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Be Heard Group: THE INVESTMENT CASE

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) is on course to hit full-year targets after a strong start to the year.

The top-line growth was eye-popping, albeit pepped up considerably by what looks like some shrewd acquisitions.

Net revenue for the group rose to £8.3mln from £3.3mln in the first half of the previous year, while billings rose to £16.0mln from £14.7mln.

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. Encouragingly, half-year results revealed eight clients are now served by two or more companies within the group, and those clients generated 23% of the revenues in the first half of the year.

Current trading is strong, the company said in September, with additional assignments from existing clients, such as Axelos, ComparetheMarket, Hodder, Unilever and Vodafone, while new clients, such as Autotrader and Pittsburgh Paint Group, have signed up.

"Current visibility on revenues and progress underpins the board's confidence that the group will deliver full year results in line with market expectations and strong run-rate profitability by the year end,” said Peter Scott, executive chairman of Be Heard.

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 debut on Aim in November 2015 following a reverse into Mithril Capital, is currently valued at £22mln.

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.

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”.

READ Be Heard hails rapid delivery of microsite for Vodafone UK

“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.

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 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 2017

The company’s net revenue in 2016 clocked in at £9.49mln, in line with house broker Numis’s forecast.

Numis sees the top line doubling in 2017, and earnings per share rising from a negligible loss to 0.22p.

It’s possible to have some sympathy for the Numis team as there is every chance Be Heard will make a nonsense of those projections by announcing another acquisition or two.

In the meantime, Numis notes that the cross-referral of business across the group remains a key priority.

“We are pleased to see that BeHeard has made further progress in this area and two or more group companies now service Vodafone, Essilor, Northumbria Water, Wiltshire Farm Foods and BDO,” Numis said in a note issued after Be Heard’s annual general meeting in May.

The broker has a ‘buy’ recommendation on the stock and a target price of 5p. 

“We believe BeHeard has encouraging momentum and continue to view the shares as undervalued at current levels,” the broker said.



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