Do you prefer to eat chocolate at room temperature or straight from the fridge? This tasty query is the type of survey question to which YouGov’s (YOU) 17m registered members provide answers – and which the group’s commercial clients use for market insights. The research and data analytics group has grown significantly since its founding in 2000, and with recent acquisitions and solid fundamentals looks set to flourish further.
- Strategic acquisitions
- Impressive margins
- Business model working well during the pandemic
- Challenging targets
- Strong US competitors
YouGov is perhaps best-known in the UK for its political polling output. It is a well-respected go-to provider in this area. Its polls are often notable outliers – for example, its data correctly suggested that Theresa May would lose her majority at the 2017 general election while other pollsters predicted a clear victory.
But YouGov is first and foremost a provider of commercial market research. Clients include governments, media and PR companies, and leading brands. The scale of the group’s member panel – £12m of investment in new markets in the last fiscal year saw panellists shoot up 53 per cent – means that it has a significant force of people ready to provide these clients with real-time market information.
All surveys are performed online, via email or the YouGov app. The group doesn’t pay members upfront. Rather, they earn points for answering questions which can be turned into cash. Response data from the panelists is placed onto the YouGov Cube database, which contains reams of historic information. The combination of the size of YouGov’s member base and the depth and breadth of the data it has access to is its economic moat that competitors struggle to get across.
The online nature of the business means it has been relatively sheltered from the ravages of the pandemic. As management noted in the latest full-year results to 31 July, YouGov “has not seen any significant slowdown in sales and has not furloughed any staff or sought extended payment terms for its obligations” since the beginning of the pandemic. This is reflected in the share price, which has more than doubled since March 2020.
The group operates internationally. YouGov’s Americas and UK markets are its key revenue drivers, contributing £75m to £52m respectively, or a combined 72 per cent of sales in the 2021 fiscal year. The two geographies also account for 92 per cent of underlying profits before central costs. YouGov also trades in mainland Europe, the Middle East, and Asia Pacific. While YouGov is a market leader in the UK, the Americas market is notably more competitive – companies such as IHS Markit (US:INFO) and Gartner (US:IT) are noteworthy rivals.
The latest results represent an impressive step forward for the group. Double-digit growth was posted across key metrics, with revenue up 11 per cent to £169m and profit before tax up by a quarter to £19m. Strong client demand and a 20 per cent jump in data services revenue to £46m helped drive this performance.
But custom research remains the group’s largest top-line contributor, providing 39 per cent of total revenue or £67m. This division's adjusted operating margin before central costs was a healthy 21 per cent last year. This covers bespoke research projects and tracking studies. There has been a notable move towards higher-margin products in recent years, with increased focus on the data products segment – sales rose 13 per cent last year to £58m – which provides services through a subscription model, such as the BrandIndex product which offers clients consumer views on their and their peers’ brands. It boasts a 33 per cent operating margin before central costs.
This shift is reflected in margin growth at the group level. The group’s adjusted operating margin has jumped up to a double-digit level over the past few years, and was at 15 per cent in the latest results.
Alongside this, other fundamentals look strong. The balance sheet holds no debt (if we exclude lease liabilities). Despite numerous acquisitions, return on capital employed has been robust and rose to 20 per cent in 2021 from 17 per cent in the year prior.
Bolt-on purchases of other businesses is a significant part of YouGov’s growth story. The fact that there were five purchases in 2021 demonstrate that this is a strategic focus. Acquisitions have helped to raise margins as well as improve scale.
The latest of these was in December when the group paid CHF26m (£22m) for Link Marketing Services, the Swiss market and social research agency. Switzerland is a crucial market for a number of YouGov’s European clients, and with mainland Europe being the standout performer in 2021 – revenue was up by 26 per cent at £31m – this acquisition should help cement YouGov's position in the market and help drive growth.
Berenberg thinks the purchase will bump up YouGov’s sales by 10 per cent and deliver £1m in cost synergies over 18 months. As for the expected 4 per cent compound annual growth rate, there is a “significant chance this will accelerate as Link benefits from the scale of YouGov’s global consumer panel”, said the broker.
The sceptic might say that such an emphasis on acquisitions is because of the long-term incentive plan in place for management. This is linked to the success of the group’s growth strategy, which includes the targets of doubling revenue over the three-year period to 31 July 2023. Other targets for management are to achieve a 30 per cent EPS compound growth rate and double the group's adjusted operating margin. If achieved, this will continue YouGov’s impressive record of delivering growth for shareholders, and brokers are positive about the prospect – Numis analysts said that strategic investments made by the business in recent times put it “in a strong position for the final two years”.
YouGov’s shares are trading at 49 times forecast earnings for the next 12 months, according to consensus estimates. However, with a relatively Covid-proof business, a strong track record and progress being made towards ambitious financial targets, the company looks like a solid long-term growth option.
|Company Details||Name||Mkt Cap||Price||52-Wk Hi/Lo|
|YouGov (YOU)||£1.50bn||1,350p||1,590p / 940p|
|Size/Debt||NAV per share*||Net Cash / Debt(-)||Net Debt / Ebitda||Op Cash/ Ebitda|
|Valuation||Fwd PE (+12mths)||Fwd DY (+12mths)||FCF yld (+12mths)||CAPE|
|Quality/ Growth||EBIT Margin||ROCE||5yr Sales CAGR||5yr EPS CAGR|
|Forecasts/ Momentum||Fwd EPS grth NTM||Fwd EPS grth STM||3-mth Mom||3-mth Fwd EPS change%|
|Year End 31 Jul||Sales (£m)||Profit before tax (£m)||EPS (p)||DPS (p)|
|Source: FactSet, adjusted PTP and EPS figures|
|NTM = Next 12 months|
|STM = Second 12 months (ie, one year from now)|
|*Includes intangible assets of £111m, or 81p a share|