Be Heard is building a group of digital marketing specialists, with five partner companies increasingly working together in a process that should become smoother once they are co-located. Last year’s trading issues have been resolved and new business momentum is good, with some pitches now carried out under the group banner. The management team has been reconfigured and responsibilities clarified, with unified procedures and financial reporting being put in place. Consensus sees strong revenue growth in FY18e, with operating margins starting to build, which should then be reflected in an improving rating.
Having suffered from some (mostly) client-led issues on specific contracts in Q417, momentum in Q118 has been building across the group partner agencies, with 15 new client wins. The 46-strong client roster shows some very good names, with the top 10 including Coca-Cola, Vodafone, Compare the Market and blu. The strategy to provide connected solutions is starting to deliver, with nine clients now served by two group agencies and four by three or more. Four clients are now also on master service agreements, which will help drive further cross-referrals. Group-level marketing, referral and intermediary networks are now also being put in place. A new London building, housing all the partner companies, would help reinforce the market credibility, as well as making it easier to pool ideas and resource
From a cash perspective, the group is still in start-up phase, investing in people and consuming working capital. Greater discipline here should provide some help. The acquisition earnouts are designed to be broadly self-financing. £3.7m of FY18e’s anticipated £5.5m payout has already been made in Q118 (the balance is broadly 60:40 cash to shares over FY18:FY21e), with a maximum of £6.6m due in FY19e. Net debt was £1.9m at end FY17, including £4m on convertible loan notes.
Be Heard’s share price has drifted over the last year as trading issues surfaced at some group agencies and forecasts were reined in. It is now valued at a significant discount to peers on both a P/E and EV/EBITDA basis. The smaller marketing communications companies are once again trading at lower valuations (FY18e: 8.0x; FY19e: 7.3x EV/EBITDA) than the large holding companies (on 8.8x and 8.4x respectively) as the share prices of the latter group have come off the bottom. Be Heard’s current year rating of 5.5x EV/EBITDA is clearly well below the level of its peers, despite faster forecast EBITDA growth.