Strong North America performance in H114
With comparative H114 revenues up 6%, adjusted pre-tax profit up 13% and diluted adjusted EPS up 17%, Next Fifteen Communications Group's (NFC.LSE) interim results show that the group is returning to the growth tack, and we expect the group to report record profits in FY14. This performance was led by strong organic revenue growth of 13% in North America, the group’s largest geographic area. We are increasing our FY14e EPS by 0.1p to 9.4p and initiate FY15e EPS of 10.0p. The group is changing its fiscal year end to 31 January to better align with its client budgeting cycle. Last month, Peter Harris was appointed group CFO following four months as interim CFO. The group remains solidly financed at 13.5% debt/equity, which we estimate will fall to 5.7% by financial year-end.
FY14 interims show group back on growth tack
Group revenues of £49.3m were up 6%, comprising 4.1% organic growth and 2.6% acquisition-related, less 0.8% from the impact of sterling strength. The star of the show was 13% organic revenue growth in North America, where the transition from traditional marketing to content-based social and digital marketing is helping drive business there in both tech and non-tech sectors. However, tough market conditions elsewhere, especially in Europe, held back overall organic growth to 4%. Management says that a strong start, including the UK returning to growth, has been made to H214 despite sterling strength.
Transition to digital and social continues apace
In line with its ‘Digital Transition Plan’, initiated in H113, the group continues to transition its core business away from traditional communications services towards social and digital communications. Supporting this plan, the group acquired 51% of content marketing business Republic Publishing in January 2014, and the group’s now 54% owned grassroots developed digital marketing consultancy, Agent3, acquired B2B insight business Continuous Insight in February 2014. Management says that digital and social capabilities are increasingly key to pitch success.
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