The Mission Marketing Share Discussion Threads

[glasshalfull] 05/4/2018 14:15

Hi QS99

Do you have any view on TMMG? Noticed you’d mentioned “DYOR” & would welcome any insight or thoughts your research has thrown up on the company.


Kind regards,
GHF

[glasshalfull] 05/4/2018 14:10

Agree Arthur...net debt that was my main concern previously.

I spoke with the Executive Chairman recently & quite sure they are well aware of the market perception of the company. The TMMG of 2010 is a far different beast to that today.

As mentioned in the their January t/s, the ratio of ratio of net bank debt to EBITDA has reduced significantly & in now below 1x times (from 1.3x in 2016) & I would be comfortable with debt to remain around this level. This should leave gearing at a comfortable c.9-10%.

Anyway, I’m anticipating that FCF should accelerate from here following their focus on improving margins, & 2018 will see a number of their start-up Mongoose & aprilsix Asia ventures reaching profitability & a full year contribution from RJW. Then there’s the opportunity for them to commercialise their iP through Group clients adding some of the technologies developed by the the Group agencies.

Essentially I believe TMMG a decent risk/reward investment at this low multiple given their track-record.

Kind regards,
GHF

[qs99] 05/4/2018 13:46

Moving ahead nicely 10th April is it results time? DYOR

[arthur_lame_stocks] 03/4/2018 21:01

I'd like to see them lay off the acquisitions for a while and concentrate on strengthening the balance sheet. I know it's pretty normal for a business such as this to be all goodwill but i'd be happier if they paid off the debt.

Hopefully patience will be rewarded here, I did pretty well out of Creston when that got bought out, but their balance sheet had gone from fairly weak to pretty strong in the last few years.

[bbluesky] 03/4/2018 18:49

Wonderful stuff GHF, many thanks again. One of the mysteries of the investment world, but the chances are, it's time will come. I too am an optimist here! I would just add one more point from their web-site, which should be coming through in the earnings picture soon, not to mention the building blocks!!

"12.10.17
Mission Agency, Bray Leino Events, have secured the biggest win in the history of The Mission Group.

The three-year contract sees Bray Leino Events become the official events supplier to the Department for International Trade (DIT).

Winning six sector lots means our team will deliver around 1,200 international high-profile events, helping DIT promote British trade around the world over the next three years."

[glasshalfull] 03/4/2018 16:25

TMMG

8 Reasons why I think TMMG could re-rate?

(1) Increasing Earnings Will announce next week (on 10.04.2018) their 7th consecutive year of positive growth.
(2) Growing Dividend Yield Now 4% and forecast to rise to 5% in respect of 2019 forecasts.
(3) Strong Cash Generation FCF Yield of 17.6% in 2018 & 19.5% in 2019.
(4) Low PEG & PER PER 5.8 based on 2017 estimates & prospective PER of 5.2 in 2018 despite c.10% growth. PEG 0.5 falling to 0.4.
(5) Increasing Margins Appointment of a Commercial Director to grow EBIT margin from 11.5% in 2016 to 14% in 2020.
(6) Commercialisation of iP Several of the agencies have developed software for existing clients. This has now been harnessed under the development of their Fuse technology hub. They now have a number of products which can be rolled out to their extended client estate or utilised to attract new clients. The developed products include integrated navigation & tracking (Rolls Royce Aerospace); patient management software (NHS) and an Agency management system.

So this adds value to their current proposition but also provides the possibility of a future divestiture or monetisation of the iP.

(7) Strong Client Retention 60% of revenue from clients of 5 years or more; 40% from clients of 10 years or more & 20% from clients of 20 years standing.
(8) International Diversification The company has emerged from that of a predominant UK marketing services company to one that has begun expanding into SE Asia & the US through establishment of brands & through acquisition. They have also moved into other industries in recent years which will mitigate any weakness in any particular group agency or market sector.

Background

In early January 2018 I mentioned that I’d been a buyer of The Mission Marketing (TMMG), a marketing communications & advertising company that comprises 14 principal agency brands including the highly acclaimed & top 20 UK agency Bray Leino

In a nutshell TMMG came unstuck in 2009/10 after running into difficulties & running up significant debt suffered in the wake of the 2008 financial crisis. The FY09 results highlighted that net debt had ballooned to £20m & David Morgan was parachuted in as Exec Chairman in 2010 as the debt was restructured & plans made to salvage the business.



