Very strong growth continues in Q2
We increase our FY14 earnings estimate for Sinnerschrader O.N. (SZZG.DE) by 8% following management’s recent trading update, which reported that very strong growth continued in Q2 (revenue +35%). On a headline FY14 P/E of 18.4x, the shares trade in line with peers. However, with a strong recovery being seen and the potential of the NEXTAUDIENCE platform, we believe a premium is justified. Excluding start-up losses from this platform, the shares trade at a 30% discount to peers on an FY P/E of 12.6x.
Trading update – Strong growth continues
Q2 revenue growth of 35% to €11.2m builds on the strong momentum seen in Q1 (18%). Growth has come from existing clients, notably Unity Media KabelBW and E-Plus, and from new clients including Becks, Anheuster-Busch InBev, Muller (pharmacy chain) among others. New customer business accounted for 17% of revenues in Q2. The level of new enquiries remains strong, and with the recent announcement that it has won the largest single project in its history from a German automotive group, growth is underpinned throughout the year.
Forecast changes
Management has issued revised guidance; it expects net revenues of €46m (+26% y-o-y) and adjusted EBITA of over €3m. We have updated our estimates to reflect the Q2 results and increase our FY14 and FY15 revenue estimates by 11%. Start-up losses at NEXT AUDIENCE were €0.2m, ahead of our estimate at €0.4m. Taking account of this, and the fact that with such strong demand management is using a higher proportion of freelancers, our EBITA upgrade is 10% in FY14 and FY15.
Valuation: Underlying discount to peers
SinnerSchrader trades on an FY14 P/E of 18.4x, broadly in line with its digital agency peers. We believe a premium rating is justified given the strong underlying growth being seen in the agency business, the potential for margin improvement and the growth potential of the currently loss-making NEXT AUDIENCE. Our initiation report contains more information on this division. Excluding the €0.9m of start-up losses forecast at NEXTAUDIENCE, the agency business trades on an underlying P/E of 12.6x, a significant discount to peers. Our DCF value of €4.7 (up from €4.3 pre-upgrades) supports the view that the share remains undervalued. To move towards this level, investors will need to see evidence that growth can be sustained and that the NEXTAUDIENCE platform can deliver on targets. Visibility here should improve over the next few quarters.
To Read the Entire Report Please Click on the pdf File Below