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Be Heard Group PLC: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Be Heard Group joining the dots

Lots of marketing groups have pursued a 'buy and build' strategy and have become cumbersome as a result; Be Heard puts the emphasis on maintaining agility
Digital marketing
INVESTMENT OVERVIEW: BHRD The Big Picture
The group is investing heavily to support its growth ambitions

Digital marketing services group Be Heard Group PLC (LON:BHRD) has been around a little over two years and is ready to shift gears.

Phase one was all about building an integrated, end-to-end platform to offer connected, digital marketing services.

READ Be Heard Group optimistic of further progress

Phase two is about driving organic revenue growth by maximising collaboration across its partner agencies.

Results for 2017 revealed that billings climbed to £34.67mln in 2017 from £28.85mln in 2017 while net revenue more than doubled to £19.55mln from £9.49mln, including a 25% increase in organic net revenue.

The company’s ‘buy and build’ strategy is bearing fruit, with the acquired units small enough to be agile and responsive to clients’ needs, while the opportunities for those units to work together means the group can offer a broad spectrum of services.

It is still early days for the group, however, in terms of achieving scale and 2017 saw the loss before tax widen slightly to £3.95mln from £3.66mln in 2016.

The group's performance was hit by a reduction in activity towards the end of 2017 at its MMT, agenda 21 and Freemavens units and some deferral of existing and new contracts to 2018.

These developments occurred very late in the year, leaving the group little or no time to adjust costs, which meant lower revenue resulted in lower margins. In addition, MMT suffered cost overruns on a substantial contract.

On the bright side, the group's Kameleon content marketing agency, returned to profitability in the final quarter after a difficult first half.

The improved performance came under a new leadership team led by Richard Armstrong, who co-founded Kameleon in 2008.

READ Be Heard brings former GlobalData chief executive on board as new CFO

Be Heard has also recently rung the changes at the group level as well with founder and executive chairman Peter Scott becoming group chief executive in January, focusing on the integration and development of Be Heard’s operations and offering.

Non-executive director David Morrison was appointed the non-executive chairman.

Management has a decent pedigree

The group was set up by Scott, who started his working life with Ogilvy and Mather and co-founded WCRS, which to quote his biography ‘morphed’ into Aegis under his tenure as boss.

The business was eventually sold to Japanese rival Dentsu for £3.2bn. After that, he created Engine Group, which was sold to private equity for £100mln in 2014.

The company, which made its début on Aim in November 2015 following a reverse into Mithril Capital, is currently valued at around £20mln.

The short-to-medium term plan is to turn it into a £100mln turnover business focused on digital marketing – be that user experience (UX), driving traffic to sites, content or data analytics.

Scott and the team have spotted a gap in the marketplace, according to Paul Richards, an investment analyst at Numis Securities.

“While the global holding groups continue to add revenue and capability through acquisition, they are often perceived as less able to innovate and adapt as quickly as the smaller, digital specialist,” he said in a research note.

However, the smaller digital specialists lack the access to capital, talent and experience to scale and win larger clients. Be Heard plans to build a mid-sized network that combines scale, expertise and agility.

The group's agencies are interconnected and agile

Be Heard intends to build an agile, interconnected group at the intersection of marketing services, technology and e-commerce.

“As a group, we need to be really flexible,” Richard Costa-D’Sa, chief growth officer at Be Heard, told Proactive Investors.

“Because of the way we’ve structured ourselves, we aren’t encumbered by those legacy structures,” he said, referring to the way Be Heard’s business model differs from the lumbering industry giants of yesteryear.

Vodafone UK is one of the group’s flagship accounts, and the ambition, according to Costa-D’Sa, “is to have more Vodafones”.

“They’re a client that is naturally seeing the opportunity of working with multiple parts of our business – not as a hard-sell, cross-sell; it’s a natural, actually.

“If we’re doing your web site, we need to understand how you do SEO [search engine optimisation], because it’s great having a beautifully designed web site but if it’s not optimised for that first page of Google, why do you even build it?” asks Costa-D’Sa.

It looks as if the model of flexible integration is starting to pay off: “We’re pitching more as a group now, it’s great to have those opportunities…they [larger competitors] can talk it but we can do it” said Peter Scott.

“We spent so long getting engaged and getting to know each other we knew it going to work and it has worked out beautifully” he says of the group’s agencies.

“It is all about connecting technology with data, with creative…now we can show that these companies can work together” he adds.

Scott also believes this integrated and flexible approach is ideally suited for modern business needs.

“We’re quick, we’re responsive, we’re flexible and that works with how today’s clients are thinking” Scott says.

He adds that an agile and multi-faceted company is more able to respond to the connectivity of modern data-driven marketing: “it’s helpful to link search analytics, to site analytics, to content and to bring it all together because they’re all interconnected, and that’s what we do.”

Building a dynasty

Scott’s approach to his buy-and-build programme is to offer companies a leg-up. Okay, it isn’t a purely altruistic gesture.

He is acquiring businesses with a mix of cash (around 65% of the initial consideration) and equity along with an earn-out, usually over three years.

With money in the bank and a reputation for not paying over the odds, there’s enough in the coffers to fund the short-term deal flow. The group had cash balances of £3.1mln on 31 December 2017.

The company has said it is comfortable doing four deals a year and it has the support of a pretty impressive roster of institutional investors (which includes Gresham House, Artemis and Schroders) if it wants to come back to the market to top up its cash pile.

Entrepreneur, investor and Saracens owner Nigel Wray is also a backer.

Acceleration into growth in 2018

The group is seeing increasing demand for integrated, end-to-end marketing services, with 13 of its clients using two or more of its partner companies, while four clients use three or more.

Around 30% of revenue is coming from clients using two or more Be Heard partners and 2017's 46 clients wins including the first to go for the whole kit & caboodle, using all of the Be Heard Partners.

“We now have 330 digital experts covering data and analytics, integrated creative, media, content and UX, design and build. We continue to see an immense opportunity ahead for Be Heard, as the traditional holding groups scramble to adapt to changing client needs,” Scott said.

"Against a backdrop of weakness in the sector, we have seen strong new business momentum in 2018 to date, at both group and partner company levels, after some existing clients were slow out of the blocks in the first quarter. We are optimistic of further progress in the year ahead as we help clients navigate the digital customer journey," Scott said in the 2017 results statement.

 

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