. We do think the Company will look to announce further buybacks and should they announce these then excess low yield cash will be used boosting the accretion, which is already high due to the low valuation. We look forward to the trading update on the 17th, which should provide confirmation of a continuation in the recovery of US advertising. The shares are extremely cheap on sub 6x P/E. BUY.
The last update was hard to swallow even with another £55m share buyback. FUTR was tracking well to build the organic growth rate but a sudden shock in March in the key US online advertising segment killed momentum. April was indicated to have shown some improvement off the low March exit rate, but without further positive news flow that can support high conviction in the US advertising yield improvement strategy the core of our investment case is on pause. US$ weakening hasn’t helped forecasts. The FUTR valuation is extremely low. Backing out GOCO values the publishing operation on just 2.0x FY25 PLe EV/EBIT. We don’t think it will take much for the shares to bounce and the mid-July Q3 trading update could be the catalyst. It will be too early to get the strategy execution evidence, but a sequential improvement through Q3 would be enough to classify March as a one-off, calm the nerves and trigger a bounce. We believe in our 10x EV/EBIT target TP multiple in the medium term and recognise this will take time as execution re-builds. However, the valuation is far too low on any remotely logical basis and therefore should be able to take major steps forward even on short term news flow. Based on our revised forecasts our FY25 based TP reduces to a high potential return 1797p. BUY.
Headwinds remain, both in trading and from AI disruption. However, we now have a CEO with a technological focus to push innovation within the business. Moreover, Future continues to churn out cash, supporting share buybacks. The shares trade on 5x FY26E EPS and offer a 22% FCF yield.
March madness: Future may have reported a 1% organic decline for H1, but for the first 5 months (when macro trends had a degree of relative stability) the group was in organic growth - with deterioration in US digital advertising (Q1 +1%, Q2 -13%) in March the key swing factor moving the group into negative territory. Despite the understandably more prudent FY guidance, the US ad market is starting to recover and, whilst not getting the headlines, the performances of Magazines (actually up) and Go.Compare (down just 1% against a comp of +30%) are worthy of significant credit. Controlling the controllables: From a fundamental standpoint, we believe management’s growth acceleration strategy remains on track, with launches of existing brands into new markets and new initiatives to expand into non-car insurance / boost customer loyalty in Go.Compare undertaken in the period. We expect these self-help measures to deliver more visible benefits once a more benign backdrop in advertising markets and the consumer electronics replacement cycle kicks in. In the meantime, a commitment to a 1x leverage floor should keep underpinning further accretive buybacks. Deep value: On forecasts, we cut revenues by 4% in FY25E and 6% in FY26E; operating profit falls 8% long term but is partially offset at the EPS line (down 6%) given the new buyback. Post falls, the stock now trades at <5x CY25E EBITDA - stripping out Go.Compare at 8x (where we note further new financial disclosure) the rump trades at an unjustified c3x - we recognise the cyclical & structural concerns, but this seems far too harsh given its cash generation potential. We set our new TP at 1100p, based on a 6x multiple for the rump / an 11% FCF yield for the group.
A disappointing update given the more resilient performance of US peers. However, the flexible model allowed margins to remain stable, with the share buyback supporting near-term shareholder return. Trading on 5x FY26E PE and a 21% FCF yield, much of the caution looks priced in.
H1 results broadly inline overall The Future interim results out today appear robust at a headline level, with revenue of £378m (down 1% organically) and EBITA of £100.7m, both broadly in-line with consensus. By division, the Consumer business was flat for H1, supported by an impressive performance in Magazines to deliver 1% growth, but offset by a weakening of the US ad market in March (the company notes that the group was in organic growth overall in fiscal Q1 - and we believe for Jan / Feb too - but this March ad trend moved the group to a decline for H1). Go.Compare declined 1% against the tough comp of 30% growth in H124, whilst B2B declined 13% with ongoing weak tech enterprise marketing spending. FY guidance cut On guidance, management note that US direct advertising returned to growth in April, but given macro volatility, they believe it is prudent to now guide to a low single-digit organic revenue decline for the FY (vs ‘growth’ before), whilst maintaining the 28% EBITA margin guidance (and flag FX headwind of dollar weakness) – the company will provide a further update on trading in July. With leverage at 1.1x, Future also announces a new £55m share buyback program that in part offsets this impact at the EPS level in FY26. Risks priced in, to at least some extent The shares have been weak recently, likely reflecting macro risks and the mixed commentary from peers – leaving the stock trading at just 4x CY25E EBITDA, which implicitly assumed potential consensus downgrades to an extent, in our view. Fundamentally, we continue to believe this remains too cheap, and see scope for value crystallisation and re-rating over time, once forecasts stabilise.
We met with new CEO Kevin Li Ying yesterday. New CFO Sharjeel Suleman was also present. Our overall impression is that the business will see a gentle evolution of the existing GAS plan that sharpens up efficiency and focus on what adds value for its audience and advertising customers. while eliminating the unnecessary. There is a clear recognition of the dynamic nature of the media market and a desire to be first to market with innovation, a strategy that has paid off historically. Overall, we were left with the impression that Kevin’s experience and understanding of Future and its market coupled with Sharjeel’s fresh external commercial view point will provide a powerful combination in optimising the potential of Future. Below we summarise our key takeaways from the meeting.
New CEO starts today Following on from the resignation of Jon Steinberg, the new CEO Kevin Li Ying starts today – having been a long serving key member of the management team, most recently heading up the B2C division. As such, we do not expect any significant changes to the strategy or investment plans, albeit there will no doubt be many questions asked around the portfolio, the pace of any potential reshaping and cash return plans. We look forward to hearing his first thoughts, in his new role, on the future direction of the business at an introductory sell side meeting later today. Improving momentum The trading update in February showed signs of improving trading momentum in the early part of the new fiscal year, particularly in the US, and we believe these trends are likely to have continued. Commentary from UK retailers such as Next and Currys recently suggests that consumer replacement cycles post Covid may finally be improving, and Google digital ad yield data shows strong growth in the US (see figure overleaf). That said, the UK ad market remains tougher, and we recognise that fiscal Q2 has a very tough comparable for Go.Compare. Remains the wrong price The stock has pulled back significantly in recent times, which we believe has no company-specific fundamental justification even if macro uncertainty and dollar volatility are clearly unhelpful. It now trades at <5x CY25E EBITDA, or not far off 3x ex Go.Compare (which is now c.50% of the EV) – as ad markets improve and the consumer electronics cycle turns, we see eventual scope for consensus upgrades and re-rating alongside further cash returns and asset disposals to crystallise value.
The Company indicates it is trading as expected for the first 4 months of FY25 and on track for market expectations. Our key takeaways are that high margin US advertising is performing very well with both a positive backdrop and optimisation strategy working. eCommerce is also performing well in the US and UK. Magazines (33% of FY24 revenues) is performing better than trend at low single digit vs our -7% u/l medium term assumption. GoCo is seeing some volatility in Car as expected, but other areas, which outperformed Car last year, are growing well. UK advertising is as expected tough albeit we flag confidence in deploying US innovation appears to be rising. Our Buy case gains further support from today’s update with the highest potential medium-term upside element (US advertising) looking very strong. We do not make any forecast changes. We reiterate our view and note the stock is our most preferred stock in Media & Technology.
The continuation of improving trends in the US and eCommerce, together with audience stabilisation, is promising. A new CEO was announced last week, which adds further certainty to the business. Trading on 7x FY25E PE, we believe the stock continues to look attractive, especially its strong cash profile. We reiterate Buy, TP 1,310p.
Robust AGM trading statement In a short trading statement, Future has today noted that group performance overall in the first 4 months of the fiscal year has been as expected, and that they are on track to deliver market expectations for the FY (consensus revenue of £777m, INVe £775m, consensus EBITA of £218m, INVe £217m). Management note the Consumer division has seen a continuation of the improving US digital advertising and eCommerce trends they saw in H224, with both in growth this year, and that they have seen broadly stable trends in terms of audience sessions (relative to 2% growth last year). This should perhaps not surprise, given robust US ad yield data from Google in recent weeks and acceleration in Meta ad revenue growth in calendar Q1. Mixed trends elsewhere Away from the US, management do note that the UK ad market remains challenging (again as reflected in Google ad yield data), and that - as expected – Go.Compare has seen performance moderate after previous record years, albeit with trends being helped by the move into Home insurance. The B2B business is seeing mixed trends, with enterprise technology marketing budgets still soft. Strategically, management note that they are making good progress with their Growth Acceleration Strategy, and continue to implement the latest £55m share buyback program. Fundamentally mispriced We would expect much more detail to come at the interim results, on May 16, from newly appointed CEO Kevin Li Yang. The stock still trades at c.5x CY25E EBITDA, or c.4x ex Go.Compare - as ad markets improve and the consumer electronics cycle turns (helped by the new Switch console, GTA release, and cessation of Windows 10 support amongst other factors), we see eventual scope for consensus upgrades, alongside further cash returns and asset disposals to crystallise value.
Future has confirmed the current head of B2C Media, Kevin Li Ying, will be stepping up to the CEO role at the end of March. We view this as an excellent choice that also comes with the benefit of substantially lower transition risk. We do not expect any material GAS plan changes, meaning the focus will be on continued execution without a pause. This has come quicker than we assumed and ahead of the trading update on 5th February which will carry much more weight with the CEO ambiguity issue removed. We expect sentiment to continue to build through FY25 in-line with our Buy case. Trades on appealing 5.3x/4.3x FY25e/26e EV/EBIT with FCF yields of 14.6% and 16.9% respectively.
The swift appointment of leadership at Future adds certainty to the business, where we have seen trends improve for the better. The shares are trading on 6.5x NTM PE. We reiterate our Buy rating and 1,310p TP.
Wide divergence once again: The FTSE 350 Media sector rose 18% in 2024, but this masks a wide range of differing performances by stock. LBG Media was the best performer (up c.60%) with Bloomsbury, Baltic Classifieds, and On The Beach all not far behind. At the opposite end, Centaur struggled given cyclical downgrades, whilst MONY Group fell c.30% as fears built around the sustainable level of Insurance revenues long-term. Reasons to be cheerful: Whilst global tariffs could hit certain sectors and inflation could keep rates higher for longer, other economic trends offer specific signs for optimism in our view. Open market digital ad yields have firmly stabilised at the very least, the consumer electronics replacement cycle may be turning, UK housing market activity is picking up, and demand for online holiday packages remains strong. At the same time, car insurance deflation may support switching to a degree, whilst easing used car price deflation might helpfully stabilise supply & demand. Investors of all kinds to exploit valuation opportunities: FCF yields (notably MONY / FUTR) & cash positions to fund acquisitions (DATA, WIL, BMY, LBG) in the sector are likely to be key supports to equity performance in 2025, but a number of companies (such as MONY, WIL and OTB amongst others) could be targets for industry consolidation (as ever in our coverage). On a fundamental valuation basis, we note the re-rating of the likes of RELX, BCG, ATG, FUTR & LBG towards more deserved levels in 2024 (to varying degrees), the de-rating of MONY last year, and the early first signs of recognition of the opportunities from ‘Travel tech’ / ‘Reg tech’ for the likes of OTB / WIL. Key picks for 2025: Our most strongly preferred stocks are Bloomsbury, GlobalData, LBG Media, Informa, MONY Group, Rightmove, and Wilmington. We include company notes on each key pick within this note (alongside company notes on each other stock in our coverage universe) – we believe this group encompasses high-quality companies where portfolio change & strategic initiatives to accelerate growth are yet to be properly reflected in the valuation, providing opportunities for both consensus upgrades (supported by balance sheet deployment) and re-rating. We today upgrade Informa and MONY Group to Buy. Plenty of upside elsewhere: We see highly attractive long-term growth opportunities for both Auto Trader and On The Beach. New incoming CEOs at Future and Centaur could herald more radical value crystallisation. Separately, we downgrade RELX, Baltic Classifieds and Auction Tech to Hold today – all three have undeniably attractive characteristics, but with scope to pause for breath if geopolitical events weigh on their multiples.
FUTR CAU BMY MONY RMV INF REL WIL AUTO OTB ATG BCG DATA LBG
Future has returned to organic growth in 2H24, driven by the improving audience trends and progress in its strategic plan. Exit growth rates have been encouraging, but we need certainty over leadership for the shares to run harder. Future trades on 7x FY26E PE. We reiterate Buy, TP 1,310p.
A classic from Futures past returned on results day, namely a beat at the revenue, profit and cash levels. More important is that we can see the strategy starting to deliver against the backdrop of a more stable environment. Encouraging trading around the Black Friday peak provides some extra comfort and starts the new fiscal year well. Underpinning the operational improvements is greater clarity on the use of surplus capital. The board starts the implementation with a £55m buyback and we estimate/assume the leverage target implies another £55m will be announced in H2. We edge up our FY26 DEPS 2.5%, lift our TP to 1950p, flag a 3-year DEPS CAGR of 13% and reiterate our Buy rating. We see positive sentiment continuing to build driving further improvement in the share price which even after a 10% gain since we initiated still looks remarkably low with an FY25 valuation of 5.6x EV/EBIT and 13.5% FCF yield.
This was a welcome set of results after a challenging period. We expect further improvement in the backdrop into the New Year, but until a new CEO is announced, a piece of the puzzle remains missing. Future is currently trading on FY25E 7x PE. We reiterate Buy, TP 1,310p.
Robust FY results Future has today reported robust FY results, with revenue of £788m and EBITA of £222m, both in-line with consensus expectations. The group saw 1% organic growth for the FY, having accelerated to 5% growth in H2. By division, UK was key, up 6%, supported by Go.Compare up 28%, whilst the US fell 6%, albeit improving to flat in H2 – management highlight that digital advertising in US returned to growth in H2, with further acceleration in Q4. There was a return to growth in Technology audience, although overall group audience still declined 6% - importantly for monetisation, sessions overall grew 2%. Strategic announcements Strong cash generation means leverage fell to 1.1x despite buybacks during the year – and management today announce a new £55m buyback program. Ticking off another box on investor wishlists, management announce a new strategic partnership with Open AI to licence Future content, supporting audience trends (albeit the financial impact is not material). The search process for a new CEO is currently underway. Improving multiple and growth On the outlook, Future notes the return of growth in H2 makes it well placed to deliver FY25 expectations, and to deliver accelerating revenue growth in-line with expectations beyond this year as well. Despite the share price recovery this year, the stock still trades at just c.5x CY25E EBITDA – we see significant scope for re-rating and potential for further portfolio restructuring.
