Mission Marketing Group's (LON:TMMG) year-end trading update indicates that its FY17 profits were a shade ahead of the market forecast, with the bonus of a strong working capital performance delivering a very good reduction in net debt to below £7.5m. A greater degree of back-office integration in FY18, building on collaboration initiatives already in place, should help margins to progress, further boosted by reduced interest rates triggered by the stronger balance sheet. The lengthening record of delivering on expectations and of growing earnings and dividends is inconsistent with the deeply discounted rating.
Strong cash performance broadens options
The indicated headline FY17 pre-tax profit of £7.7m implies good H2 growth, despite a market backdrop of client vacillation and pricing pressure. The group’s end-December net debt figure of below £7.5m compares with £9.4m at the half year and a previous market estimate of £11.5m, so represents a considerable improvement over expectations. This has meant that the ratio of net debt/EBITDA has fallen below 1.0x (vs forecast 1.2x), triggering a 0.5% reduction in the interest rate payable. Earn-out payments (£6.4m at 31 December 2017, of which £1.9m is due in FY18) may be adjusted upwards to reflect strong performance, but there remains plenty of fire power to invest in both organic growth initiatives and in complementary acquisitions, as well as supporting a growing dividend payment.
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