Next 15 builds up profit margins and trades at 18% discount

Next 15 (NFG) has gone to great pains to meaningfully reconcile its reported and adjusted full-year figures. The group actively pursues an acquisitive business strategy within fragmented industries, so year-on-year comparisons can sometimes prove misleading.

The group delivered net revenue of £577.8mn, a 2.5 per cent increase from the prior year, and largely the result of acquisitive growth minus the negative impact of foreign currency translations. Adjusted operating profit rose by 6.1 per cent to £121.1mn with the marked differential from statutory profit largely due to M&A accounting adjustments, including the amortisation of acquired intangibles, offset by a reduction in the expected Mach49 earn-out payment. Through the year, the group’s earnout liabilities decreased by a net £44.0mn, with £32.3mn relating to the Mach49 business. The underlying profit margin edged up by 80 basis points to 21 per cent.

Mach49 operates within the group’s Business Transformation segment, which posted an 11 per cent increase in net revenue to £149.6mn, aided by a major contractual arrangement with the Department of Education secured by Next 15’s Transform business, although overall performance was held in check by weakness in the Tech IPO and private equity advisory markets.

Analysis from Peel Hunt gives fully diluted adjusted earnings per share (EPS) of 88.1p for January 2025, rising to 92.7p in the following year. The broker also gives a target price of 1,100p.

The group has reduced assumptions on future contingent payments, which should accelerate debt reduction. Around £4.5mn has been returned to shareholders via the share buyback programme, and Next 15 is looking to repurchase up to a further £10mn in shares by the end of July 2024. Overall, a mixed but creditable showing given wider economic challenges. With the shares trading at an 18 per cent discount to the target price, we remain buyers.

Last IC view: Buy, 601p, 26 Sep 2023