Buy M&C Saatchi for growth pitch

Maurice and Charles Saatchi created M&C Saatchi in 1995 after they were ousted from Saatchi & Saatchi, the advertising agency they founded in 1970. Like-for-like sales rose in all five of the group's territories in 2015, led by growth of 19 per cent in Europe and 27 per cent in the Americas. That translated to a 16 per cent rise in adjusted operating profits to £18.6m.

The key UK business, which accounted for 47 per cent of last year's turnover and 37 per cent of profit, landed clients including Samsung and Airbus and cashed in on strong demand for CRM and mobile. In Europe - 19 per cent of profits - the group signed major customers such as Becks and ING and won work with Google in Spain. It also inked deals with Nando's in South Africa and opened an office in Dubai, and, more recently, its Asia and Australasia business - 21 per cent of profits - won Woolworths in Australia. Moreover, after successfully introducing mobile and sport and entertainment services in foreign territories, management is rolling out CRM and PR services internationally.

M&C Saatchi's stakebuilding in overseas markets has been key to its growth. For instance, it has bought stakes in agencies in Tel Aviv, São Paulo, Istanbul, Los Angeles and New York in the past couple of years. Moreover, it recently raised its stake in New York creative agency SS+K from a third to 51 per cent and also acquired 51 per cent of MCD Partners, a digital CRM agency with offices in New York and Chicago. These investments have bolstered the group's range of services and presence in fast-growing territories. Broker Numis believes M&C Saatchi's global footprint is now largely complete and expects the international network to provide a foundation for double-digit growth in revenues in coming years, along with margin expansion.

This method of expansion means put options, which allow the companies Saatchi has holdings in to ask for the rest to be bought out, account for liabilities of £24.4m on Saatchi's balance sheet - £3m of this represents possible cash payments, the rest of which relates to equity settlements. These liabilities also reflect the prospect of Saatchi gaining a greater slice, or all, of these associates' earnings. In addition, there are £1.8m of contingent considerations outstanding.

One concern for investors might be the fall in profits in Asia and Australasia in 2015. But that largely reflected currency pressures, and the group made good progress in China, Malaysia and Singapore. Moreover, management is actively reviewing the Japanese business after it lost clients in the period. And any further weakness should be more than offset by continued gains in the UK, the Americas and Europe.