Brain Juicer: Back Into Growth

BrainJuicer’s (BJU) half-year trading update confirms the group is on track to meet our full year profit targets, with the perennial proviso that clients have an historic tendency to bunch projects into the final weeks of the year. H113 revenues were up 4% (against strong comparatives) and costs have been controlled more effectively, giving a greater degree of confidence to forecasts. Cash generation remains strong and the board is considering returning some of the cash to shareholders.

Profits rebuilding
First-half revenue growth of 4% is against growth in the previous year of 14%. A stronger performance in the U.K. and U.S. markets and good growth in the more recently established Brazilian market was diluted by a fall-off in the previously high levels achieved in China and continuing weakness in Continental Europe. While this leaves a fair bit to do in H213 if our revenue number is to be reached, gross profit climbed by 6%, and with good containment on costs following action taken at the back end of FY12, and confirmation that increases in operating costs in the current year (before bonus payments) will be limited to “low single digits”, the strong profits recovery that we anticipate should be achievable. The innovative techniques developed by BJU, using behavioural economics to analyse and predict consumer activity, continue to build credibility in the market. Conversion of evident client interest into client orders remains the crucial element in moving the group to the next stage of growth.

Cash building
The group is inherently cash generative, with H113 seeing a further build up in the cash resource to an end-June balance of £5.5m, ahead of where we would have expected. Investment in new offices continues, as does the continuing investment programme through BrainJuicer Labs, but with the group requirement for cash less than that currently being generated, some form of return to shareholders is being considered. Further news on this is likely with September’s interim results.

Valuation: Marking time
The shares have broadly marked time since the Finals with little newsflow and mixed trading messages from others in the sector. On a P/E basis, the shares stand at around the international peer group average, while on an EV/EBITDA basis, the major US-based market research agencies trade at over double their European counterparts at 15.0x vs. 7.3x. BJU trades at the top end of the non-US companies, reflecting its good client list, strong cash position and differentiated business model.

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