Winning the argument
Brainjuicer Group Plc (BJU.LSE) continues to punch well above its weight in its share of airtime in a conservative industry. Its novel approaches, based on behavioural economics, are clearly gaining traction with its multinational client base. Modest further increases in their budget allocation percentages in BJU’s favour would be transformational. The group has consistently strong cash flow and little capital requirement to support organic growth. Management is proposing returning further cash to shareholders via a second 12p special dividend, payable in May. The rating has moved back to a small premium, justified on current trading, but which undervalues the potential.
Strong bounce back in FY13
As indicated at the pre-close update, FY13 saw a resumption of the ‘normal’ trading pattern with a bias of project work to the final weeks of the year. Revenue gains of 17% for the full year on overhead costs up by 7% translated into 135% gains in operating profits. The group’s ‘Juicy’ products (those at the more innovative end of the spectrum) accounted for 74% of revenues, up from 56% in FY11 – encouraging both from a margin perspective and from ‘stickiness’ with the client base.
Growth and cash generation together
The group has only modest requirements for cash to support its growth, with the current technology platform equipped to cope with a business two or perhaps three times the size. International expansion is an important element of the strategy, but requires little in the way of investment. The investment in future growth is more focused on the continuing development of new products and improvements in existing tools, as well as the services element of the group revenues, which increases the breadth of contact with clients. This leaves the group generating more cash than it needs to fund the business and management is therefore proposing a second special dividend of 12p, payable in May.
Valuation: Small premium undervalues potential
BJU’s shares are again trading at a small premium to the pure international market research quoted sector, having recovered strongly over the last six months. While this may be a fair reflection of the current level of trading, it does not reflect the potential for the group to grow substantially ahead of the market, particularly if mandates from larger clients are forthcoming.
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