The share price has been left punch drunk by a ferocious combination of pandemic hangover, macro headwinds and management turnover. We think the business is moving on to the front foot. Conditions have stabilised, growth has turned positive (Q2 +3%), the growth focused GAS plan should be taking effect and Go.Compare, exposed to a structural growth driver, provides support. The likelihood of a sentiment shift on the stock is increasing rapidly. We look for the forthcoming results (Dec 5th) to provide comfort that the move into positive growth continues, that the GAS plan is contributing and there are more cash returns (more buybacks). We think the board could go further and seek to underpin the shares, widen the investor appeal and send a message of confidence by raising the dividend payout ratio to 33% (the same as growth-orientated RMV/AUTO). Even on this basis FUTR, will continue to de-lever to 0.4x providing capacity for acquisitions. This would generate dividends of over £2 per share in our forecasts period and lift our 3-year DEPS CAGR from an already attractive 13.6% to 15.9%. We initiate with a Buy rating and TP of 1900p.
Future^ (FUTR, Buy at 880p) - Full year results preview
Future^ (FUTR, Buy at 947p) - CEO stepping down
Future has recently made a turn for the better, moving into organic growth, with audience trends stabilising. However, we believe the news today will cast a shadow over the investment case until a successor is found. The shares are trading on FY25E 8x PE. We reiterate Buy, TP 1,310p.
Future^ (FUTR, Buy at 1,020p) - Encouraging signs
It is not an easy trading environment for publishers, but Future is holding up well. Both the continued audience stabilisation and return to organic growth are promising. We expect further stability, with Sharjeel Suleman having recently joined as CFO. Future trades on 8x FY25E PE. We reiterate Buy, TP 1,310p.
Future^ (FUTR, Buy at 1,026p) - Robust trading update
FY trading update robust In a very short update, Future have today highlighted that FY24 trading is expected to be in line with expectations (revenue £786m / EBITA £220m), with the group having delivered a return to organic growth in H2 as planned and seeing stabilisation of online audience trends. We await further colour on trends by geography and business line at the full results on December 5. On the outlook, management recognise the macro backdrop in which they operate and ongoing changes in the search market but also highlight their cash generation and cost flexibility leaves them well positioned. Strategy in action Management note they are making good progress with the Growth Acceleration Strategy, and, as part of that, in Q4 started a process to close a number of non-core / low-to-no-growth assets (such as external video production / events, etc) representing revenue of £15m pa with margins below the group average. The company has also completed just over £30m of the £45m share buyback program. Catalysts ahead We see a number of potential catalysts that could bolster the share price in the future, outside of improving operating performance – we continue to see scope for bigger asset disposals and further share buybacks, alongside potential licensing and revenue sharing announcements with generative AI providers. The stock trades at 5x CY25 EBITDA, or c.4x ex Go.Compare - whilst offering a 13% FCF yield. We continue to believe this is too cheap, and see significant scope for rerating as confidence in the trajectory of audience and ad yields builds. Future remains one of our sector key picks.
Future^ (FUTR, Buy at 1,045p) - CFO intro and TS preview
Cycle on the turn? Ziff Davis – a US peer to parts of Future, with a $1.9bn market cap – reported Q2 results on Wednesday evening, and the investor call provided much greater colour on trends in the digital advertising market. On market trends, Ziff Davis noted that its Digital Media business did deteriorate in Q2 relative to Q1, but this solely related to B2B Tech ad spend with Consumer Tech ad spend growing. Management expect Digital Media to grow in 2024 given ongoing acceleration in the gaming / health categories (among others). These are broadly similar trends as for IAC which also reported only a modest slowdown in digital advertising (to +13%) in Q2 this week which – combined with easing print declines – led its Dotdash Meredith division to grow 3%, the fastest for several years. IAC note a ‘solid & broadening’ recovery in the advertising market, and an acceleration in digital growth in Q3. AI reassurance On AI, management highlighted their analysis that of all key search terms that generate the bulk of their revenue, only 8% currently appear with an AI overview on Google, and that this percentage is falling. They have seen no impact on traffic volumes overall and noted that searches with AI overviews have higher click-through rates. Lastly, they made the point that whilst the absolute revenue benefit from AI licensing agreements may be relatively small (IAC management suggested c.$16m p.a. from OpenAI), the key is the reassurance, and hence valuation opportunity, on AI concerns. Consolidation opportunities Ziff Davis separately announced its plan to acquire online tech publisher / review site CNET for >$100m, and the CEO highlighted their desire to deploy the gross cash position on acquiring more digital media businesses, citing their conviction in the value of content and the benefits of growing scale in negotiating with advertisers (alongside lower valuations). He noted that they aim – 18 months post completion of a deal – to be paying 6x forward EBITDA or below. Future trades on just c.4x in FY26E, or c.3x ex Go.Compare.
Audience has stabilised for a number of months now, with actual YoY growth seen in the gaming and tech verticals. This, together with the improving advertising backdrop and initial results from the GAS strategy, points to good things to come in 2H. In addition, there is potential to unlock further value through management’s portfolio optimisation process. At 8x NTM PER, we continue to see value in the shares. Buy.
Future^ (FUTR, Buy at 1,030p) - Moving on up
This was a solid set of results, alongside positive trends also seen by peers in recent months. The improved sector backdrop and stabilised audience trends give us confidence of further improvement in 2H. Despite the recent price surge, the shares remain attractively valued in our view at 7x FY24E PE. We reiterate our Buy rating and 1,210p TP.
Ticking all the boxes Future’s H1 results showed it ticking all the boxes of investing in the quality of the portfolio, delivering an inflection point in growth, and strong cashflow generation – as management had targeted. At a headline level, Future has reported revenue of £392m for H1, an organic decline of 2%, with EBITA of £106m (a 27% margin). The company note organic growth returned in Q2, reaching 3%. By region, the UK was up 3% in H1, helped by Go.Compare up 30%, whilst the US was down 11% - albeit we note that digital advertising returned to growth in the US in Q2. Operationally, management also note they saw stabilisation of audience trends online versus H223, with the key Tech/Gaming verticals now back in growth. Future looks exciting Leverage at the end of H1 remained at 1.25x, and the company has announced a new £45m share buyback program, following on from the previous one of the same amount – with EPS accretion mechanically likely to be seen in FY25. On the portfolio, management state they believe their businesses are significantly undervalued, and will look actively at further options to accelerate value creation – they note this is a particular focus for them in H2. Overall, management are confident in delivering FY expectations, with growth expected for H224 overall (Q3 in growth thus far) and a FY EBITA margin of 28% targeted (in line with our estimate) – we believe overall group audience is now back in growth in H2 which should provide further confidence. Much more to go for Despite a sharp rebound ahead of these results, the stock still trades at just c.5x CY24E EBITDA (or 4x stripping out GoCo at a MONY valuation), with a mid-teens FCF yield – as a number of potential positive catalysts come to fruition (with scope for AI revenue sharing deals likely to be a key topic of the results presentation), we see scope for significant further upside.
Future plc Mony Group PLC
Future^ (FUTR, Buy at 870p) - Interim results
Future^ (FUTR, Buy at 708p) - Interim results preview
Audience trends continue to stabilise, which is encouraging in our view, and the Growth Acceleration Strategy (GAS) is already showing some initial progress. We believe the shares continue to look attractive on c.5x FY25E PE. We reiterate our Buy rating and 1,210p TP.
Future^ (FUTR, Buy at 600p) - Trading update
Future plc SDX Energy PLC
A reassuring update from Future, that ultimately confirms confidence for the year (subject to FX movements in H2). Importantly the Group has returned to organic revenue growth in Q2, with Go.Compare and B2B of particular note. Management note good progress on the Growth Acceleration Plan and reorga
Future^ (FUTR, Buy at 699p) - AGM trading update
As we expected, it was a more muted performance for 1H, but Future has seen improvement sequentially as each quarter goes by. Our expectation is for a better 2H, especially as the newly launched strategy really starts to take shape. The shares trade on c.6x FY24E PE and an 18% FCF yield, and remain undervalued in our view. We reiterate Buy, TP 1,210p.
Trading broadly in-line Future has released a short trading statement ahead of the AGM – the company notes that trading in the first 4 months has been ‘broadly in-line with expectations’, having seen the improvement in revenue trends versus the Q423 exit rate that management expected. They note that strong trading in price comparison and B2B are offsetting a slower start in affiliates / digital advertising on the back of the ongoing macro pressures, with magazines continuing to be ‘resilient’. We await further detail on underlying audience trends. Holding on for a hero On the broader strategy, management note that the new ‘Growth Acceleration Strategy’ is underway, with encouraging progress from their bigger ‘Hero’ brands which are outperforming the wider portfolio. We also await any further details from the portfolio review underway, and on any potential opportunities for revenue sharing deals with generative AI model providers, in a similar vein to that signed by Axel Springer recently. The statement has no changes to previous guidance for 'growth to return in H224' – the full interim results are on May 16. Valuation support The stock currently trades at c.4x CY24E EBITDA, or just over 3x if we strip out GoCo at a similar valuation to MONY. Post recent falls, this valuation (& a high-teens FCF yield) should provide support to the shares at the very least and offer significant upside over time – as we have discussed previously, Future (via buybacks) or private investors could take advantage of the depressed valuation.
This is the start of a new era at Future. With challenges ahead, CEO Jon Steinberg will have to prove his critics wrong through visible results. Trading on 5x FY24E EV/EBITDA with a 16% FCF yield, we believe the shares continue to offer compelling value. We reinstate our Buy rating.
Giving it the gas: The new Growth Acceleration Strategy is designed to help revenues grow by mid-single digit levels over the medium-term, as the company expands and monetises its engaged audience. It will be funded by incremental investment of £25-30m, with £20m in FY24 – this is the main driver of new margin guidance of 28-30%. To be conservative, we only assume low single-digit growth mid-term, with margins reaching 29%. We set out details of the breakdown of spend in the table overleaf – in particular incremental spend on content creation & monetising the US ad market are key to supporting longer-term growth / structural resilience. Storm clouds clearing: Nearer-term, management expect revenue growth to return in H224, supporting low single-digit growth for FY24. We see reasons for cautious optimism on this front – the tech audience returned to growth in November and the likes of Best Buy have previously highlighted their belief in troughing consumer electronics demand. Similarly, Future’s overall website traffic has stabilised recently, and digital ad yields are nearing the point where comparables ease noticeably. Valuation support: We leave revenues broadly unchanged and cut EBITA by 14% from FY24E to reflect the incremental investment. Future now trades at <5x CY24E EBITDA, or just over 3x if we strip out GoCo at a similar valuation to Moneysupermarket (with management highlighting an ongoing portfolio review). We recognise the risks but believe this – and a high-teens FCF yield – should provide support to the shares at the very least and offer significant upside over time. If public investors do not take advantage, private investors may (and further buybacks could be announced).
Future^ (FUTR, Buy at 598p) - Turning up the GAS
We anticipate a 15% downgrade to our FY24E numbers. The shares have fallen close to 30% this morning, which feels overdone in our view. The stock is now trading on 5x FY24E PE post our expected changes. We put our recommendation and TP under review.
Future^ (FUTR, Buy at 795p) - Full year results and growth strategy
FY results in-line Future have today reported FY results broadly in line with expectations, with revenue of £788.9m (down 10% organically) and EBITA of £256.4m. Leverage fell to 1.25x given strong ongoing cash flow generation. By division, Media fell 13%, with Magazines down 5%; alternatively, the UK at -4% and the US at -19%. New strategy and margin targets, CFO departs The key focus is likely to be a new ‘Growth Acceleration Strategy’ introduced by the new CEO – Future announced an incremental £25-30m of investment over 2 years (£20m in FY24) focused on further growing their engaged audience and on growing revenue per user through a wider range of monetisation strategies. Management do note they will have a continuous review of the portfolio to ensure effective capital allocation. On the outlook, management highlight that stabilisation of trends means they expect a return to growth in H224 (giving low single digit growth for FY24) and that mid-term they are targeting mid-single digit organic growth, with operating margins of 28-30% (cons 32%). Separately, the CFO has announced her intention to leave the company later next year, having joined in June 2015. Pricing in a perfect storm After the recent pull back, the shares currently trade at 5x CY24E EBITDA, or <4x if one stripped out GoCo at the current MONY valuation – we believe the shares are pricing in a perfect storm of concerns and headwinds, but stabilising operating trends and clarity on investment levels should mean we are nearing an inflection point.
No surprise in headline results with Affiliate and Print revenue better, offsetting a slightly weaker US advertising performance than modelled. The statement notes a Growth Acceleration Strategy with £25m to £30m investment over the next two years. CFO Penny Ladkin Brand to leave the Group in late
Future^ (FUTR, Buy at 960p) - Full year results preview– an important update
While there are limited surprises in the update today, the key positive is the improved trends in audience. This should benefit the group as we head into the New Year. Despite this morning’s news, we believe the shares are undervalued, trading on FY24E 5x PE and a 20% FCF yield. Buy.
Future has released a pre-close trading update for the year to 30 September that ultimately confirms that trading for the year is in line with expectations. Importantly audience numbers have stabilised in H2, and on the back of the well flagged refocus on news content audience momentum has returned
Future^ (FUTR, Buy at 715p) - Solid pre-close update amidst macro pressures
FY trading update in-line Future have released a short trading update today – this was expected, but the date was unscheduled. Management note that adjusted operating profit is expected to be in line with Board expectations of c.£254m (consensus £258m), with the business delivering ‘a resilient performance’ despite ongoing macro volatility. Audience starts to improve On operating trends, management note that audience numbers have now stabilised in H2, and that they have seen positive month-on-month momentum in Q4, although they also note that overall trading conditions remain mixed, given challenges in consumer spending / the digital ad market. As a result, Advertising / Affiliate revenue trends are broadly in-line with H1 (as expected), but Go Compare revenues have accelerated in H2 given market volumes (again unsurprising given Moneysupermarket commentary). Magazine revenues are described as ‘resilient’. Full results are on December 7. Priced for a perfect storm The stock currently trades at 4-5x CY24E EBITDA, or <3.5x if we stripped out Go.Compare at the current MONY valuation – as we wrote here, we believe the shares are pricing in a perfect storm that has faced the new CEO on arrival, but despite ongoing scope for further investment in the business, we believe this is too harsh given scope for some market headwinds facing the group to ease / improve (as ad yield declines stabilise and consumer electronics purchasing activity start to improve, as recently suggested by BestBuy).
