YouGov rebounds after excellent year

Investors were nervous that YouGov (YOU) would bear the brunt of squeezed technology budgets in 2023, and the group’s valuation suffered as a result. The provider of marketing and opinion data has defied the gloom, however: sales and profit growth were both very strong in the 12 months to July and the shares have partly rebounded.

A key part of YouGov’s appeal is its operational gearing. In recent years, the group has invested heavily in technology, people and panellists, but now its work has become very repeatable and it is able to sell its data sets at ever higher margins. This is evident in its latest results, which show a 9 per cent increase in underlying revenue and a 23 per cent jump in underlying adjusted operating profit. 

Growth in the custom research division has been particularly strong, with sales up by 27 per cent at £122mn and adjusted operating profit up by 31 per cent at £27.5mn. Management stressed that clients are still dedicating money to large-scale, multi-country, multi-year trackers to help them make critical business decisions.

In contrast, demand for data services – which consists of fast-turnaround research – dipped in the period, as research budgets came under pressure. Performance in mainland Europe was particularly weak, as geopolitical conflicts and poor sentiment led to less tactical PR work. This isn’t too worrying, however, given that data services is the smallest and lowest margin part of the company. 

YouGov is optimistic about next year, saying that trading is in line with expectations and momentum from technology sector clients is picking up again. The group also has a major acquisition in the pipeline: it is trying to buy the consumer panel business of GfK for €315mn (£272mn), which it raised via an equity placing. The acquisition is subject to regulatory approval but it is expected to close in the coming months.

Regardless of whether the deal goes ahead, we like YouGov’s profit trajectory and it is encouraging to see sales momentum returning. One thing to keep an eye on is its progress in America, which has been slower than elsewhere in the world and which will be crucial for future growth. Things could pick up as the technology sector recovers, however, and YouGov’s battered forward price/earnings ratio of 15 looks too good to miss. Buy.

Last IC View: Buy, 915p, 21 Mar 2023