Next Fifteen Communications: Focused On Social And Digital Marketing

Next Fifteen announced in a brief trading update, released ahead of the company’s AGM, that it has made a good start to the new financial year as it continues to evolve its business away from a collection of traditional PR agencies to a group focused on social and digital marketing services. This provides comfort to our FY13 and FY14 estimates – our projected 6% pa EPS growth rate reflects expected continuing low global economic growth prospects, although these estimates do not include any future acquisitions that the group has the resources to complete. Subsidiaries Bite and Bourne have been merged to move the transition forward to focus on global marketing services. FY13 interim results are due to be released on 23 April 2013.

Bourne and Bite merged to form new marketing group
Bourne, the full-service digital agency acquired by Next Fifteen in 2011, has recently been integrated into long-established subsidiary, Bite Communications, to accelerate Bite’s global transformation from strategic communications consultancy to a marketing services agency. Andy Cunningham is now CEO of the combined group, while former CEO, Clive Armitage, is in charge of building a new 40%-owned venture, which is to offer social and behavioural marketing consultancy services.

Maintaining FY13 and FY14 estimates
The good start to FY13 reported by management adds comfort to our underlying FY13 and FY14 estimates. The group is seeing strong growth in its social and digital services as clients move their marketing spend toward this area, while traditional PR services are declining as a proportion of group revenue. Investigation into the fraud that was reported at the time of the FY12 results has now been concluded. The c £0.3m cost of the investigation is to be treated as an exceptional item in FY13, while we already allowed for the ongoing cost of additional resources added to the financial team in formulating our FY13 and FY14 estimates last November.

Valuation: Fairly undemanding rating
Our projected 6% pa EPS growth rate for FY13 and FY14 reflects expected continuing low global economic growth prospects, although these estimates do not include any future acquisitions that the group has the resources to complete. A P/E below 10x would seem to be a fairly undemanding rating for a leading player in transition to addressing the fast-growing digital communications market. Versus our selected peer comparators, Next Fifteen’s prospective P/E is trading at a c 10% discount to Chime and at a larger discount to mega advertising groups, Omnicom and WPP, but at a higher P/E afforded to both Creston and Huntsworth.

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