Headwinds, to trading & sentiment: In the short-term, audience declines (particularly in the US / tech space) have weighed on revenue trends, but management are adamant that this did not reflect market share shifts post Google’s algorithm changes. Ad yield data & recent results from peers highlight the current pressure on ad budgets, but the annualising effect of these should ease the market backdrop at least somewhat over time. More structurally, generative AI will remain a topic for much debate – whilst it could potentially summarise basic facts, consumers are likely to want in-depth, accurate, trusted review information, and publishers – in consortia – will aim to ensure they still receive payment for their content. CEO signalling: Signs of the new CEO’s strategy to address these issues are understandably closely watched – incremental investment to boost editorial / US sales presence is strategically sensible, but we do not expect any dramatic re-basing of group profitability. As a reminder, even if EBITDA margins fell to 30% (from c.35% now), the stock would still trade at <7x EBITDA. As a broader indicator of the CEO’s views on the equity, he has personally started to build a stake and has announced a new £45m share buyback program in recent times. Pricing a perfect storm: On forecasts, we cut revenues 5-7% and operating profit by 6% in FY23E and 12% in FY24E. Future now trades at c.4.5x FY24E EBITDA, with a significant double digit FCF yield – we set our new TP at 1600p, based on a target FCF yield of 8%. To put valuation in context, the amount paid for GoCo represents nearly 50% of the current EV – if we assumed £150m of insurance-related revenue at a 30% EBITDA margin and valued it at the current MONY multiple (9x), the implied rump would be trading at <4x EBITDA. We recognise the risks & uncertainties, but believe this is much too harsh – leaving scope for investors of varying kinds to potentially take advantage.
Future^ (FUTR, BUY at 693p) - Buy-back programme announced
Meeting Notes - Jun 12 2023
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We believe Future is fundamentally undervalued at 6x FY23E PER. The new CEO has the right to-do list to improve the business, but we may need to wait until FY24E to see the benefits come through. In the near term, a sign of reversal of audience trends would be needed to boost the shares.
The shares remain weak, trading at 7x FY23E PE even post the expected changes. However, audience trends remain the biggest challenge, and we may need to see signs of reversal of these for a revitalisation in the stock.
Future has released interim results that are ahead of our estimates and held no material surprise. Divisional commentary shows a surprisingly resilient performance in the UK across the board, however this is offset by a more material fall in US Media revenues. Outlook comments flag an expectation t
Initial Equity Trading Comments - 18 May 2023
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Future^ (FUTR, Buy at 1,046p) - Interim results
Meeting Notes - Mar 23 2023
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Recently, the absence of any announcement over the new leadership and softness in audience numbers have weighed on Future’s share price. Confirmation of new CEO today should be a positive catalyst for the shares. Future trades on 9x FY24E PE. Buy.
The shares are trading on FY23E 9x PE. We leave our 2,300p target price and Buy recommendation unchanged. We expect weakness may persist until new leadership is announced and an improvement of audience trend is in sight.
The company expects adjusted operating profit to be in line with market expectations. We expect to trim FY23E revenues 2-3%, but leave operating profit broadly unchanged. The shares trade on 10x FY23E PE.
Future has released a trading update ahead of its AGM that confirms confidence in delivering adjusted operating profit for the year. The tough market backdrop seen at the back end of 2022 has continued into 2023. While current trends are as expected in Affiliate, Other Media and Magazine revenue, D
Update of forecasts Post prelims, we publish our updated forecasts for Future. As expected, we reduce our FY23E EPS by 8%, mostly accounting for slower profit growth, combined with a higher financing charge. For the New Year, we now have a more conservative stance on the organic growth of digital advertising, together with a slight decline in e-commerce. However, we still expect some growth in profitability, driven by margin expansion. Future’s shares continue to trade on an attractive FY23E 9x PE or 10% FCF Yield. We lower our target price from 3,200p to 2,300p but maintain our Buy recommendation. Jessica.Pok@peelhunt.com 4-page note
Future’s FY22A results detailed another strong performance but, understandably, struck a more cautious note on the potential impact of macro headwinds on the current year. We have reduced our estimates accordingly (FY23F adj. EPS lowered by 8%) but believe the group’s stock valuation substantially undervalues its strong fundamentals and medium-term growth potential following a period of very disappointing share price performance. BUY.
Slight beat but caution for the new year The FY22E results were comforting, delivering 2% organic revenue growth (36% total), combined with a slight margin improvement, and a 4% beat to our EPS. However, the outlook was delivered with caution, alongside expected modest FY23E profit growth. On our initial estimates, given a reduction in profit growth, together with a higher tax charge, we expect our FY23E EPS to reduce by c.8%. The shares are down 60% YTD and trade on FY23E 9x PE. With the rebasing of expectations for FY23E, we see opportunity for outperformance. We maintain our Buy, but are reviewing our target price. Jessica.Pok@peelhunt.com
Media- Trading Comment- FUTR Future^ (FUTR, Buy, 1,438p) - Full year results
FY22 results Having guided to the top end of the range (£266.4-£270.7m) for AOP at its pre-close update in mid Sept, today’s result of £271.7m is a slight beat (INVe £270.4m), with AOP margin expanding 1ppt to 33% (11% organic growth.) Revenue came in at £825.4m versus our forecast of £819.3m, growth of 36%, 2% organic, of which 5% from Media, with the US stronger still, delivering organic growth of 7%. The trend in affiliates has performed in line with recent commentary, -10% in H1, -1% in H2, driving an FY number of -6%. Digital ads delivered 7% organic growth for the full year (+10% in the US), +10% in H1, +4% in H2. Magazines organic growth was -2%, with a decline of 8% in H2. In terms of KPIs, the group has flagged organic audience growth of 2% in H2, the online reach in the US is now at 35% (+3ppts). Cash conversion was at 98%, with leverage down to 1.48x EBITDA – however, the group is flagging interest costs of £32m in FY23, reflecting a blended rate of 7.2% on average gross debt of £378.2m. Outlook The group has stated that it enters FY23 in a ‘strong’ position and is expecting to deliver ‘modest profit growth’ - we believe this terminology is likely to lead to consensus downgrades at the revenue and AOP level, with the increased interest costs set to have a further impact on EPS. Our View The FY22 results are strong with margin gains, the return of organic audience growth, a stemming of the organic decline in affiliates and robust growth in digital ads. Clearly however the commentary around FY23 growth will be the big focus; in our view FUTR shares have been pricing in a softening of the commentary – we expect to hear more regarding details at the analyst call.
Future has released FY 2022E results that have come in a touch ahead of our expectations at every level. Media revenues grew a solid +5% in the year, with Magazines down -2%. Outlook comments confirm that the agility of the business model gives management confidence they will deliver modest profit
Relevant US Tech headlines Amazon (N/R): flagged the difficult macro, with Q4 guidance of $0-4bn operating profit versus c.$5bn consensus Meta (N/R): stated that average price per ad fell 18% YoY in Q3, versus a decline of 14% in Q2 Alphabet (N/R): flagged digital ad spend +2.6% YoY, although this was below consensus. YouTube revenue contracted by 2%, the first decline since it was disclosed separately Microsoft (N/R): flagged lower spend on LinkedIn, lower search and lower news advertising revenue Snap (N/R): first time revenue growth was single-digit since listing, flagging the impact from Apple’s policy changes, macro headwinds and increasing competition How did Future shares take the news? FUTR shares were broadly unchanged on the news relating to digital advertising; this has not been the case historically, with the shares selling off on recent US commentary This suggests to us that the market is comfortable that, through its aperture-driven direct ads, FUTR has more control of its yield destiny than peers and the read-across is not direct. The Amazon news overnight however saw FUTR’s shares fall, by as much as 5.25% at one point this morning, implying that the key concern remains the affiliates/eComm side of FUTR’s business - this will not have been helped by Amazon’s recent announcement of its entry into PCW services. See our recent MONY note (here) for our views of the credibility of Amazon in the sector. Our View Future, at a valuation of 6.2x FY23E EBITDA / 14.9% FCFY appears exceptionally good value at this point - this has been a marked de-rating with very little by way of earnings revisions to date. In our view, however the recent news of the impending retirement of CEO Zillah Byng Thorne is depressing the multiple; it is our belief that investors, in part, buy the shares for what Future could become, as much as for a continuation of its current shape, and that picture is now somewhat less certain.
CEO to step down by the end of 2023 Sky News reported over the weekend that Future CEO Zillah Byng-Thorne plans to retire from the group in the next 18 months. Future has since stated that while she has not resigned, she has informally indicated to the board her intention to step down by the end of 2023. Zillah has been Future’s CEO since 2014 and has been the driving force of the turnaround of the business. Under her leadership the group has flourished, moving from being a UK print publisher to a global media group. We believe her departure will be a loss to the business and weakness in the shares may continue as the board seeks a successor. Jessica.Pok@peelhunt.com
Trading update: top end of expectations Pre-close trading update ahead of its CMD tomorrow. A return of organic audience growth in 2H has led to continued growth in digital advertising and improving trends in e-commerce. Management now expects adj. operating profit to be at the top end of consensus. We raise our FY22E adj. operating profit and EPS marginally by 0.7% in line with guidance. Despite the challenging environment, Future continues to perform well, benefiting from a flexible operating model. Shares trade on 10x forward PE, which we believe is a good entry point for investors. We maintain our TP of 3,200p and Buy recommendation. Jessica.Pok@peelhunt.com
Future has released a pre close trading update ahead of a CMD on Wednesday. Ultimately the statement confirms confidence in FY estimates, with operating profit expected to be at the top end of current range. FY results will be released on 30th November. No comment is made at this stage on 2023. Hav
Six of the best webinar We are hosting a webinar at 3pm BST today to briefly discuss the six stocks – Future, Grafton, Impax Asset Management#, Kenmare Resources, Kier# and Rank# – that were included in our “six of the best” publication. Charles.Hall@peelhunt.com, Clyde.Lewis@peelhunt.com #Corporate client of Peel Hunt
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Six of the best It has been a tough six months for the UK market, particularly for many mid-cap companies. We have asked our analysts to come up with some of their best ideas for stocks that have seen sharp share price falls and where the risks implied by the market look excessive on a two-year view. Our initial picks are Future, Grafton, Impax Asset Management#, Kenmare Resources, Kier# and Rank#, which we analyse in this note. We will also be hosting an interactive webinar at 3pm, Tuesday 12 July, when the analysts will discuss these six stocks. Details below. Charles.Hall@peelhunt.com, Clyde.Lewis@peelhunt.com 37-page note #Corporate client of Peel Hunt
Completion of WhoWhatWear and guidance reconfirmed Alongside the announcement that the WhoWhatWear acquisition has completed, Future published a trading update. After a decline in audience numbers for 1H, the group started to see audience growth in April. This trend has continued into 2H. Future reconfirmed it is on track to achieve full-year guidance for 2022E, and we leave our forecasts unchanged. After falling 60% YTD, which we consider overdone, Future now trades on 9x forward PE. We are encouraged to hear the positive trend in audience, and believe that if this persists into 2H, it raises the potential of outperformance within the Media segment. Buy. Jessica.Pok@peelhunt.com
Issuer Sponsored ONTHEMARKET+ (OTMP, House Stock, 87p) – Detailed update report published. FTSE 100 TESCO^ (TSCO, HOLD at 249p) Q1 FY23 TS – Toughing it out well, gaining share, forecasts unchanged FTSE 250 FUTURE^ (FUTR, BUY, 1,551p) – Acquisition completed and positive trading comments FTSE All share ASOS^ (ASC, Sell at 780p) - Another kitchen sinking, but more to come? AIM GATELEY^ (GTLY, Hold, 202p) – Headwinds around the corner Shore Capital Media News Includes articles covering: OnTheMarket, Bloomsbury Publishing, ITV, Frontier Developments, Informa, global advertising spend forecasts, S4 Capital, GB News, local newspaper industry, Papercup, Apple TV, Netflix, TV adverts
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Updating forecasts We update our forecasts post the interim results. The shares are down 50% YTD, having de-rated greatly since January. The market is pricing in the prospects of declining digital ad spend and a further deterioration of ecommerce. However, even if ad spend decreases in the near term, we believe Future will be insulated by its diverse portfolio and push into higher-yielding digital ad categories. In addition, audience numbers returned to growth in April. If this trajectory continues, it should support Media revenue growth into 2H. We reduce our target price from 4,500p to 3,200p but maintain our Buy recommendation. Jessica.Pok@peelhunt.com 3-page note
Resilient: through its increasing diversification, the group is able to absorb the inflation-driven downgrades we currently observe across the corporate universe. The 10% decline in affiliates did disappoint a touch, but it was against an extraordinary period, with a comp of +56%; these ease in H2, and on a 2 half-year view, organic growth was 18%. Ad strength: digital ad yields increased 5% YoY and 7% HoH, with direct now 52% of the revenue mix and organic growth in video (a key focus area) of 40%. The group flags that Aperture enrichment continues at pace, aided by the recent acquisition of GoCo. Unlike many peers, Future is able to combat macro trends through its scale direct offering, which is only likely to grow in relevance as we approach the 3rd party cookie cliff. Compelling market positions: Future’s US audience reach grew to 35% in H122 (+2pps YoY), with newest focus areas, Women’s Beauty and Homes, now in the top 10. On the affiliates side, Womens’ lifestyle revenue doubled YoY, with new acquisition WhoWhatWear set to drive further growth in this vertical. GoCo agility: whilst customer churn may be lower for the car insurers, we’re encouraged to see market share gains at Gocompare.com (+2pps in Car and +4pps in Home) and top line growth of 3%, plus the re-orientation of the LAMB brand into a content focussed alongside with The Money EDIT, providing further content to drive the Home & Personal wealth vertical. Forecasts: we incorporate recent acquisitions into our numbers driving small upgrades across our forecast period; 0.7-2.6% on the top line, and 0.3-1.8% at the AOP level. Valuation: we reflect increasing peer free cash flow yields in our multiple for FUTR, increasing to 5.0%, (was 3.75%), driving our reduced target price of 3620p.
Today’s interim results provided a useful reminder of FUTR’s underlying attractions, attractive medium-term growth potential and cash generative characteristics. We have nudged up our adj. EPS estimate for the current year by 1% and raised later year forecasts by 4% to reflect a reassuring outlook assessment and recent acquisition activity. We regard the group’s stock as substantially undervalued, following a period of sharp share price weakness. BUY.
1H, strong digital ads, weaker ecommerce Future produced resilient 1H results amid a challenging backdrop. While we saw a decline in Affiliate revenues, the rest of the group continues to be strong – in particular, we continue to see good momentum in digital advertising. The company is pointing to a modest upgrade to FY22 guidance, which will come mostly from the consolidation of the new WhoWhatWear acquisition. On our initial estimates, we look to increase FY22E EPS by c.1%. Future trades on an attractive 12x forward earnings. While there are risks ahead, the diverse nature of the business has shown that it has the potential to sail through. Buy. Jessica.Pok@peelhunt.com
H1 a little ahead of expectations; FY confirmed
Future^ (FUTR, Buy at £20.5) - Reassuring interims flag modest guidance upgrade
H1 results Future has reported its H122 results today with revenue of £404.3m (INVe FY22e £813.6m) and AOP of £134.5m (INVe FY22e £266.6m), a margin of 33% versus 32% for FY21, with the company stating it has absorbed the inflationary pressures of H1 and the dilutive impact of acquisitions. Organic growth was 4%, driven by media organic growth of 5%, of which +10% was from digital advertising and -10% from eComm, and print organic growth of 3%. Organic audience declined 10% versus COVID comps, with the group flagging its premium monetisation showing resilience through economic cycles, with US audience reach growing from 33% to 35% during the period. On the GoCo side, the group is pleased with the performance, gaining market share +2ppt, with revenues +3%, with better SEO driving performance and Future stating that the 1st party data from GoCo customers is enriching Aperture to drive premium ads. Dennis publishing contributed £63m of revenue (INVe FY22 £122m) in the period and is now fully integrated into the group. Outlook The group has guided in line with current expectations, despite the inflationary environment, with the recent acquisition of WhoWhatWear providing a modest upgrade, noting an expected return to positive audience momentum in H2 given what the company has seen so far in Q3. Our View This is a strong performance from Future, in our view, demonstrating the resilience of the model in the face of inflationary pressures and the impact of reduced ad spend, with the +10% organic growth in digital ads particularly impressive. Two points will stand out though, the reduced organic audience figures which the company is expecting to rebound in the second half and the organic growth of -10% in eComm, which rises to broadly flat when accounting for the one-off spend the company flagged during COVID of c.£6m. We place our forecasts and target price under review for this update.