Since 2014 the shares have been rangebound between 35p-50p with few exceptions. They are currently 40.5p mid-price having yet again failed to break the 50p ceiling at the end of January 2018 following a positive trading statement on 25.01.2018 (more of that later). The Mission have been on a single digit PER for as long as I care to remember.

When I flagged the investment case early Jan 2018 I anticipated that the company would produce a strong finish to 2017. Well, that proved to be the case but with the shares moribund its certainly hard to believe that they confirmed another year of c.10% growth & fantastic cash generation. I still feel that there is a disconnect between the valuation of the company and share price currently attributed. Even more so now, as they’ve slipped back 15% since the Jan 2018 trading update.

The company moved from finnCap to Shore Capital in 2017 as I understand they were equally perplexed by the valuation of the company. Can Shore do any better? Well, Shore currently have a 109p fair value price for The Mission based on their blended DCF (discounted cash flow) with comparison to EPS & DPS growth...169% higher than the current share price! It remains to be seen if they can help change the poor investor sentiment surrounding the company.

Financials

Market Cap £33.8m
Net Debt £7.5m (per Jan 2018 t/s)
Enterprise Value £41.3m
Shares in Issue 84m
Share Price 40p vs 41p

TMMG have delivered consistent earnings growth since they nearly went under in 2010, with the exception of 2013 which produced a small 3% increase in PBT but delivered static earnings due to restructure in the business. The company also introduced a progressive dividend policy in 2013.

Earnings Record - year end Dec

2010A EPS 3.5p
2011A EPS 4.2p (+22% EPS growth)
2012A EPS 4.5p (+7% EPS growth)
2013A EPS 4.5p (nil growth) / Div 1p
2014A EPS 5.1p (+15% EPS growth) / Div 1.1p
2015A EPS 5.9p (+15% EPS growth) / Div 1.2p
2016A EPS 6.4p (+9% EPS growth) / Div 1.5p

Forecasts

2017E EPS 7p (+11% EPS growth) / est. Div 1.7p (yield 4%)
2018E EPS 7.8p (+12% EPS growth) / est. Div 1.8p (yield 4.2%)
2019E EPS 8.8p (+13% EPS growth) / est. Div 2.0p (yield 4.7%)

The undernoted presentation link below highlights (on p6) the fact that Aviva, BP & Bellway have been clients for over 20 years. Indeed, 60% of revenues are generated via clients of 5 years or more; 40% from clients of 10 years or more & 60% from clients of 20 years or more.

Simply put, the collective 14 agencies that comprise The Mission are clearly delivering given the longevity of their client base.



Investment Case

TMMG have flown under most investors radars despite forecasts of double digit CAGR during the next 3 years & sit on a PER of 5.8 based on expectations of 7p EPS in 2017 & prospective PER of 5.2 for the current year. Their progressive dividend is also forecast to have risen to 1.7p for 2017, providing a dividend yield of 4.2%.

2018 finds the company with a forecast dividend yield of 4.4% & 2019 it may rise to 4.9% according to forecasts.

Net debt was always the achilles heel of the company IMHO. Despite the perception that The Mission is heavily indebted (note: - they WERE heavily indebted previously) they have reduced net debt from £20.1m in 2010 to £7.5m at the end of 2018 despite having made a number of bolt-on acquisitions and investing in the establishment of a few agencies.

It’s worth highlighting that consensus broker forecasts were for TMMG to end 2017 with £11.3m net debt & the trading statement of 25.01.2018 indicated that cash generation had been exceptional knocking net debt down to £7.5m which triggered a 0.5% reduction on their interest rates.



“2017 was an exceptional year for working capital reductions and the year ended with a net bank debt position below £7.5m, materially better than market expectations. The ratio of net bank debt to EBITDA has accordingly reduced below x1.0, thereby triggering a 0.5% reduction in interest rates on the Group's debt facilities from this month.

As I mentioned 3 months ago, free cashflow (FCF) & margins are also expected to improve during the next few years. With the investment made in recent years its is forecast to substantially improve in 2018 & 2019 to FCF yield of 17.6% & 19.5% respectively.

EBIT margins are also forecast to increase from 11.5% in 2016 to 11.9% in 2017, with the company stating their ambition to increasing this to 14% by March 2020 in the January t/s.

