Aim-traded shares in UK advertising and marketing specialist The Mission Group (TMG:98p) achieved my 100p target price last Friday and the holding has produced a total return of 87 per cent since I first suggested buying ('Alpha Company Research: Simon Thompson’s latest bargain buy', 11 Oct 2018).
However, there is scope for further upside because the shares still only trade on a 2020 price/earnings (PE) ratio of 10, a third less than the market average, even though the directors’ reported a robust outlook statement in a pre-close trading update which also confirmed the company’s ninth consecutive year of profit growth. I anticipated as much when I last advised buying the shares, at 79p, when I covered the interim results (‘Mission’s major client wins points to prosperous 2020’, 9 September 2019).
Indeed, that rating is modest for a business winning major new accounts, boasting a high retention rate of existing ones, and producing substantial free cash flow. Importantly, Mission Group can comfortably pay down all of the £9.1m outstanding obligations on past acquisitions, and invest in organic growth initiatives, too. The company should be debt free by the year-end. The hefty share price gains aside, shareholders are being rewarded with a progressive payout policy. The prospective dividend yield is 2.5 per cent. Ahead of the annual results on Wednesday, 1 April 2020, I am upgrading my target price to 120p.