Acquisition of WhoWhatWear Future has announced the acquisition of WhoWhatWear, a digital-only women’s lifestyle publisher based in the US. The deal will be funded by debt. Post the completion, expected next month, Future will become the sixth-largest Beauty and Fashion publisher in the US. We expect further financials to be provided at the interims next week on 18 May, but the company expects leverage to remain below 2x EBITDA post completion. We leave our forecasts unchanged until the results announcement. Future’s shares have fallen 50% YTD, and are currently trading on an attractive forward 12m PE of 12x. Buy. Jessica.Pok@peelhunt.com
Issuer Sponsored ARBUTHNOT BANKING GROUP+ (ARBB, House Stock, 975p) – FY21 results: recovery in profitability and beneficiary of rising interest rates CRANSWICK+ (CWK, HOUSE STOCK at 3448p) Eye investor visit - world class investment, a world class business VELOCYS+ (VLS, House Stock, 5.80p) – Sale and purchase option agreed over Altalto Project site with Foresight. FTSE 100 NEXT^ (NXT, Under review at 6384p) – FY22 results roughly in line with management's guidance; slight downgrade to the FY23 PBT base case scenario FTSE 250 FUTURE^ (FUTR, BUY, 2646p) – Complementary acquisitions PROVIDENT FINANCIAL^ (PFG, Buy at 307p) – Play your cards right TP ICAP^ (TCAP, Buy at 150p) – Activist investor stake FTSE All share IOMART^ (IOM, Buy at 160p) – Security services partnership with e2e-assure REGIONAL REIT^ (RGL, BUY at 88p) – FY Results Preview Main Market SECURE TRUST BANK^ (STB, Buy at 1350p) - Strong results but with some headwinds due to cost-of-living squeeze
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Acquisition of WhatCulture Future has announced the acquisition of WhatCulture, a digital-only publisher focused on the gaming and entertainment market. WhatCulture generates 70% of its revenue in the US, and also has video capabilities with 11 YouTube channels with 8m subscribers. The acquisition adds another brand to Future, but more importantly a venue for further video monetisation opportunities. No financials are given, but we expect this to be a small bolt-on deal with no material impact on the financials. We leave our numbers unchanged for now. Future trades on 16x FY23E PE. The 1H results are due to be announced on 8 May. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
FY21 highlights: Money was the bright spot, with gains in both product availability and conversion; the recovery in travel in Jan was re-assuring; whilst the softness in insurance and the continued issues in energy remain causes for concern. We do not expect the competitive environment to ease in insurance, with Future undoubtedly keen to show that the decision to acquire GoCo was the correct one. Operational improvements: Peter Duffy has flagged that the data-led transformation will complete in H1, after which we expect to see the start of MONY’s more co-ordinated approach translating into more customers using more channels, cross-selling and, ultimately, revenue growth. The key metric to follow in our view continues to be the number of product verticals used per customer. Energy switching structurally challenged? Whilst we believe investors are factoring in an ultimate return to “normal” in travel, the continuation of promotional product in money, and the benefit from the data-led turnaround affecting the whole group, we believe the energy market could be structurally challenged should Ofgem increase the duration of last week’s price-walking ban. We discuss this in more detail overleaf. Our View: the recent challenge to the MONY investment case has been whether the data-led turnaround can more than offset the challenges in the group’s end markets. There remain plenty of moving parts, and sources of upside from the end-market recovery and the data-led transformation, but we believe the new news here is the potential for a structural challenge in energy. Forecasts: we reduce our adj EBITDA forecasts for FY22e and FY23e by 15.1% and 9.9% respectively, and introduce FY24e forecasts. Valuation: our reduced forecasts drive our new EV/EBITDA & DCF-based target price of 230p. Buy retained.
The cookie saga continues: Out with FLoC, in with Topics Google plans to phase out third-party cookies by 2023. Recently it announced a new targeting solution, Topics, to replace the initially proposed FLoC. We discuss the potential of Topics. Google has faced heavy scrutiny over its influence of the digital ad market, and whether Topics is to be the final solution is still unclear. As the digital ads landscape becomes harder to navigate, advertisers that continue to focus on first-party data, and the publishers that demonstrate high ROI on digital ads, should come out on top, in particular Future, S4 Capital and YouGov. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
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AGM trading update: in line Future released a four-month trading update today with the AGM, and trading is in line with the board’s expectations for the year. There has been ongoing momentum in digital ads, which has offset tougher comps last year, in both audience and e-commerce. The integration of Dennis is going well, and is on track to be completed in March 2022. The company expects further margin expansion in FY22E. We make no changes to our forecasts. Future presented strong video capabilities this week during its investor webinar. The shares trade on 20x FY23E. We see many parts of the group with outperformance potential. Buy. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
The future is Video Future held an investor webinar yesterday, in which it presented its video monetisation strategy. In this note, we discuss our learnings. It is very clear that video will be a major growth driver of the group for years to come. This is not surprising given the global growth of video advertising. Future has extended its video capabilities massively since the acquisition of Barcroft in 2019 and we believe it is well placed to capture a larger share of the highly lucrative video advertising market. The stock is trading on 19x FY23E PE and provides an attractive entry point for a business with many areas of potential outperformance. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Yesterday’s Video Webinar – key points summarised below: New audiences: Future believes its video verticals (Owned & Operated, AVOD, External) introduce new audiences to the Group and, by virtue of the types of content created and the data-led nature of its approach, enables advertisers to target the more tricky millennial/Gen Z audiences. A scale offering: the Group has added 4 platforms (5 now in total) to its distribution capability in recent times, whilst its social channels (Facebook, Snap, YouTube) have over 120m followers who watched over 9.1bn minutes of content in 2021, with 55 new episodes released every month. We understand TikTok is further behind in its monetisation capabilities, with Future well positioned when this functionality emerges. Increased relevance and efficiency: the Group has made strides across a range of KPIs including page-view to video-view ratio (+6ppt Oct20 to Jan22), absolute video views (+13%) and ad impressions (+38%), and it is seeing enhanced engagement with its content on social channels versus video creation peers. Yield enhancement: the company flags that the yield of video ads is 4x that of display ads and operates a similar “ad waterfall” to its display ads business, with direct deals a similarly clear focus in video. Focus areas: the most developed verticals to some extent mirror Future’s recent acquisition history, with Tech & Gaming the strongest, while some of the “newer-to-Future” verticals including Home & Wealth are further behind, albeit that they are the key focal areas for growth moving forward Revenue and margin performance: since 2017, the Group has grown AVOD revenue at a CAGR of 72% and has grown margin by an impressive 27ppt. Our View Future continues to stay ahead of the game in targeting the audiences of the future. The Group has made no secret of its desire to move higher up the yield curve across its digital ads business, with its video proposition clearly gaining traction and representing a clear source of upside. As previously discussed in our research, we would not be surprised to see M&A in video creation assets, as a key part of the growth story moving forward.
Spotlight on Future Studios
The year of data: we believe 1st party data quality will be in focus this year. We are confident that Future’s intent-driven, niche-focussed audiences will continue to grow in popularity with advertisers. Being able to offer the eyes and ears of 1 in 2 UK consumers and 1 in 3 in the US (with a goal to reach 1 in 2) in a highly targeted manner should see Future gain further share. Goals for this year: the “legacy” Future business should continue to push earnings risk to the upside, so we focus on the opportunities that Dennis and GoCo present to the group, including increased recurring revenue through subscriptions, the development of the Personal & Home Wealth vertical and the proliferation of myvouchercodes across the group. Elsewhere, the group will continue to drive the growth of the UK assets in the US, with a focus on the TI titles and the newly acquired Dennis assets. Gearing evident: two key stats demonstrating the value of the platform are the falls (FY21 versus FY20) in both sales, marketing & editorial costs and overhead costs as a % of revenue (30% to 26% and 18% to 14% respectively.) FCA review impact: with the softness in the energy business and the change of strategy at LAMB, focus will likely shift to the impact of the FCA on car insurance volumes. The group will look to mitigate any impact through increasing share via natural search. More M&A: Future has created a leading position, we expect it will continue to push forward to stay ahead of the pack. Video creation assets to drive higher yields could be a focus, as could further consolidation of the publisher market. Valuation: we continue to value the company on a FCF yield basis, with our forecasts driving our (unchanged) TP of 4810p.
Moving back to a key pick for 2022
We have upgraded our FY22F and FY23F adj. EPS estimates by 8% and 6% following Future’s very pleasing FY 21A results and, with the addition of FY24F estimates, expect a very strong medium-term earnings and dividend progression (three-year aggregate growth of 27% and 71%, respectively). More broadly, we believe the company’s focus on driving ecommerce and digital advertising revenues, leveraging its technology and editorial resources, and pursuing complementary M&A forms the basis of a clear and compelling growth strategy. We estimate fair value of 4,322p per share, suggesting 23% upside potential following recent weakness. BUY.
Stepping back: Currently the Group reaches 1 in 2 consumers in the UK through its various channels and 1 in 3 in the US…the Group’s goal is now to increase the US to 1 in 2. The early signs are promising with Future commenting on the strong performance in the US of the previously UK-centric TI Media assets. Audiences of increasing value: Future has demonstrated though its tech and gaming verticals that revenue growth continues to comfortably outstrip the strong audience growth, in our view proof that the “legacy” verticals still have plenty of runway alongside the newer growth verticals. Gearing evident: two key stats demonstrating the value of the platform are the falls (FY21 versus FY20) in both sales, marketing & editorial costs and overhead costs as a % of revenue (30% to 26% and 18% to 14% respectively.) Progress at GoCo: the market was clearly sceptical of the deal at the point of acquisition, but aside from seeing better SEO rankings and conversion in this update, we believe it proves the transferability of Future’s skill sets to complementary areas, which are likely to play a key role in its M&A strategy. Next deal? Given the emphasis on the improved advertising yields through video at the FY21 results, we would not be surprised to see video content creation assets at the top of Future’s wish list to add to the recently renamed Barcroft Studios. Forecasts: we increase our AOP forecasts by 9.5% in FY22e and by 6.9% in FY23e and introduce FY24e forecasts. Valuation: we continue to value the company on a FCFY basis, with our increased forecasts and improved target yield driving our new TP of 4810p.
Updated forecasts and target price We update our forecasts post Future’s full year results. The changes broadly reflect our indications on the day of the announcement. While our revenues remain unchanged, our EPS for FY22E increases by 10% due to expected further margin improvement. We update our SOTP valuation and increase our target price to 4,500p (from 4,400p). Future has performed strongly time and time again, however as we move into the new financial year, we believe there are still many pockets where the group has potential for outperformance. We maintain our Buy. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Small beat on FY21, solid upgrade for FY22E Future produced another set of strong results with group organic growth of 23% together with further margin improvement and support from acquisitions. Versus our forecasts, there was a 1% beat on revenues and 2% on EPS. However, management expects FY22E to be materially above current expectations due to further margin improvement from the strong platform effect of the model. On our initial estimates, while we expect there will be no changes to our revenue forecasts for FY22E, we look to increase our EPS by c.8%. A solid statement for the group which deserves a solid positive share price reaction. Buy. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 2-page note
Prelim headlines Future guided at its 4th October trading update that FY21 results would come in at the top end of the AOP range at the time (£183.5m - £193.6m) - today the company has reported revenue of £606.8m (INVe £602.9m) and AOP of £195.8m (INVe £191.2m), 1.3% above the top of the range. In addition, the group now expects FY22 to be materially ahead of current expectations, with growth accelerating in the second half. There is no specific commentary yet around Black Friday. Detail Group organic revenue growth in FY21 was at 23%, with the US at 27% and the UK at 17%. The company has flagged increased quality of earnings through revenue mix and the platform effect as drivers of the improved AOP margin (32% versus FY20 at 28%). Adjusted free cash flow represents 102% of AOP, with leverage at 0.8x (1.9x post Dennis) and a dividend of 2.8p per share. Media organic growth was 27% driven by strong digital ads and eComm, with continued growth in direct campaigns driving digital ads organic growth of 27% and improved commission rate and conversion in H2 driving eComm growth of 36%. The group also flagged strong performance at GoCo (seeing higher conversion and stronger SEO) and MyVoucherCodes (+60%) and that TI Media has seen strong online user growth (+16%) with digital ads and eComm up 38% versus the pro-forma, with an acceleration in H2 to 60%. Investment in the platform continues at pace, with 130 new roles created during the year in tech and editorial. The group has decided to change the model of the LAMB business, no longer to be an autoswitching proposition, now an “autoquote” proposition, with the group taking an impairment of £8.8m. Our View This is a very strong performance from Future, with broad based growth across “legacy” Future, TI Media and GoCo. Within the key Media segment, organic growth of 27% in digital ads and 36% in eComm is particularly encouraging, with the group emphasising the successful integration of recent acquisitions. The change to the LAMB model is noteworthy and we expect to hear more the company on this during the call this morning.
FY 2021 ahead; 2022 to be materially ahead
Full-year trading update – top end of expectations Trading update states adj. operating profit will be at the top end of expectations, c.1.6% ahead of our forecast of £190.6m. Rachel Addison will be stepping down as CFO effective 31 October and will be succeeded by Penny Ladkin-Brand, the current Chief Strategy Officer. We update our numbers to reflect the update today, leading to an increase in FY21E EPS of 1.6%. Full year results released on 30 November. With the current upside from our target price at 18%, we move back to Buy (from Add). We think Future is well placed for further outperformance in the new financial year. The stock trades on 26x FY22E PER. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
FY at top end of range
Trading Update Future has provided a short trading update this morning, noting that adj operating profit for the full year is expected to be at the top end of the range (£183.5m - £193.6m. INVe £189.9m). In digital ads, the company flags yield growth has more than offset the strong comps from audience growth. The acquisition of Dennis Publishing has now completed. CFO Change Rachel Addison is set to stand down as CFO as of 31st Oct, with previous CFO, Penny Ladkin-Brand (currently the group’s Chief Strategy Officer), returning to the role. Our View The strong trading update is a clear positive, demonstrating the underlying momentum in the business. On the CFO change, we recall that part of the rationale for Penny moving to Chief Strategy Officer after 5 years as CFO reflected increasing family commitments, so we wonder if, to some extent, a return to the CFO role may have been part of the long term plan? We place our forecasts and target price under review following this update.
