I had an informative call with James Clifton, chief executive of UK advertising and marketing specialist The Mission Group (TMG:56p).
A key take for me from its Covid-19 trading update is that technology-focused agencies, accounting for a fifth of the revenue mix, are doing rather well and have largely been unscathed by the crisis. In fact, they continue to win new clients, perhaps not that surprising when you consider that many clients operate globally so are accustomed to agencies pitching on Zoom calls. For instance, Mission’s April Six agency has just been appointed by MSC Software Corporation, a leader in computer-aided engineering simulation software, to design its media, content and analyst relations strategy in the UK, USA and DACH (Germany, Austria and Switzerland) markets. Mr Clifton also revealed that Mission’s US offices in San Francisco and Seattle are “performing well for us”. The latter office works with technology giant Amazon.
Mission’s technology focus is set to pay dividends in a major way. That’s because the group’s Fuse technology incubator has developed Pathfindr, a tracking product that provides customers with real-time insights into their assets and processes. Prior to the Covid-19 outbreak, it had already been sold to some of the most well-known names in global aerospace and manufacturing, including Rolls Royce. It is even more valuable technology now.
That’s because Pathfindr has developed a new product, The Safe Distancing Assistant, to help people maintain safe personal distancing and to keep businesses open. By using cutting-edge ultra-wideband technology, the device provides 360-degree field of detection and is more reliable and accurate than other technologies such as Bluetooth. It can be worn around the neck or clip to a pocket, belt or other item of clothing. A few thousand of the devices are currently on trial and Mr Clifton says that the company has received interest from one potential customer looking to acquire 250,000 units. At a base price of £49.99 per unit, this could be a major money spinner as companies across multiple sectors aim to enforce personal distancing and comply with safe working legal requirements, so to avoid costly fines and crippling closures.
Unlike other players in the industry reliant on new business wins, Mission has a loyal client roster. In fact, half of revenue comes from clients of five years standing or more. Of course, some activities have been impacted by the lockdowns, such as events and property-related agency work. However, staff have been furloughed in specific areas under the government’s Job Retention Scheme, while other costs have been reined in. Importantly, the balance sheet is well capitalised as net debt of £4.9m is well within total borrowing facilities of £23m.
The bottom line is that the market perception of Mission and the reality of how the business is trading are not aligned. Indeed, the 43 per cent share price discount to net asset value, and the miserly rating of six times last year’s post-tax profits, implies a catastrophic reversal in earnings this year and little hope of recovery thereafter. I would beg to differ, so much so that having initiated coverage at the current price ('Alpha Research: Simon Thompson’s latest bargain buy', 11 Oct 2018), I feel that this year’s de-rating has gone too far. Recovery buy.
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