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Back YouGov for the win

It could be worth buying into the market research and polling company ahead of its full-year results
September 21, 2017

How many French people want the UK to leave the EU? To which Hogwarts house should JK Rowling belong? How many Brits have a plan for a zombie apocalypse? To these questions and many thousands more, YouGov (YOU) has the answers. The online market research company has gathered a large following of consumers by providing accurate market research and polling. To investors, it is perhaps better known for its ability to consistently beat expectations. Ahead of its full-year results, we think investors should back its long-term prospects.

IC TIP: Buy at 265p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Track record for beating expectations

Strong balance sheet

Growing geographical presence

Valuable data assets


 

Bear points

Increasing competition

Lower-margin services give majority of turnover

In the last two years, YouGov has had considerable success with political polling. Its statistical analysis techniques correctly predicted the that the UK would vote to leave the EU, Donald Trump would become US president and the 2017 general election would end in a hung parliament. As its brand identity has increased, the group has attracted more customers to its suite of data products, services and custom research.

In the first six months of the group’s financial year to July 2017, revenue rose by 8 per cent at constant currency. This was bolstered by foreign exchange movements from the revenue YouGov generates overseas, across seven territories.

The key driver of the underlying growth was the data products and services business (43 per cent of revenue and 60 per cent of adjusted operating profit before central costs) where the group’s brand perception tracker, BrandIndex, and media planning product, Profiles, are in high demand. The wide margins generated at this business helped send overall group operating margins up by a percentage point to 11 per cent. 

There have also been margin improvements in the custom research division, which is the largest contributor to the top line but only generates 40 per cent of adjusted operating profit. Management has been reducing lower-margin research work, especially in Germany, meaning adjusted operating profit rose by more than a quarter in the first half, despite flat underlying revenue. 

These strong trends have continued in the second half, therefore full-year revenue and pre-tax profit are forecast to be 22 per cent and 17 per cent up on last year, respectively. Broker Numis expects this positive underlying momentum to continue for the foreseeable future, while the potential for more acquisitions could provide a further catalyst for earnings growth.

YouGov maintains a strong balance sheet, bolstered by its excellent capacity to generate cash. In the year to July 2016, the group converted 130 per cent of its adjusted operating profit into £14m of net cash from operations. This, and the low capital expenditure requirements, resulted in net cash inflows of £4.5m, helping support the acquisition and shareholder return policies.

YOUGOV (YOU)   
ORD PRICE:265pMARKET VALUE:£279m
TOUCH:260-270p12-MONTH HIGH:294p203p
FORWARD DIVIDEND YIELD:0.7%FORWARD PE RATIO:22
NET ASSET VALUE:73.8p*NET CASH:£15m
Year to 31 JulTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201467.47.75.80.8
201576.19.16.71.0
201688.213.38.61.4
2017**10815.510.51.6
2018**11717.711.91.8
% change+8+14+13+13
Normal market size:1,000   
Matched bargain trading    
Beta:-0.09   
*Includes intangible assets of £55.1m, or 52p a share
**Numis forecasts, adjusted PTP and EPS