Update of forecasts We update our forecasts to reflect the acquisition of Dennis, set to complete on 1 October. Our EPS increases by 9%/10% for FY22/23E, while our updated SOTP valuation leads to a target price of 4,400p (from Under Review). Following the strong performance, up 112% YTD, we downgrade from Buy to Add. However, we believe further outperformance could come from potential revenue synergies from recent acquisitions. In addition, TI Media now moves into organic revenues and has the potential to boost both revenue growth from e-commerce and digital ads. The stock trades on 26x FY22E PE. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Acquisition of Dennis Future has announced the acquisition of Dennis, a consumer subscription business focused on Wealth, Knowledge and B2B tech, for £300m. The transaction will be paid in cash and funded via incremental debt. The deal provides Future with an attractive opportunity to add online revenues to a strong subscription-based print asset. The acquisition is not unexpected, given Future’s ambitions in the Financial Services vertical. On initial estimates the deal is accretive to FY22E EPS by c.10%. We move our target price to Under Review. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
Another very sensible acquisition
The deal Future has announced the acquisition of Dennis Publishing, which includes Wealth, Knowledge and B2B tech titles, from Exponent Private Equity, with the deal set to complete on the 1st October. Future is paying c.£300m (15.0x trailing EBITDA) for the business, funded by existing debt facilities. The deal is expected to be materially earnings enhancing in the first full year of ownership, with cost synergies of £5m per annum from 2023 – Future flags that it expects to rapidly de-lever to below 1.5x after completion. The rationale Future is looking to scale its new wealth vertical, diversify revenue through more subscriptions (75% of Dennis revenue), extend its reach further in North America (56% Dennis revenue in the US), deepen expertise within the B2B tech vertical, and enhance the group’s “knowledge” vertical which typically sees high subscription rates. Our view Many investors will see this as more of a “business as usual” acquisition from Future – acquisition of a majority print subscription business, although in this case the key brands are growing circa double digit, rather than in managed decline, with clear opportunities to drive the digital side from a low base. In our view, the acquisition of titles including MoneyWeek and Kipling provide key additional depth in content in the business’s new Personal & Home Wealth (which includes GoCo) with the additional 1st party data from subscribers a help in providing advertising clients with highly qualified targets. We like the focus on growing recurring revenues in the mix, and await more detail on the opportunity to monetise the knowledge sector in the meeting at 8am. We place our forecasts and target price under review.
We are positive on Future s acquisition of Dennis which should create revenue growth opportunities and attractive synergies and extend the group s track record of completing strongly accretive deals. We have raised our FY22F and FY23F adj. EPS estimates by 15% and 17%, respectively, increased our DPS expectations and, despite a period of very strong share price performance (accompanied by a succession of upgrades), believe the group s substantial growth potential creates further upside potential.
Strong trading continued into 2H Strong trading has continued into 2H and therefore the board now expects full-year profitability to be materially ahead of current market expectations. The performance was driven by ecommerce and digital advertising in the Media segment, with benefits from Amazon Prime Day. We increase FY21E EPS by 9% but leave outer years unchanged for now. Future continues to benefit from digital trends. There is also the potential of revenue synergies in the near term from GoCo as the integration completes. We increase our target price from 3,300p to 3,600p and maintain our Buy rating. Future trades on 25x FY22E PE. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
FY 2021 to be materially ahead of expectations
FY21 Trading Future has announced a trading update for FY21 this morning, with results expected to be materially ahead of expectations, driven by strong performance from both digital ads and eComm (incl a strong Amazon Prime Day), with magazines and GoCo both in line with expectations. Regarding GoCo, the company reports the integration is progressing well and it is on track for the delivery of £15m synergies. The strong performance and strong cash generation has enabled the continuation of de-levering post the GoCo deal. Our View This represents another strong set of results from Future, which is continuing to leverage and grow its global reach to provide compelling content to its audiences. The GoCo performance is re-assuring, with the company continuing to build a platform for growth. As we move further into the world of internet and data privacy, we believe Future is well positioned to capitalise and continue on its strong growth trajectory. Future currently trades on an FY22e EV/EBITDA of 17.6x. We place our forecasts and target price under review for this update.
Future has published a short trading update indicating that, following a continuation of the very strong momentum detailed at the time of its interims, full year profitability is expected to be “materially ahead” of market consensus. We have increased our FY21F adj. EPS estimate by 10% in response (adding to a 17% upgrade at the half year stage) and see good scope for further share price outperformance despite a strong run. BUY.
FCA final rules on General Insurance Pricing Practices The FCA published the final rules on General Insurance Pricing Practices this morning. It confirmed it will be ending the practice of price walking and will require insurers to provide easier methods for consumers to cancel auto-renewals, amongst other remedies. The new reforms for pricing and auto-renewal come into effect on 1 January 2022. We believe the changes are positive for the price comparison website market. Price volatility should prompt consumers to think about their bills, and shop around for more competitive pricing, and thus has the potential to increase switching activity. We believe this is an opportunity for the likes of Moneysupermarket and Future (GoCo). Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
The FCA has today announced a package of remedies to improve competition and protect home and motor insurance customers from loyalty penalties. Key Clarifications At first sight, key clarifications are that non-cash incentives from price setters only (not PCWs, and apart from the smallest, such as a toy) will be banned, add-on products (eg breakdown) will be included within the scope of rules, and auto renewal cancellation only has to be catered for over channels where insurance is sold. The rules on pricing, auto-renewal and reporting will come into force from 1st Jan 2022 with a transitional provision until 17th Jan for pricing and auto-renewal. Initial thoughts The review acknowledges that many consumers are likely to continue to compare quotes, with the FCA’s modelling showing that it believes significant switching will continue to occur, and that pricing variability will still make it worthwhile for consumers to shop around regularly. The changes to auto renewal mentioned above are not, in our view, a material departure from the consultation document. As has been the case recently in energy, where the new price cap drove switching levels to the 2nd highest level on record in April, the impact on consumer behaviour clearly remains to be seen, although we detect a slightly more positive tone towards switching than in the original consultation document and as such view today’s announcement as a modest positive for both Future (GoCo) and Moneysupermarket.
Full speed ahead Future published a very strong set of interims last week indicating clear trading momentum. In this note, we discuss the trends driving the group. We update our numbers to reflect the recent Marie Claire US acquisition and the H1 performance. We increase our EPS by 16%/11% for FY21E/22E. Our new SOTP valuation results in a target price of 3,300p (from Under Review) and we maintain our Buy recommendation. The shares have had a strong bounce since the announcement, but we believe there is scope for further outperformance in the near term, especially given the traction in both TI Media and GoCo. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 9-page note
Future is, at heart, a content business: adding 150 new editorial roles in FY21 is encouraging – the 2yr 45% CAGR in headcount should mitigate any concerns that monetisation is occurring at the expense of content. The cookie monsters: the creation of Aperture is designed to provide access for clients to Future’s high quality 1st party data set, with the aim (in part) to sell more, higher margin direct campaigns. Aperture sign-ups are encouraging, with a 19% increase in direct campaigns already showing underlying demand, ahead of the abolition of cookies in 2022. Marie Claire: this is not a huge deal, but is very interesting in our view; whilst only a licensing agreement, the owners have given Future the scope to make changes and evolve the portfolio into a forward-looking brand. We see this as a ringing endorsement of the Future model by a global ‘name’. Deleveraging provides optionality: whilst the company has stated its clear focus is to maximise value from TI Media and GoCo in the mid-term, there remains the opportunity to bolt on complementary assets to accelerate the growth strategy – we do not expect the business to sit still from an M&A perspective. Don’t forget mags: the future isn’t 100% digital, this (currently large) cash generative element of the business has been sharpened up through COVID, is seeing positive momentum, and continues to provide content which can be monetised multiple times in the digital business. Forecasts: we increase our AOP forecasts by 14.1%/11.0%/13.2% across our forecast period, as shown overleaf Valuation: our revised forecasts and reduced target FCFY drive an increased target price of 3170p. We reiterate our Buy recommendation.
Future’s interims detailed a record performance with strong progress across all key metrics leading to impressive revenue and profit growth, robust cash generation and underpinning a confident outlook assessment. We have upgraded our FY21F adj. EPS estimate by 17% (+10% for later years), forecast strong medium-term organic growth and see attractive share price upside potential. BUY.
Strong H1 driven by Media revenues A very strong H1, with group organic growth of 21% driven by ecommerce and digital ads which grew organically by 56% and 30% respectively. The acquisitions have also been performing well with traction for online revenues for TI Media and an additional £5m of cost savings for GoCo. Management expects full year results to be materially ahead of expectations underpinned by H1 performance, and also Q3 trading ahead of expectations. We look to increase our EPS for FY21 by c.15% to reflect the strong trading in H1. We move our target price to Under Review and maintain our Buy recommendation. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 2-page note
Exceptional H1; FY to be materially ahead
Acquisition of Marie Claire US Future has announced the acquisition of Marie Claire US. The group enters a five-year license agreement to operate the brand in the US and Canada. Future already operates Marie Claire UK, which was part of the acquisition of TI Media. We believe the group has had good success injecting ecommerce into the UK title, which can be replicated for the US publication, therefore the deal today is a logical next step. On our initial estimates, the deal is accretive by 2-3% for FY22E. Future is due to announce interim results on 19 May. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
PCWs and regulation
Yesterday, we held a ‘fireside chat’ for institutional investors with CEO Zillah Byng-Thorne, CFO Rachel Addison and CRO Zack Sullivan. No material new information was provided, but we summarise below what we see as the key points discussed. A core part of the ecosystem Future is playing an increasing role in helping to shape the landscape in digital advertising and eCommerce through partnerships with key players, including Amazon, Google, Facebook and Snap amongst others, in some cases being involved at both a strategic and testing level, with the role played in the Google Alpha Testing programme a key example. Future is now in a somewhat unique position, being both a media buyer as well as a publisher, through the acquisition of GoCo. Key growth opportunities The company flagged that the opportunities at TI Media continue to be vast in terms of its ability to address the female audience, with the most recent evidence the April 21st announcement of the eCommerce partnership between Marie Claire and Net-a-Porter. Barcroft is performing strongly, with increased (higher margin) AVOD content driving audiences across YouTube/Facebook/Snap/Tik Tok into the hundreds of millions, with continuing work being done on monetisation. At GoCo, we understand there have been no ‘nasty surprises’ since acquisition, with the right operating structure in place and integration on track. On the data front, Zack Sullivan (CRO) commented that early signs show that a larger percentage of advertising budgets are going to a smaller number of publishers; Future has been a beneficiary, having had early success with 1st party data solution, Aperture, with a mix of new-to-Future and existing clients on the platform. Looking ahead Whilst it is likely that bolt-on acquisitions will continue, the clear focus from Zillah is on delivering the value from the TI Media and GoCo acquisitions, with the management structure now in place to execute. We next hear from the company on 4th May at 2.30pm with a Webinar when they will introduce the GoCo team, ahead of interim results on the 19th. We make no changes to our estimates for this update. Future trades on an FY22e EV/EBITDA of 13.8x. Buy reiterated. Whilst bolt-on acquisitions continue to be
Target up, reiterate our BUY into H1 results
Thoughts and key highlights from the Future Webinar Given all the discussions surrounding recent changes in third-party cookies by the global tech giants, Future held a webinar to discuss how this will impact them as a group. We highlight our key learnings from the session and outline our thoughts. Our investment thesis for Future remains intact. In our view, Future will be a key beneficiary from the recent changes in the digital advertising ecosystem. Recent trading of the shares has been weak, which we see as a buying opportunity for a business which we expect will continue to deliver earnings momentum over the medium term. Buy. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
Consumer privacy session
The cookie crumbles: big changes in digital advertising Last week Google announced that once it phases out third-party cookies in its Chrome browser in early 2022, it will not develop a direct alternative that allows marketers to access a user’s individual data for the purpose of targeted advertising. Protecting consumers’ online privacy has been the main focus of the tech giants for some time, who are each launching their own initiatives. In this note we discuss recent developments and the implications for stakeholders in the ecosystem. More importantly, we discuss the impact on our coverage including Future, M&C Saatchi, Reach, S4 Capital and YouGov. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 3-page note
FUTR SAA RCH SFOR YOU
Moving to the next level In this note we discuss in detail the potential of the GoCo acquisition and the upcoming challenges. In our view, attractive opportunities lie ahead for Future but with risks attached. However, if executed well, Future could transition from an online publisher into an emerging global media player. We also present our new group forecasts. We update our valuation methodology and use a SOTP calculation to reach our 2,340p target price (from Under Review). We forecast a three-year EPS CAGR of 20% for Future, with potential for outperformance in the near term. The stock is trading at 17x FY22E PE. Buy. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com 12-page note
We have updated our forecasts to reflect last week’s very encouraging trading update and the formal completion of FUTR’s acquisition of GOCO Group. The result is a material upgrade to our EPS estimates (FY22F and FY23F +19% and +21%, respectively) reinforcing an already compelling growth profile. We are positive on the GOCO deal and believe FUTR is increasingly well-placed to drive digital advertising and e-commerce revenues, and to capitalise on an acceleration in the evolution of consumer preferences. We estimate a fair value of 2,515p per share, suggesting 28% upside potential.
Trading update and acquisition Future has announced a trading update for the first four months and now expects profitability for the full year to be materially ahead of expectations. The strong performance has been driven by online engagement through ecommerce and digital advertising, as expected. The group also announced the acquisition of Mozo, an Australia-based price comparison site. This follows the completion of the GoCo acquisition yesterday. Our forecasts, recommendation and target price for Future are currently under review. Jessica.Pok@peelhunt.com, Malcolm.Morgan@peelhunt.com
Trading materially ahead; GoCo Group completion
Trading update: Future has provided a 4 month trading update where it details high levels of online engagement, particularly around peak periods including Black Friday and Christmas, driving strong growth in digital advertising and eCommerce. As expected, Events continued to suffer from COVID restrictions, with the Magazines business seeing a continuation of the COVID trends experienced in much of FY20. The net result is that Future expects full year profitability to be ahead of market expectations, with a strong cash performance that will assist the business to delever post the GoCo acquisition. Readacross from MONY: interestingly, the new CEO of MONY yesterday flagged improving SEO as a key part of the strategy – one of the core strengths of Future as it begins to integrate GoCo. Sources of synergies: we see key areas of potential revenue and cost synergies, including increasing GoCo’s audience through content and SEO, reducing paid search costs, eCommerce in services, and a new vertical in financial services A focus on GoCo: we run through the drivers of the business and discuss recent performance Government intervention: we update our thoughts on the prospect of government intervention in GoCo’s key verticals Forecasts: our upgraded forecasts incorporate both GoCo and reflect today’s underlying performance at Future, more detail from page 10. Valuation: integrating GoCo drives our increased free cashflow forecast, against which we apply our peer-based FCFY target of c.4.5%, driving an increased target price of 2610p. Buy reiterated.
