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Revenue jumps at Next Fifteen

Investors are still jittery about the recent bid for M&C Saatchi
September 26, 2022
  • Strong growth across core divisions
  • Earn-out hits profits

If you glance at Next Fifteen’s (NFC) unadjusted figures for the past six months, you might suspect that something is awry at the marketing consultancy. A pre-tax loss of £8.5mn and an earnings per share (EPS) figure of -10.6p certainly don’t inspire confidence.

However, the group’s statutory loss is largely the result of an increased earnout payable over the next five years to equity holders of Mach49, a growth incubator purchased in 2020. Earlier this year, Mach49 secured a lucrative contract and as a result Next Fifteen now expects to hit the $300mn earnout cap. 

This is a sizeable liability. However, the contract win has also turbocharged Next Fifteen’s business transformation division, which reported organic net revenue growth of 157 per cent. This means the segment is now significantly larger than ‘customer delivery’ and ‘customer insight’. Importantly, it also has a larger adjusted operating margin of 39.4 per cent. This is expected to shrink in the second half of the year as costs ratchet up, but remain very roomy. 

That is not to diminish the performance of the rest of the group. Next Fifteen reported double-digit organic revenue growth across all of its divisions and said high activity levels have persisted in the third quarter.

The consultancy is also well-placed to benefit from recent currency movements, as over half of its revenues come from the US, and a further 7 per cent of sales come from clients that bill in US dollars. Analysts at Peel Hunt have upgraded their 2023 revenue, profit and EPS targets as a result.  

In May, Next Fifteen made an offer for advertising group M&C Saatchi, which sent the shares tumbling. It is still unclear whether the deal will take place, and investors are jittery. For now, however, the group’s organic growth remains tempting. Buy.

NEXT FIFTEEN COMMUNICATIONS (NFC) 
ORD PRICE:844pMARKET VALUE:£830mn
TOUCH:842-845p12-MONTH HIGH:1,476pLOW: 791p
DIVIDEND YIELD:1.5%PE RATIO:NA
NET ASSET VALUE:105p*NET DEBT:65%
Half-year to 31 JulTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20212093.10-3.103.60
2022341-8.50-10.64.50
% change+63--+25
Ex-div:27 Oct   
Payment:25 Nov   
*Includes intangible assets of £286mn, or 290p per share