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Next Fifteen Communications Group Plc: THE INVESTMENT CASE

Next Fifteen Communications Group boss hails 'exceptional' US performance

The company posted a strong set of annual results that matched City forecasts
Next Fifteen Communications Group boss hails 'exceptional' US performance
INVESTMENT OVERVIEW: NFC The Big Picture
Marketing is fast becoming technology-driven, CEO Dyson reckons
Next Fifteen Communications Group PLC’s (LON:NFC) Tim Dyson hailed the performance of the company’s American business after a stellar set of full-year results from the fast-expanding digital communications group.
 
“The business is doing exceptionally well,” chief executive Dyson told Proactive Investors. 
 
“We are focusing on growth there, but we are also focusing on the quality of people we are recruiting. If we hire quality people we will get the growth.”
 
The strong showing in the US was led by its Text 100, Beyond, OutCast, M Booth, Connections Media and Bite agencies.
Earlier the company reported a 50% increase in profits, supported by acquisitions and a weaker pound following the Brexit vote.
 
Pre-tax profits were £24.2mln on revenues up 32% to £171mln; top-line organic growth was 10%.
 
“The second-half was slightly slower, but we did have an exceptional first half,” said Dyson. 
 
In the UK, the company improved the efficiency of its businesses to offset the slump in sterling.

Acquisitions 

Next Fifteen bought the Publitek, Pinnacle and Twogether agencies, which it said are high margin and high growth businesses. 
 
It also acquired London-based market research agency, HPI, which has been merged with Morar to create MIG Global.
 
Cash generated from operations jumped 101% to £32.8mln from £16.3mln, bolstered by management of working capital. Net debt rose to £11.4mln from £6.6mln.
 
In March 2016 the company entered into a new extended four-year £30mln revolving credit facility with HSBC to fund acquisitions. The facility will be repaid using trading cash flows.
 
This means it has more than enough financial firepower to fund further bolt-on purchases as and when they arise. 

Deal flow

“We are not short on deal flow. There are plenty of things coming to us. However, we tend to source most of the deals ourselves,” revealed Dyson, who said larger transactions would likely be funded from the proceeds of a share placing.
 
“If we can’t convince shareholders it is a good deal then it probably isn’t a good deal,” Dyson added.
 
He said Next Fifteen has made a good start to the new financial year with encouraging signs across its brands.
 
The group raised its dividend per share 25% to 5.25p.
 
The stock, up 63% to 385p in the last year, succumbed to a bout of post-results profit-taking.
 
The broker Investec raised its price target to 454p a share from 412p following the results and rates them a ‘buy’.

Digital the way forward

It expects Next Fifteen to generate revenues of £193mln next year and £204mln in 2019, giving pre-tax profit of £28.8mln and £31.3mln respectively.
 
Strategically Next Fifteen is headed in the right direction, Dyson said. 
 
“We very strongly believe marketing is becoming a technology driven exercise,” he explained. 
 
“You cannot be effective without some technology and I think the pendulum is swinging towards using more and more technology.”


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