The Sunday Times article A Sunday Times article reported that Business Secretary Alok Sharma is set to unveil plans to automatically switch households to the cheapest energy tariffs. The article suggested that two schemes will be tested: the first, an “opt-in”, will see customers offered an easy method to switch; whilst the second, called “opt-out”, will see consumers automatically moved to a cheaper tariff. Our View As per the FCA review into home/car insurance, it appears that these plans aim to spell the end of ‘price walking’. If this is the case and suppliers can no longer make money in the back book in the current manner, we expect front book pricing to increase. The article does not make clear whether the switch will be with the same supplier or to an alternative provider, although we expect the switch would be to a cheaper tariff, or at least not a more expensive tariff with the same supplier. If that is the case, it is unlikely the customer will be moved onto the cheapest deal in the market so there are still likely to be rewards for the customer in switching to a different supplier. This news is clearly unhelpful for sentiment and may reduce customers’ propensity to switch energy using PCWs, with the government now seeking to intervene more directly. As per our current forecasts, AutoSave comprises 14% of GoCo revenue in FY20e, growing to 25% in FY22e. GoCo is currently trading on an FY21e EV/EBITDA of 13.2x. There are still a large number of unknowns at this stage, however we expect this news will limit the potential for an increase in Future’s bid for the company. For Moneysupermarket, we put Home Services (c.75% energy) at 21% of our FY20e revenue forecast, with the company trading on 10.5x FY21e EBITDA.
FUTR GOCO MONY
We believe that Future’s recommended offer for GoCo Group will, if successful, add impetus to an already very attractive growth story. Specifically, we believe the group’s content and technology-centric strategy and broad portfolio of specialist B2C brands mean it is well placed to address changes in consumer behaviour, drive strong growth in digital advertising and e-commerce revenues, and enhance profitability. We forecast three-year aggregate EPS and DPS growth of 38% and 150%, respectively, and estimate that GoCo could increase FY2022F EPS by c.13%. Based on this positive outlook, we estimate a fair value price of 2,052p per share so initiate coverage with a BUY rating.
Future’s share price is currently down c.13% post the announcement, this despite a 6% beat on AOP for FY20. We understand the scepticism surrounding the deal, but do see the long-term potential – PCW & AutoSave are clearly new products for Future and certainly in car/home, very competitive markets over which a cloud remains around the impact of the FCA review into pricing. The recent acquisition of TI Media though has increased Future’s presence in these underlying markets. Key points post investor call – Future writes content on the verticals in which GoCo operates, so it is understandable that Future would look to integrate eCommerce functionality into that content and make a further leap into services in addition to products, with GoCo’s tech enabling future growth in services. Penetration in household switching is c.36% in Car/home/travel and 21% in Energy so there is plenty to go after; one would expect that the eyeballs Future will bring to GoCo’s products could lead to a jump in that penetration. GoCo also effectively brings Future a new content vertical in financial services through Pocket my Pounds, one which Future could then leverage from a digital ads standpoint, with Future’s audiences known for being well qualified and some distance down the purchasing pathway. AutoSave is still pre-inflection, but with strong subscriber growth to date and the potential for the addition of more verticals (which in all likelihood Future already creates or can create content on), there will be further opportunities to monetise this content moving forward. GoCo uses paid search to drive customer adoption, whilst Future has vast expertise in SEO; we would expect to see greater leverage coming from the GoCo business through marketing cost reductions. Not forgetting the CEO of Future is a NED on the board of GoCo, we would naturally expect a high degree of understanding of the business and its drivers, with advanced thoughts on how this business can be integrated into the Future model that have been established over a long period of time. We do however believe the bid undervalues GoCo (Buy, TP 145p), particularly with the falling FUTR share price, now offering just a 10% premium to last night’s GoCo close.
Future plc GoCo Group Plc
The deal The boards of Future and GoCo announce that they have agreed terms of a recommended offer for Future to acquire GoCo. GoCo shareholders will receive 0.052497 new Future shares and 33p in cash valuing GoCo at 136p, a 23.6% premium to last night’s close - a total value of £594m. The GoCo board considers the terms fair and reasonable and intends to unanimously recommend that GoCo shareholders vote to approve the deal which is expected to complete in Q121 (it has irrevocable undertakings of 33.56% at this point) – immediately post completion, GoCo shareholders will own 19% of combined group. Future notes that it expects to generate £10m of recurring cost synergies, alongside other strategic and financial benefits, and expects the deal to be materially earnings enhancing in the first full year post completion – we expect mid double-digit accretion. The rationale Future already writes content in the Home sector; adding GoCo would enable a customer to read an article about homes, then click on an eCommerce tab which then takes the customer to GoCo to purchase home insurance. This will greatly increase the eyeballs on GoCo’s content and enable a new vertical for monetisation for Future. This naturally applies across both the PCW verticals and AutoSave. GoCo’s Rewards business is also a feature that Future is looking to leverage moving forward. Trading Update Future has announced strong FY20 results, with revenue of £339.6m and adjusted operating profit of £93.4m, ahead of our forecasts of £332.2m and £87.9m respectively, underpinned by strong audience growth of 56% (48% organic). Group organic revenue growth of 6% (H1 11%, H2 1%), with strong organic Media growth of 23%, with eComm growth of 58% and digital ads growth of 15%. We place our forecasts and target price under review for this update.
Drivers of the upgrades: the upgrades to our forecasts are largely driven by a better-than-expected performance from the TI magazines business – not as high-quality a beat as a Media-based beat would have been; nevertheless, greater cash generation from Magazine enables the company to de-lever more quickly, allowing the business to accelerate its digital-led growth. Balance sheet optionality: with this de-leverage, we expect the company to be in a net cash position of £9m by the end of FY21e ex M&A, which we expect will be a key driver of growth over the coming years. Digitizing TI: 3 TI sites were launched over the summer, with two more sites focussing on outdoor and pets having recently gone live. These releases are on top of the c.15 TI sites that are expected to go live over the next 12 months. Looking ahead: there remains significant scope for Future to continue to take share in its key verticals. Whilst tech is what Future is best known for, it still only has a 4% share of US digital advertising spend, with a c. 1% share in games & entertainment. This is before discussing the opportunities in the newly acquired TI Media verticals including Women’s Lifestyle and Home & Garden and the magazine to media conversion. Forecasts: we increase our FY20e/FY21e/FY22e adj. EPS forecasts by 8.9%/6.8%/10.5%, flagging risk to the upside from the continuing conversion to digital at TI Media. Valuation: we continue to value the company using a peer-based CY21e FCF yield; increasing our free cash flow estimates and reducing our target yield to 4.0% from 4.5% drives an increased target price of 2110p.
Future today released an update highlighting FY’20E adj EBITDA which is trading towards the top-end of consensus (£86.3m-£91.0m; N1Se: £88.5m). Strong performance has been supported by acceleration of the consumer shift to digital, positive cost control and cost synergy extraction from the TI Media acquisition (c.£9m annualised savings delivered so far). Migration of TI Media sites to the Group’s Vanilla platform are underway, whilst Hawk (price comparison platform) has been successfully deployed on three key existing TI Media websites. TI Media represents a significant opportunity to drive strong EBITDA growth in the medium-term as the portfolio transitions to digital, whilst the Group also has a number of additional levers to drive outperformance against conservative consensus forecasts. We leave forecasts unchanged for now, although upside risk is building. Future offers a 7% FY’21E FCF yield on N1Se forecasts, peers offer closer to 4%.
Future’s H1 results highlight the benefits of the Group’s diverse revenue model. Group sales grew 33% y/y to £144.3m (organic: +11%; N1Se: £145.0m), with AOP up 77% to £39.9m (organic: +40%; N1Se: £38.7m). Organic Media sales growth of +21% y/y reflects strong online user growth, with H1 average monthly online users up +26% to 253m, driving eCommerce sales up +68% organic. Online audience growth rapidly accelerated post lockdown (+66% y/y in March) supported by gaming and Live Sciences verticals. Magazine revenues, particularly at TI Media, have been impacted by lockdown, yet the opportunity to leverage Future’s Vanilla platform and SEO expertise to drive growth in TI’s asset base remains significant. We make no changes to forecasts, yet with strong H1 performance, H2 forecasts look undemanding with risk to the upside. Future offers a 7.4% FY’21E FCF yield on our conservative forecasts.
H1 results The company has reported H1 adjusted operating profit of £39.9m (+77% YoY), with the margin improving by 7pp to 28% driven by the change in mix towards higher-quality digital revenues. Revenue was up 33% on the prior year (the H1 figure represents 45% of our full-year forecast), with the company citing increased audience growth as a result of COVID-19. Online users grew 26% YoY to 253m, 31% of which was organic, with a particularly strong performance from LiveScience. Organic growth for the group was 11%, with organic growth in Media revenues of 21%. The group generated adjusted free cash of £40m versus £27.0m the prior year, with £77m of headroom on existing banking facilities. The company comments that H2 has continued in a similar vein; as such, it is confident of achieving full-year expectations, with ongoing strong growth in audiences offsetting softness in advertising and eCommerce continuing to be a positive influence. TI Media Re TI, having begun the integration process on 20th April, the company notes the impact of COVID-19 on magazine revenues, but nevertheless comments that the strategic rationale remains firmly intact. Our view This is a strong set of results from Future, despite the ongoing challenges of COVID. H1 revenue is 45% of our FY20e forecast, with adjusted operating profit 51%. COVID-19 in our view has given a window into the future for Future, particularly the opportunity at TI Media, demonstrating the leverage that comes through as a result of the mix shift from Magazines to Media with the H1 split 80% media and 20% magazines, and the operating margin improvement of 8pp to 28%.
Media: both digital ads and eCommerce have been performing well, with the company reporting greatly increased viewership of its content particularly in Consumer Tech, Video Gaming and Live Science. Regarding advertising yields, the company saw falling yields on programmatic which are now stabilising. On eCommerce, Amazon has cut its long tail of associated publishers/affiliates, but Future retained its preferred partnership status. Magazines: overall newsstand is down 30%, with the more travel-focussed Future titles bearing the brunt, The TI Media titles are more grocery and consumer focussed and whilst there was an initial steep drop, as consumers have got used to shopping in a ‘social distancing’ manner, sales have begun to stabilise. The company is disposing of 6 magazine titles which were in remediation even before COVID-19. Some magazines have been moved to subscription-only, reducing the distribution issues. Operational challenges: the company has furloughed some staff whose business lines are inactive due to COVID, with 75% of the work-force earmarked as semi-variable, and it has seen some smaller customers struggle to pay bills with Future extending credit. Some events planned for FY20 and FY21 are to be cancelled with some impact on our forecasts. Liquidity: the group has signed a new £30m RCF with the company reporting net debt of £93m and cash headroom of £69m. TI Media Integration: the deal completed a month ahead of expectations, partly explaining why our forecasts are broadly unchanged. Whilst remotely integrating a business is undoubtedly more challenging, the company has recently integrated a number of US assets, with the majority of the work being done this way. Forecasts: we maintain our FY20e adj EBITDA forecasts, but lower FY21e by 1% and FY22e by 4.1%.
Future has completed the acquisition of TI Media (the Group’s largest acquisition to date), following clearance from the Competition and Markets Authority (‘CMA’) and disposal of four small TI Media assets to satisfy competition remedies. The acquisition incorporates 38 new brands strengthening Future’s position in some segments whilst also helping to diversify the Group’s portfolio and offering new online audience creation avenues. Alongside the announcement the Group provides an update on Covid-19: Online audiences and traffic have seen unprecedented growth boosting e-commerce, although magazine newsstand revenues have seen weakness. Future’s magazine decline has been offset in part by resilience in subscriptions and digital content, although TI Media print sales are more exposed with a less developed digital model. We are reducing sales forecasts for FY’20E by 7%, although FY’20E EBITDA forecasts remain unchanged as a result of favourable sales mix shift and cost reduction exercises. We have prudently added in £5m of working capital consumption resulting from extension of cash-cycles given current Covid-19 disruption, meaning net debt is forecast to be £84.7m at the FY’20E outturn (0.9x pro forma FY’20E EBITDA). The Group has signed a new revolving credit facility of £30m (maturing in 12-months) providing additional near-term liquidity, meaning the Group now has £69m of cash headroom inclusive of new facilities. Covid-19 is accelerating a shift in consumer trends online, with Future excellently placed to continue to capture share. The completion of TI Media also represents a material opportunity. Our FY’21E forecasts generate a FCF yield of 8.5%, well ahead of peers.
TI Media Future today announces the completion of the acquisition of TI Media, having sold 3 titles in line with the CMA’s suggested remedies. COVID-19 impact on Future and TI Media Re COVID-19, the company reports encouraging digital revenues with continued strength in eCommerce, reporting a reduction in yields which has been largely offset by audience growth. The group expects a significant reduction in magazine sales, impacted by high street store closures, but notes that digital copies and subscriptions are performing well. Audience numbers remain strong in digital, with Tom’s Guide having its best ever month in March. Given TI’s current magazine focus, the company expects the COVID-19 impact to be more severe, with newsstand revenues reduced by approx. 30% since the introduction of lockdown. TI has taken a number of steps to reduce costs including a reduction of promotional and discretionary costs, smaller print runs, furloughing of some staff and tiered salary reductions for all staff. TI note that subscriptions are performing well and that the Decanter World Wine Awards has been deferred until later in the FY. Liquidity Regarding liquidity, the group has signed a new £30m RCF which matures in 12m, with key terms mirroring the group’s existing debt facilities. The group’s current net debt is £93m following TI completion, with available cash headroom of £69m. Board Changes CFO Penny Ladkin-Brand becomes COO as of 1st June, with Rachel Addison of TI Media becoming group CFO Our View With the completion of the TI Media deal will come a sharp focus on integration; whilst this is more challenging to do remotely, a number of Future’s recent deals have been in the US, so the group is well versed in the use of tech to smooth the process. Digital ads and eCommerce seem to be proving resilient in the current climate, with magazines under pressure, but in some ways the current situation allows Future to accelerate their existing plans to digitize the businesses.
