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Latest Content

Wilmington plc

FY 20 final results – Putting the best foot forward

These were impressive FY 20 results that came in at the top end of guidance given back in March. The Data & Information core has proven resilient whilst the swift digital transition with Training and Networking has mitigated the worst revenue impacts from lockdown. Underlying cash generation was healthy, and management have been able to materially de-risk the balance sheet without needing to raise dilutive, new equity capital. In this note, we are re-initiating coverage will full estimates published for FY 21 and beyond. We also discuss the revenue scenarios outlined by the company at the FY 20 results announcement and what these imply in terms of earnings outcomes. Both of these scenarios hinge on the key swing factor for FY 21; namely whether face to face events can resume in time for Wilmington’s H2. Our estimates effectively represent a middle ground between these two outcomes. In our eyes, the current valuation is difficult to justify on fundamentals, nor on a comparative basis. Although we do not know the full current year outcome for the rest of the peer group, we would be surprised if many do better than Wilmington and yet the valuation gap has widened. Looking at the components within the group, the argument can be made that Risk & Compliance alone could be worth more than the current group market capitalisation. This suggests that investors are being given a free option on the c.£70m of revenue and £6m of EBIT (£80m / £13m pre-Covid) that sit outside Risk & Compliance.

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21 Sep 20
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Next Fifteen Communications Group Plc

H1 trading update – Materially better than expected

Heading into the pandemic, we had argued that Next Fifteen’s broad spread of digital capabilities and heavy exposure to technology led clients should be a source of relative strength. The H1 trading update has underscored just how resilient the group has been. Yes, there have been impacts but the inevitable hit to organic revenue growth has not been as severe as first thought. Combined with the contribution from strongly performing acquisitions made over the last two years, Next Fifteen will be reporting H1 revenue and profit comfortably ahead of the prior year, which is a remarkable outcome against such a backdrop. Next Fifteen has also announced the acquisition of the innovation consultancy, Mach49, which marks the first concrete step in building the fourth pillar underpinning the group portfolio. The group balance sheet remains a source of strength (H1 net debt to be less than £1m); reflecting both the better than expected profit performance as well as effective cash preservation and working capital management. This positions the group well for any further accretive M&A. The current FY1 PE of 13.0x, falling to 11.3x for FY22 feels undemanding given the positive performance through the pandemic and the subsequent positioning heading into any sustained recovery. The rating also looks undemanding relative to others in the immediate peer group and the broader Small Cap Media sector.

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16 Sep 20
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SThree plc

Standing out from the crowd

SThree’s H1 results have provided more colour on the net fee performance already announced to the market at the Q2 update earlier in June. With the rest of the peer group now reporting their quarter to June trading; the extent of SThree’s net fee outperformance is now clear to see. SThree’s May quarter saw a 12% YoY decline, compared to a mid-30s average for the peers in their quarter to June. Even factoring for the one month disparity still suggests a materially better SThree net fee outcome. As we have discussed in previous research, this net fee outperformance does not come as a surprise. Unlike its peers, SThree is a specialist business whose underlying growth drivers (STEM specialism and flexible working focus), if anything, have been amplified by the current crisis. SThree also enjoys leading positions in a number of key markets outside the UK and has undoubtedly benefited in market share terms. The flip side is the operating leverage impact from investments made over the last year. Heading into this crisis, SThree had been growing headcount in line with its strategic objectives. Tough cost actions have been taken in response to Covid-19 but it is also clear these strategic growth objectives have not been sacrificed. The hit to short term profitability should be set against strong cash-flow performance and a significantly de-risked balance sheet; laying the foundations for recovery in FY21 and beyond.

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24 Jul 20
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SThree Plc

Down, but by no means out

SThree’s H1 update has underlined, in equal measure, both the extent of the Coronavirus impacts but also the resilience of the SThree business model. In headline terms net fees were solid in Q1 and came under material pressure in Q2. However, our sense is that the 12% YoY decline in Q2 was better than the market would have been expecting. Impacts varied considerably across the group, which also underlines the geographical breadth of the business and the localised effects within the STEM niches that SThree serves. It is clear SThree has responded to the pandemic in a nuanced and differentiated fashion. Despite headcount reductions (-5% Q2 vs Q1) we do not see a “slash and burn” approach that has typified others. Heading into the crisis, SThree had been in strategic growth and investment mode in response to structural drivers (STEM and flexible working) that remain very much in place. Management response to the crisis has been to protect the business whilst not sacrificing these growth opportunities. The resilience of the business model can also seen through the growing strength of the balance sheet as a result of specific management action but also the natural working capital release of the contract business model. Net cash of £31m and £136m of total available liquidity positions SThree securely for the second half.

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24 Jun 20
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Next Fifteen Communications Group Plc

FY20 final results – The calm before the storm

Next Fifteen’s FY20 final results did not contain any material surprises, following the detailed trading update in March. Headline revenue growth was 11% and adjusted PBT grew 10%. Beneath the surface; we saw a small decline in organic revenue growth (well flagged) more than offset by positive contributions from recent acquisitions. Critically, Next Fifteen exited FY20 with a strong balance sheet (net debt less than 0.2x EBITDA) and significant financial headroom (we estimate c.£35m). Next Fifteen did not shy away from the severity of the current crisis, even as far as to give an indication of the potential organic revenue impacts (-5%.to -25%) for the two thirds of the group most likely to be exposed. The key point here being that at least one third of the group will be largely unaffected and the effects elsewhere will vary considerably by agency specialisation and client industry exposure. After factoring acquisition contributions and cost reduction measures, we believe this will translate into a flat revenue performance in FY21 and a 5% decline in YoY adj. PBT. All things considered, this feels like a solid outcome from a business differentiated by the quality and positioning of its client base.

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04 May 20
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SThree Plc

Short-term action; growth ambition undimmed

Following the Q1 trading update on 16th March, which referenced the early impacts of Covid-19, SThree has now provided a more specific update outlining immediate management actions. Heading into this crisis, SThree was very much in front-foot mode, unlike many of its peers, with 2019 having been a year of investment (headcount and capabilities). Covid-19 has bought this investment phase to a shortterm halt as the immediate focus has shifted to pro-active cost management and cash discipline. Although we would expect headline reductions in headcount, our expectation is for this to vary considerably at the local level. The key focus is on retaining as much of the capacity, skills and capability as possible in anticipation of the recovery, whilst protecting the business in the short-term.

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14 Apr 20
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