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Be Heard Group PLC: THE INVESTMENT CASE
INVESTMENT OVERVIEW

New contract wins with UK blue-chips help first-half revenues soar at Be Heard

New business from the likes of Vodafone and GSK and a strong contribution from The Corner, which it acquired in December, meant revenues jumped 70% in the first half
marketing
INVESTMENT OVERVIEW: BHRD The Big Picture
These are the first set of results under new CEO Simon Pyper

Digital marketing services company Be Heard Group PLC (LON:BHRD) has posted a sharp rise in half-year revenues, boosted by new contract wins with some of the UK’s biggest businesses.

Drugmaker GlaxoSmithKline plc (LON:GSK) and insurance group Aviva PLC (LON:AV.) both came on board as new clients during the period, while telecoms giant Vodafone PLC (LON:VOD) extended its long-standing relationship with the company.

The wins helped revenue to jump by 70% to £14.2mln (H1 17: £8.3mln) for the six months ended June 30.

READ: CEO and founder Peter Scott steps down

Excluding the December acquisition of brand and creative agency The Corner, which added another £2.9mln to the top line, like-for-like sales rose by 18%.

Loss from operations widened to £3.5mln (H1 17: £3.0mln), although underlying earnings, which strips out various one-off costs and impairment charges, rose to £0.7mln (H1 17: £0.1mln).

These are the first set of results under new CEO Simon Pyper, who took over earlier this month following the departure of founder Peter Scott.

The solid performance leaves Be Heard on track to meet its full-year forecasts, the AIM-quoted firm said.

It does, though, come at a difficult time for marketing groups, with many UK companies reluctant to splash their cash given the current political and economic uncertainty. The pitch process is becoming longer, which is weighing on Be Heard’s margins.

Business review

“The group has, from a revenue perspective, performed well during the first half of the year, delivering good absolute and like-for-like growth,” said chairman David Morrison.

“Additionally, the group secured a number of new client wins during the period, which is not only encouraging given prevailing market conditions but also supportive of the growing relevance of the Be Heard proposition.”

He added: “To support the next stage of Be Heard's development, the new executive team, in addition to completing the efficiency and centralisation programme will be conducting a full operating review of the business.

“The group's focus for the near to medium term will now be to leverage our proposition more fully and to improve our operational effectiveness, which in time should improve cash flow, margins and profitability.”

Gap in the market

The company, which made its début on Aim in November 2015 following a reverse into Mithril Capital, is currently valued at around £15mln.

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.

Be Heard has 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 earlier this year.

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.

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 natural, actually.

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

Clients want flexibility

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 founder and now ex-CEO 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 said of the group’s agencies just before stepping down.

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 said.

Building a dynasty

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

It 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. That earn-out balance currently stands at £15.1mln (Dec 17: £19.9mln).

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 £2.5mln at the end of June.

The company has previously 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.

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Be Heard Group PLC Timeline

Article
May 03 2018

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