Future has announced a pre-close trading update for H1’20 highlighting continued strong online audience growth which is further driving eCommerce and digital advertising revenue streams. Recent weeks have been unprecedented, however the Group continues to see limited impact to online consumer behavioural trends (Feb audience traffic: +2% month on month per ComScore), whilst in Magazine y/y growth in Grocers is partly offsetting declines in travel outlets. Key metrics are holding up well, and the Group expects to continue to trade in-line with expectations. Half year net cash of £47m-£53m is expected by management, implying FCF is ahead of our £18m H1 forecast (N1Se H1 net cash: £44.9m). The Group is a highly cash-generative business, and post TI acquisition (consideration: £140m) will enjoy £30m-£40m of headroom in debt facilities and plenty of comfort on covenants (1.0x net debt/pro forma EBITDA; covenant: <3.0x). The Group trades on a 6.6x EV/pro forma FY’20E EBITDA multiple (peers: 12x-17x), and offers an FY’21E FCF yield of 13.5% (peers: 3%-5%).
Future has announced an update regarding the acquisition of TI Media. The Competition and Markets Authority (‘CMA’) has found that the acquisition of TI Media does not raise competitive concerns subject to the sale of 3 closely competing products. The Group is now in discussions with the CMA on potential remedies to mitigate competitive issues and proceed with the transaction as soon as practicable. The update is in line with our expectations, with a prudent £10m revenue adjustment and no proceeds from disposals in our forecasts. We continue to see these as conservative, and make no changes to our forecasts, or expectations around completion timings (anticipated in May). Current valuation offers an 8.7% FCF yield at current levels.
Future Group has announced the outcome of a management review into the potential impact from Covid-19 on forecasts. As we would expect, the conclusion is that there will be no impact to profits in FY’20E or FY’21E, with Covid19 not showing signs of disrupting strong Group underlying online fundamentals. The Group’s events revenue stream (6% of Group revenues, c.2% of profits) has seen two near-term events rescheduled, although these are still forecast to land in the current financial year (July and Sept). We make no changes to our forecasts. Future currently trades on a 10.5x EV/FY’20E EBITDA multiple, and offers an 8% FY’21E FCF yield based on our numbers.
We take the opportunity after last week’s Capital Markets Day to review key themes touched on by management, and the impact on likely future performance. Takeaways impacting organic growth are: 1) The speed at which migrations/ launches occur with Vanilla is faster than previously expected; 2) Video Content and Intent Marketing opportunities open up new streams; and 3) The Group has more potential to generate value from back catalogue content than previously thought. Organic Media sales growth of +3% in our FY’21E forecasts looks too prudent in view of these updates. We therefore upgrade organic Media growth forecasts to +10% y/y, with modest upgrades of +2% and +3% to FY’21E sales and EBITDA. FY’21E FCF yield is 6.8% (Sept y/e); A yield of 4% would generate an intrinsic value per share of >£20.
Future’s Capital Markets Day yesterday highlighted the Group’s continued success in identifying, developing and monetising new audiences and content and driving strong organic growth. The CTO’s run through of the tech stack presented a platform in complete alignment with Group strategy, able to spin-up new sites impressively quickly, fully integrated with Ecom and Adtech back-ends. The walk-through of an example article life-cycle also shows the strength of RoI potential for individual editorial pieces which are still being monetised years after first publishing. Data analytics and insight remain core to identifying opportunities for exploitation early, with examples given of how early trend spotting has enabled strong organic audience growth performance for the business (5GRadar.com/ Cordcutters). The Future opportunity was articulated well by management, and alongside this week’s positive profits upgrade, strengthens our conviction in the long-term organic growth story. FY’21E OpFCF yield is 7% based on our forecasts, with EV/ FY’20 proforma EBITDA <12.0x.
Future’s audience growth metrics have proved stronger than expected in the first 4-months of FY’20E. Management now forecast financial performance to be ‘materially’ ahead of current FY’20E market expectations. We upgrade our FY’20E sales by 4%, and with outperformance indicated to be in higher margin profile eCommerce and digital display advertising areas, we upgrade FY’20E EBITDA by 8%. Given current macro uncertainty we leave FY’21E and FY’22E forecasts broadly unchanged although we flag heightened upside risk to forecasts. Pro forma FY’20E EBITDA is estimated at c.£103m implying an EV/EBITDA multiple of c.13x, whilst FY’21E OpFCF yield is forecast to reach 6.1% based on our undemanding forecasts.
Shareholders yesterday approved the net £140m proposed acquisition of TI Media Group (‘TI Media’). The acquisition will be funded through a mix of debt and equity, and presents a compelling opportunity for Future to leverage its digital platform, ecommerce and content expertise, and global reach (TI Media continuing sales: >70% magazine). Post removal of broker restrictions, we now update forecasts for both TI Media (assumes endApril’20 completion) and Barcroft Studios acquisitions, with an additional underlying upgrade due to better than anticipated growth at the FY’19 outturn. FY’20E and FY’21E sales are upgraded by 41% and 79% respectively, with OpFCF forecasts are upgraded by 42% and 66%. The TI Media acquisition is forecast to be 26% EPS accretive in FY21E. A 19x EV/EBITDA multiple based on calculated pro forma FY’20E EBITDA generates an intrinsic value of 1,890p/share.
Future Plc’s FY results revealed the better than consensus growth noted in the trading update last week. Underlying group revenues grew 11% y/y, and 70% on a reported basis to reach £221.5m (FY’18: £130.1m), with organic Media revenue growth of 31% (reported: 134%) to £154.9m (FY’18: £66.3m). EBTIDA margins were 24.6% (FY’18: 15.9%) supported by increased scale and improving product mix. Regionally, US sales grew an organic 40% y/y with US ARPU still at a 38% discount to the UK (FY’18: 48%). EPS growth rose 95% y/y to 47.5p/share, whilst FCF rose >200% to £53.7m. Alongside FY results, management have announced the acquisition of Barcroft Studios (‘Barcroft’), a small independent studio that creates original video content for distribution across owned and operated social sites as well as mass media channels. Total consideration is £23.5m (9.4x LTM EBITDA), of which 40% will be satisfied in shares. Finally, management have also noted that, after a strong Q1, the Group now expects to be materially ahead of full year expectations. As joint broker to Future, we are restricted and can therefore provide factual comment only up to the conclusion of the General Meeting.
Future Plc has announced the completion of an accelerated book build undertaken at 1275p/share (a 6.25% discount to yesterday’s closing price). The announcement of the placing of 8,184,906 (raising £104.4m of gross proceeds) has been made alongside a proposed acquisition of TI Media, the UK-based, print-led consumer magazine and digital publisher. The consideration of £140m for TI Media will also be funded through drawdown of an additional £45m of debt. This acquisition of TI Media is conditional upon 1) shareholder approval; and 2) CMA clearance. Alongside the proposed acquisition and placing announcements is a brief trading update, with revenues expected by management to be at the top end of consensus, and in the region of £220m. As joint broker to Future, we are restricted and can therefore provide factual comment only.
Future Plc has today announced the achievement of accelerated earn-out payments related to the acquisition of Mobile Nations in March’19. Deferred consideration of $55m (50% cash/ 50% new shares) becomes payable, with management assuming the achievement of an $11.5m EBITDA contribution from Mobile Nation operations to March’20. Mobile Nations management team will continue to work within Future within the newly created Future Labs, tasked with driving additional organic growth by integrating new initiatives, businesses, tools and processes once they reach a suitable maturity level. Future management continue a strong record quickly bedding down new acquisitions. The modest outperformance in Mobile Nations performance is largely offset by a marginally bigger than expected share base increase. We make no changes to our forecasts however at this time.
Future Plc has announced better than expected performance in its FY’19E pre-close trading update driven by a mix of Amazon Prime Day activity and positive underlying momentum in US operations, supported in part by a strong dollar. Integration of recent acquisitions has further increased capacity, supplementing already positive organic audience growth and benefitting margin performance. Top-line outperformance means full year EBITDA is now expected to be materially ahead of current market expectations, and leads us to upgrade forecasts for the second time since July. Revenue expectations for FY’19E are raised 6% to £210m, with EBITDA upgraded to £53.2m (up 10%). We prudently leave FY’20E and FY’21E sales forecasts broadly unchanged for now, although we raise our EBITDA margin expectations by +80bps and +50bps for FY’20E and FY’21E respectively. EPS expectations rise 11%, 4% and 2% for FY’19E, FY’20E and FY’21E respectively. An FY’20E intrinsic value of 1,356p/share offers an attractive 14% upside from current levels, although we now see potential headroom in FY’20E forecasts.
Future has announced this morning the acquisition of SmartBrief for $45m and paid for using a mix of cash from facilities and shares. The Company indicates, and we estimate, the deal is immediately earnings enhancing and adds 5% to FY20 EPS. SmartBrief is a digital publisher specialising in curating and delivering targeted industry news from over 1,500 sources. We see this as another logical step in the expansion of the complementary B2B activity. More over this deal expands the number of existing verticals (adds Healthcare & Medical and Finance & Insurance), increases the depth of some existing verticals (Tech & Telecoms), adds B2B content services and adds a capability in marketing services (email) that can be leveraged across the wider group including B2C. This is another textbook multi-vector growth acquisition that not only boosts earnings but enhances the group in several ways strategically. The shares look cheap based on our 1,231p FY20 intrinsic value estimate and even better value on an FY21 basis at 1,322p.
The trading update, effectively covering Q3, signals that the Media division is outperforming expectations with audience growth remaining strong. There has been a misplaced concern in some quarters about audience growth but Future has signalled that growth has remained strong (H1 same site audience growth was 25%). We lift our FY19 EPS by 7%. The evolution of the management team and strengthening capacity remains an important focus for Future. After adding extra capacity within the leadership teams Penny will move to a Chief Strategy Officer role and another person appointed to be CFO. This should be beneficial given how the business has scaled significantly and has greater ambitions. Higher forecasts mean there is now a highly attractive 22.4% upside to our FY20 intrinsic value estimate.
Future’s shares have eased back to 970p after an incredibly strong run (from 845p to 1250p/+48%) in response to the Interim results. Arguably the shares had got ahead of themselves, but are now looking good value again from a near term perspective and for the long term. Execution momentum has remained very strong and with our forecasts positioned conservatively we see the probability of upgrades as high. We reaffirm our strong view on the fundamentals of the Future model and the significant scope for material improvement with the existing asset portfolio and to add additional assets over time that Future can apply its proven enhancement skills to. Those who have missed out or wish to bolster their positions should take advantage of this weakness before the next news flow (September or possibly earlier) in our view.
H1 Revenue is ahead of our not long ago increased expectation driving a better profit result. Cash is also £10m ahead. The business has good momentum and despite the ever present spectre of Brexit there is still significant scope for us to prudently raise revenue, EBITDA and EPS estimates. Acquisitions integrations and performances are on plan and the online advertising technology changes in place to benefit. The shares have re-rated again in line with the changing fundamentals. We see a path to 20x EBITDA leaving significant upside potential without the need for further upgrades.
Future has made another key acquisition this time consolidating its recent expansion in the US technology orientated segment. The Mobile Nations brands add an extra online audience of over 40m per month. The acquisition also further increases the weighting of Media (online advertising and eCommerce) boosting growth and valuation potential. We lift EPS 4.7% for FY19 and 13.1% for FY20. The 3 year earnings CAGR rises to a highly attractive 24.2%.
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Future has seen a fast start to the year with strength in online revenues (advertising and eCommerce) leading to outperformance. With high gross margins the effect on profits is significant. Our FY19 EBITDA estimate leaps 14.3% and FY20 11.3%. The effect at the earnings level is amplified by lower future depreciation and amortisation charges due to clarity over future technology requirements. Our EPS estimates rise 19.0% and 17.2% for FY19 and FY20 driving a 3 year earnings CAGR estimate of 18.5%.
In this note we delve into the full year results detail, look at how the business mix is developing and refine our forecasts. Revenues soared in FY18, in part due to acquisitions, but it was organic growth of 11% that underlined the strength of the business. The key long term driver, Media, saw organic revenue growth of 40% driving mix change which is set to continue to change fast. We estimate Media will rise to 71% of gross contribution this year and demonstrate a path to 87% without any additional acquisition assumptions. We expect the rating to expand further and earnings to grow boosting the share price potentially to £10 in the medium term.
Future has delivered a very good set of FY18 numbers – better than the upgrades put in place with the September update. This came through both the acquisitions and the organic growth as the group leverages its platform, with Media showing organic growth of 40%. There is plenty still to go for and we have again raised our FY19 expectations and published indicative FY20e forecasts. The group now has scale in the important US market, accounting for nearly half of group revenues on a pro-forma basis. In our view, the valuation does not reflect the premium growth or expanding margins.
The acquisition of Purch not only scales Future in group terms but also extends its consumer technology vertical leadership further geographically into the US. It is an excellent strategic deal with a strong financial returns profile. Aside from rudimentary cost savings which support the returns guidance, there is the additional revenue potential of deploying the Future Hawk e-commerce technology in Purch and applying the Purch Ramp programmatic technology to Future media. Driving average revenue per user through revenue model optimisation is a constant objective that helps focus on creating the right content to build valuable audiences. This remains a successful model and drove the recent positive trading update demonstrating continuing execution momentum. The business and share price have a bright outlook.
Future (FUTR LN) Not just bigger, but better
Future has now completed its acquisition of Purch, fully funded by a successful rights issue. Trading results in the core Media business are ahead of earlier management expectations for FY18, helped by some strong product launches and World Cup-related campaigns. We have finessed our indicative forecasts, including Purch, and updated to reflect the trading update and adjusted historic EPS for the bonus element of the rights. There are clear opportunities to leverage the Purch assets, generating incremental growth, which we believe justify a higher rating.
Future is taking a major step towards realising its US ambitions with the acquisition of Purch for $132.5m/£100.1m, fully funded by a rights issue of 3 new for 4 existing shares at 303p. The purchase fits neatly with Future’s existing media brands and tech-enabled culture and expands the US revenue base to around half of group (historic pro-forma). The purchase price represents 2.1x Purch’s CY17 revenues, 13.1x EBITDA, and management expects the transaction to be materially enhancing to earnings in its first full year, FY19. On the ex-rights price and indicative forecasts, the shares will be trading on an undeserved discount to peers.
The Media business has had a storming first half smashing our expectations and becoming the larger of the 2 units in H1, faster than we expected. Group revenues are up 25% and over 13% ahead of our forecast. EBITDA is ahead by 8.6% at £8.8m with net debt an impressive £6.8m lower than forecast and falling to just £2.0m. With good trading momentum, Home Interest integrated and two recent acquisitions to build in we lift our FY18, FY19 and FY20 EPS by 4.3%, 12.1% and 19.8% respectively. Our 3 year DEPS CAGR Is 24.8%. Future’s quality of earnings continues to rise with Media now much larger and the US a scale profit centre with significant potential. A 12x to 15x EV/EBITDA range implies an intrinsic value range of 487p to 614p for FY19 and 573p to 713p for FY20, when the full benefits flow.
