Ebiquity Plc: On Significant Discount To Comparators

H114 EPS up 18%; strategic review completed
Ebiquity Plc's, (EBQ) H114 results show strong growth. On revenue up 7%, underlying operating profit rose 26% and underlying diluted EPS increased 18% to 3.1p. The strategic review announced last August has now been completed and management has begun implementing its conclusions. The group’s businesses have been restructured into three segments, which should more closely address the needs of clients and future-proof the business in the increasingly complex media and marketing environment. Management has also concluded that the group’s future “can be best served in a public environment”. The group is acquiring China Media Consulting for £1.6m initial cash and £5.2m maximum cash in earn-outs.

Strong H114, FY14e EPS maintained, FY15e initiated
H114 revenues rose 7% to £32.7m (H113: £30.5m). Underlying operating profit (after higher central costs) grew 26% to £4.1m (H113: £3.2m) aided by higher margins in each of the three newly formed segments. While we estimate 21% H214 growth in segment operating profit, we maintain our FY14 EPS estimate as the comparative impact of group central costs is likely to suppress H2 profit growth. We initiate an FY15 estimate of £74.9m revenue and diluted EPS of 10.3p (up 7.3%).

Strategic review outcomes being implemented
While management says that some of the outcomes from the strategic review will emerge in the coming months, a number have already been implemented. The business has been restructured into three segments: Media Value Measurement (MVM), Market Intelligence (MI) and Marketing Performance Optimization (MPO). Management believes this new structure could lead to significant growth opportunities.

Valuation: On significant discount to comparators
Ebiquity’s share price rose significantly after the August 2013 announcement that the group was reviewing strategic options, which might have included a sale of the company. Now that management has concluded that the group’s future “can be best served in a public environment”, the share price may come under some short-term pressure. However, Ebiquity is trading at a significant discount to all of our suggested metrics when compared to selected proxy comparators. While near-term EPS growth is below our medium-term 15% pa projection, we contend this to be achievable through organic growth, economies of scale and further acquisitions financed by strong operating cash flow.

To Read the Entire Report Please Click on the pdf File Below.