Next Fifteen boasts growth and value

Next Fifteen offers services such as digital marketing, PR and market research in 18 countries. Digital investments, the closure of underperforming offices and dropping unprofitable clients widened the group's underlying operating margins last year from 8.6 per cent to 11.7 per cent, while helping win new blue-chip clients, such as Twitter and Time Warner Cable. Next Fifteen also raised average return from clients by 10 per cent and increased the number of clients generating over $1m (£0.64m) in fees from 25 to 28.

All this fuelled a strong financial performance in 2014. Organic sales rose 11 per cent in the US, which accounts for 58 per cent of group turnover and 78 per cent of profit. Investment, reorganisation and acquisitions sent the UK operating margin soaring from 4.1 per cent to 10.6 per cent. And the group's other operations bounced back after widescale restructuring. For instance, its businesses in Europe and Africa swung from a loss in 2014 to an operating profit of £0.8m. The upshot was a 44 per cent rise in total adjusted operating profit to £12.7m.

Acquisitions have played a key role in allowing Next Fifteen to tap into growth markets and widen its digital offering. For example, it recently acquired Encore, an agency specialising in automated advertising technology. It also bought content-focused marketer Story Worldwide in 2014 and recently took a significant stake in digital agency Animl, whose clients include Unilever.

The combination of organic growth and acquisitions has strengthened Next Fifteen's prospects. Trading has remained strong this year and the business pipeline in the US and UK is bulging. Those trends should underpin broker Investec's expectations of 9 per cent compound annual earnings growth between 2015 and 2018, and based on recent trading and the likelihood of further acquisitions, there's good potential for upgrades to these forecasts.

Investors might be worried about the costs of Next Fifteen's transformation. Last year, the group wrote down £7m in goodwill, incurred a £1.8m restructuring charge, and cash outflow from investing more than tripled to £17.9m. But management's efforts have paid off handsomely so far. And fears about acquisitions driving up debt should be eased by Next Fifteen's improved cash generation, which together with £4.3m in net proceeds from a placing in January kept year-end net debt at just £8.6m.