Future has delivered strong H118 figures, with management confident of meeting full year expectations. We have updated our forecasts to include the two recently completed transactions, Newbay Media in the US and four specialist titles acquired from Haymarket in the UK. Management’s ambitious growth strategy is playing out as envisaged, with diversifying revenue streams and broadening market reach based on good-quality content and data. The US opportunity is particularly attractive. Good momentum underpins the valuation, with some further possible upside.
Future has announced a further acquisition to scale up in the important US market and reinforce its authoritative voice in the music and consumer electronics sectors. Newbay Media is being bought for $13.8m, mainly in cash, and is expected to be earnings enhancing in FY19. This deal, and March’s purchase of five titles from Haymarket, will be added into our FY18 and FY19 forecasts with the interim results in May. Future’s H118 trading has been strong, as expected, with good organic growth from the Media business and promising US progress. We consider that the current rating does not fully reflect the opportunity.
Future has announced the acquisition of Newbay Media LLV, which owns a range of events and information titles, for initial consideration of $13.8m ($12.25m cash and $1.55m in shares) with potential for up to another $5.6m depending on performance. Using the 2017 EBITDA result of $4.2m implies a very attractive multiple of just 3.3x. Even allowing for some much needed catch-up investment we expect the multiple to be similar post reorganisation. Unsurprisingly Future guides that the acquisition will be earnings enhancing in its first full year. Newbay will boost Futures exposure to the US, enhance critical mass in many ways (skills and operating scale) and strengthen existing verticals such as Music and Consumer Electronics. The acquisition also adds B2B titles in complementary verticals (audio visual, TV broadcast and educational technology). This extension into B2B builds on the exposure and skill sets added through the acquisition of the Home portfolio last year and some other existing titles that involve professionals using the information Future produces. The US business has been doing very well and in the last Capital Markets Day presentation the potential for further improvement in the commercialisation of the US was highlighted. Today’s announcement provides an update and highlights further overall trading has been strong with Media growth outweighing Magazines and driven by particular strength in the US. We expect to review our forecasts at the interim results stage (17th May) and to also include the Haymarket portfolio acquisition that is currently in process. With 2 accretive acquisitions and strong underlying trading we anticipate a positive market response.
Future (FUTR LN) Acquisition of Newbay
Future has announced a proposal to acquire 5 brands from Haymarket. The acquisition needs to go through some technical phases (including staff consultation) before expected completion in early May. At this point the Company is indicating a consideration value of up to £14m (using a mix of cash and shares) for the titles which generated £12m in the 12 months to June 2017. The most notable brand is “What Hifi?”. Acquiring this will extend the existing leading position and substantial strength in the audio visual market and help both diversify revenues and add more scale in certain categories. The portfolio will also add new verticals to exploit, bulk up another and increase the scale of the group. We expect to review our estimates once the terms become clearer, but note the Company expects the transaction to be earnings enhancing in the first full year. The Company is about to complete its first half trading (end March) and we would expect a positive trading update highlighting ongoing strategic execution and confirmation it is seeing the benefits of the Home portfolio acquisition. After making a new high at 430p in early January the shares have retraced and look very good value at c350p. This level could be an excellent opportunity for those who have missed out on the performance to build positions. We reiterate our view that we see the stock breaking the 500p barrier in the next 12 months.
Future has announced the purchase of five well-known, specialist consumer titles from Haymarket Media for up to £14m, 1.2x their combined revenue for the year to June 2017. These strengthen the group’s offering in audio visual and add new verticals in sports and leisure. Management has a very good record on speedy and successful integration of consumer titles and their improved monetisation. It expects this deal to be earnings enhancing. We will update our estimates when the transaction completes in May. The share price has drifted back from recent highs and we consider that the current rating does not fully reflect the opportunity.
Future’s capital markets day (CMD) focused on its opportunity to grow brand reach globally, together with demonstrating the scalability of its platform to deliver that growth. There are particularly attractive prospects in the US market, where media revenue per online user is significantly less than it is in the UK. Our forecasts are unchanged at this point, but the emphasis on closing this revenue gap points to further strong growth potential. Management has an impressive M&A record, adding assets and driving returns on the brands. Progress has been reflected in the strong share price performance, but we still consider that the current rating does not fully reflect the opportunity.
The successful modernisation and recent scaling of Future has excited investors. Profits have soared on the back of excellent execution and so has the share price. The strength of the engine of growth is becoming more visible with best practices and developed technology/products applied to the growing content portfolio and audience. The CMD (held yesterday) saw a notable step change from prior years in terms of maturity. Future looks robustly structured and positioned to grow substantially through both organic strategy and acquisitions, where it can deploy its proven ability to raise returns (sometimes turning an arguably unviable business into a valuable asset). In Technology the emphasis over time has shifted from pieces of individual pieces of tech to the highly developed core technology stack and the product/modules integration that optimises the efficiency of the business, assists easy scaling and maximises content exploitation. The CMD also covered Content development and management as well as Sales, with a focus on how Future seeks to maximise its premium pricing, pursues dominant market share (65% target) and utilises programmatic and real-time biding (RTB) online media sales. There was also a reminder of how powerful a partner Future can be to retailers in eCommerce due to its position in the consumer path. Overall we were greatly impressed and can envisage the business scaling multiples of its current size by deploying its model, developed business practices and content/brands. The path to a 500p valuation this year looks straightforward without any further acquisitions. Beating expectations (again), acquiring further content and, or looking further out would lift this expectation. Future is an excellent play on the evolving online environment and high quality content with the comfort of a proven and ambitious management team.
Future (FUTR LN) Making the intangible very tangible | Grainger (GRI LN) In line trading update, PRS investment strategy continues | Harwood Wealth (HW LN) Appointed portfolio research partner by Frenkel Topping | UDG Healthcare (UDG LN) Model updated for FX and tax
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Future has announced that Richard Huntingford will succeed Peter Allen as Chairman on 1st February 2018. This is part of the orderly change announced in October. Richard has extensive media sector experience (over 30 years) across a range of businesses including Radio, Entertainment and Marketing Services. From this he has gained wide experience of the consumer market. We expect Richard will be able to support the executive team with this experience and high energy level.
Revenue, profit, cash and leverage are all better than expected. The Future team has recorded another huge year of progress; EBITDA has more than doubled to £11.0m and DEPS leapt 95% using a conservative N1Se measure. The Company has indicated it is considering paying a dividend for FY18 underlining the fundamental change in the outlook for Future. The share price performance reflects this and is starting to factor in some of the potential of the operating model that has been adopted. FY18 has started well and the acquisitions are performing to plan. We expect another large step forward in profitability this year (DEPS +33.4%) and next (+13.4%) as scale and the Home Interest acquisition feed through. With scale driving operational leverage we expect the group to continue to seek further acquisitions to leverage the Future platform. We expect the shares to continue to re-rate and see 12x EBITDA as the next level. This implies intrinsic values of 429p for FY18 and 502p for FY19.
Future has assembled a strong platform on which to develop its specialist media. With a growing portfolio of brands, it is successfully diversifying its revenue streams and building recurring and repeatable income, giving a more robust business model. Acquisitions have brought scale and added range and reach, building on organic growth from leveraging of the brands with their highly engaged audiences. Cash flow is strong, with tight working capital management, and the balance sheet is modestly geared. This progress has resulted in impressive share price performance, but we still consider that the rating does not yet fully reflect the opportunity.
Altus Strategies—African focused natural resource Company. Offer TBC. Expected Mid July. Harvey Nash Group— Provider of professional recruitment and offshore solutions moving to AIM from Main. No capital to be raised. Mkt Cap c. £57.8m. AnimalCare—RTO of Ecuphar NV, a European animal health company. £30m raise. Ecuphar FY16 rev £68.4m, underlying EBITDA £8.9m. Due 13 July. Angling Direct -Schedule 1 from the specialist fishing tackle retailer in the UK . Raising £9m of which £7.4m new money. Mkt cap c. £27.4m. Due 13 July NEXUS Infrastructure—£35m vendor sale. Mkt cap £70.5m. Provider of essential infrastructure services to the UK housebuilding and commercial sectors. Expected 11 July. FYSep16 rev £135.7m. Greencoat Renewables - Schedule 1. Targeting a portfolio of operating renewable electricity generation assets, initially investing in wind generation assets in Ireland. Offer TBC. Due Mid July. QUIZ— Omni-channel fast fashion womenswear Company intention to float. Due July 2017. Offer TBA I3 Energy –Schedule 1 Update. Independent oil and gas company with assets and operations in the UK. Offer TBC, Mid July admission. Verditek— Sch 1 update. The Company's subsidiaries will be involved in advanced solar photovoltaic, filtration and absorption technologies specialising in providing environmental services. Issue price 10p. Admission late June Rockpool Acquisitions—Northern Ireland based Company seeking strong NI acquisition with an international outlook. Raising £1.5m at 10p. Due 5 July Hipgnosis Songs Fund investment company offering pure-play exposure to Songs and associated musical intellectual property rights. Prospectus yet to be published. Impact Investment Trust—Exposure to a diversified portfolio of funds providing SMEs across developing economies with the growth capital they need to have a positive impact on the lives of the world's poorer populations. Raising up to $150m at $1.00 Residential Secure Income - social housing REIT raising up to £300m Admission due c.12 July. Curzon Energy—Report on Proactive Investors of intended LSE float this year with acquisition of coal bed methane assets in Oregon. Looking to raise £3m plus. NLB Group—financial and banking institution based in Slovenia, with a network of 356 branches. Seeking Ljubliana Stock Exchange listing with GDRs on the LSE. Expected mid June. Kuwait Energy— has not been able to complete its initial public offering as announced in its Intention To Float of 3 May 2017. However, in light of positive feedback from potential investors, the Company remains committed to obtaining a London listing and continues to explore its options. Supermarket Income REIT– Up to £200m raise to acquire a diversified portfolio of supermarket real estate assets in the UK, providing long-term RPI-linked income. Due 21 July.
FUTR UKOG THR DX/ MAIS PHD LWLG COS EMVC
Future has announced the acquisition of the Home Interest division of Centaur Media, part-funded by a placing of £22m at 250p. The purchase, for a net cash consideration of £30.24m, adds a strong new vertical with good margins and attractive cash flow. Future should be able to drive additional value by adding e-commerce capabilities and internationalising the brands, further boosting the earnings enhancement. Our numbers will be formally updated when the deal completes (estimated to be at the end of July), but provisionally we would expect to be showing a small uplift in EPS in FY17e and around 10% in FY18e, highlighting the attractive rating.
Future has had a cultural and strategic overhaul and has been positioned to meet modern consumers’ demand for high quality multi-format content and make e-commerce productive for the consumer and advertiser. The Company has a portfolio of exploitable brands and will continue to add to this as it seeks to leverage its sophisticated platform. It operates internationally and there is scope to expand further. After a leap in profitability in 2016 todays interim results show EBITDA almost matching the whole of 2016 and trading is ahead of FY17 expectations. Future is on a solid track to deliver FY18 through secured synergies, providing visibility for investors. We think the shares are trading some way below even a conservative intrinsic value.
Future has produced strong H117 figures, as per April’s trading update, boosted by growing e-commerce revenues and a strong showing from events. Momentum into H2 is good and we have raised our FY17 and FY18 forecasts for revenue, profits and earnings. Progress on reducing net debt was also ahead of our forecast. The strategy to build a global media platform business around Future’s high-profile brands, backed with quality content and across multiple revenue streams, is starting to deliver meaningful returns and growth well above the sector average. The market valuation of the shares has yet to reflect this differential.
The trading update contains three clear positives: e-commerce and events revenues are growing strongly; acquisitions are performing to plan from both strategic and integration perspectives; and net debt is lower than expected. From a revenue and profit perspective, a better revenue performance has allowed the Company to increase investment but still achieve its H1 profit objective. While we do not see profit expectations rising at this stage, we do expect the marked improvement in working capital to be sustainable highlighting leverage is falling to a modest level fast. Looking forward to H2, the good H1 performance in combination with the outlook and solid trading from recently acquired Team Rock supports confidence in achieving full year FY17 expectations. FY18 expectations are now partially underpinned by the completion of the integration of Imagine Publishing. The integration completion also means that valuable management time has now been freed up for other activities. The launch of two new Team Rock products enhances growth potential and highlights the continuation of the development of the business, as well as the focus on leveraging the platform that has been put in place. The three growth vectors of platform/product enhancement, expanded specialist media sectors and acquisitions make for a powerful model. We are very positive on the scope for the business to continue to exploit these many opportunities and help make Future a much larger and stronger business. Key progress on synergies and healthy trading mean investors can now look forwards to FY18 forecasts, which imply a valuation of <6x EV/EBITDA and c9x P/E. This undervalues the execution record and outlook.
Future’s H1 trading update shows continued good progress in diversifying the group’s revenue streams, reinforcing the strategy of building a global platform for specialist media. e-Commerce and events both performed notably strongly in the period, up 70% and 15% on the prior year (albeit off lower bases). Cash performance was also better than expected. The acquisitions of Imagine Publishing and the magazines of Team Rock have played out to plan and the benefits should accrue more strongly in FY18, as built into our (unchanged) forecast figures. This faster earnings growth brings the rating down to attractive levels. Interims are due on 19 May.
Future is building and widening its revenue streams based on strong global brands and on a scalable delivery platform. Growth of revenues in categories such as eCommerce, events and digital advertising resulted in broadly maintained group FY16 revenues, while the margin has started to build, helped by operating leverage. The Imagine purchase, post year-end, brings further scale and efficiency. The lengthening record of delivery against expectations and the premium projected earnings growth are making the multiple increasingly attractive.
Future’s year-end trading update outlines the good progress made in driving the new revenue streams, leveraging the strong portfolio of global brands. FY16 results are in line with management expectations, with cash flow better than anticipated, resulting in a small net cash position at the year end. Future has now been informed that the CMA has no objection to it completing the acquisition of Imagine Publishing, subject to the ring-fencing of one title out of the 22 in the portfolio. Our FY17 pro forma estimates now assume the acquisition is included as of 1 November 2016. The shares remain at a substantial discount, which should close as the benefits of the deal come through.
Future has been through a significant transformation over the last two years, stripping out the complexities of its operating model, leaving a clear and focused business. The group has strong brands built around content, targeted at niche demographics, typically males 18-34. The purchase of Imagine Publishing will add scale and reach, with new verticals that can be developed. The balance sheet is repaired and the path to building margin and repeatable income set as Future grows its e-commerce, events and digital advertising revenues and reaps the benefits of scale in magazines.
Management Resource Solutions (MRS.L) – CORP: Contract & Trading | Edenville Energy (EDL.L) – CORP: Power Project update | Clontarf Energy (CLON.L) – CORP: FY15 results | Keras Resources (KRS.L) – CORP: First payment received | W Resources (WRES.L) – BUY*: FY15 results
