Shares in Aim-traded online marketer Digital Globe Services (DGS) have come under pressure due to its heavy reliance on a few key customers and the potential risks associated with mega-mergers in its end market. However, DGS's proven track record for innovation and its diversification into new geographies and business areas mean its shares now look far too cheap, promising a 5.6 per cent yield this year, rising to 6.5 per cent the year after.
- Strong sales and profit growth
- Shares cheaply rated
- Prospective 5.6 per cent yield
- Exposed to online advertising growth
- Concentrated customer base
- Uncertainty due to market consolidation
DGS is profiting from surging demand for online advertising - analysts expect global industry spending to climb 17 per cent to over $140bn (£87.5bn) this year. The group uses paid search, call centres, email and social media campaigns to attract customers to clients, such as Comcast (US: CMCSA) and Time Warner Cable (US: TWC), in exchange for a performance-based fee. The strategy has proven very lucrative, with group revenues up by more than half to $39m for the year to 30 June. Moreover, analysts at broker N+1 Singer expect both cash profit and EPS to both rise 43 per cent this year to $7.7m and 20.7¢, respectively.