It should be noted that the company have a large H2 weighting - as anyone who has reviewed their interim statements will have observed over the years. This may be one reason for the low rating, as we all know that statement implying a H2 weighting may be perceived as a pending profit warning for may companies, but The Mission enjoy a (37% / 63%) H1 / H2 split & have delivered consistently each H2 year in year out as evidenced by their 7 year growth record.

Conclusion

In January I summarised by saying the share price has gone nowhere for the last 3 years, while earnings have returned low double digit growth. So this is simply deja vu.

I believe that if TMMG continue to deliver as per forecast, then it would not surprise me to see them break out from 35p-50p range at some point...how long that takes is anyone’s guess? Suppose that’s like saying this could go up, down or stay the same!

Seriously, I don’t subscribe to the 109p fair price mooted by Shore Capital but believe the shares could double from here & have a current target price of 80p based on the shares attaining a PEG 1 and PER 10, not forgetting that the current price locks in a prospective dividend of 5% based on forecasts to 2019.

I would go so far as to say that if the market continues to ignore the company then I think they’ll be a sitting duck to a larger player in the space. Their EV is only £41m and PBT is forecast to rise to £8.5m this year and £9.6m next.

Stock - o - pedia agree, with TMMG on a Stock Rank rating of 90 & Magic Formula score A+

Disclosure

I’ve been buying since January so please consider my musings as one who is wearing rose-tinted spectacles.

Kind regards,
GHF

[mfhmfh] 07/2/2018 10:47

solid buys coming in today. high StockRank on stockopedia.

[dr biotech] 26/1/2018 12:00

Thanks RS. The article isn’t particularly insightful but he has a point on the trades, just 10 so far today. It’s been a long term hold for me, sold some a while back around the 44mark high I hope to regret one day. Just always overlooked for reasons I don’t really understand.

[mfhmfh] 26/1/2018 11:53

Trading in 2017 is in line with market expectations.

Revenues up 6% (4% organic) - sounds pretty good, in a year where there's been a lot of macro uncertainty (often marketing budgets are the first thing that companies cut).

Headline PBT up 10% to £7.7m
Net debt £7.5m, materially better than forecast.
Lower net debt has triggered a reduction of 0.5% in the bank's interest rate.
Trying to improve margins further - target is 14% by March 2020 (headline operating profit margin).
That all sounds rather encouraging to me.

Valuation - this looks cheap, even after allowing for the net debt, and some deferred consideration creditors.

Note that the "Price to Tang.(ible) Book (value) above says "n/a". That means that P/TBV is negative. So that's a quick check to flag up that you need to check out the balance sheet. I don't like it - the group has a weak balance sheet, stuffed full of intangibles. There again, that's reflected in a very low PER.

Stockopedia likes it! This is a very high StockRank;

My opinion - obviously I like it, as I hold some. However, the only reason I still hold it is because my broker tried to sell them a while back (I wanted the money for something else), but there were no buyers. So beware that this share is extremely illiquid, and once you've bought, it can be almost impossible to sell. Or you would have to take a haircut anyway.

Mind you, that lack of liquidity works nicely on the upside when good news comes out. I see that earlier today the market spread was 46p bid, 48p offer, and someone had to pay 1p premium price, at 49p, to get hold of just 6,000 shares!

That said, I've just noticed that there were loads of trades today, totalling 650k shares. That's very, very unusual, as normally hardly anything trades in this share. So maybe I could have sold today, as there was plenty of demand. Of course, now the company has put out a decent trading update, I don't want to sell any more.

Conclusion - it's cheap, but very illiquid normally, so tricky to get in & out of. Therefore, it's more a share for longer-term investors than traders.

[red_shed2000] 26/1/2018 10:55

Mfhmfh

Can you post the article or the summary? In return see below high quality journalism and research from Motley Fool

www.fool.co.uk/investing/2018/01/25/should-i-bet-on-these-2-value-stocks-for-2018/

[mfhmfh] 26/1/2018 08:22

Generally positive write up yesterday from Paul Scott

[asagi] 25/1/2018 16:04

meanwhile, 500k reported shares traded but the spread gets wider.

Asagi (long TMMG)

[red_shed2000] 25/1/2018 15:33

Well same comment from me, different year (but same share price!)

"These are stupidly undervalued"!

[pj 1] 25/1/2018 13:50

lol, only just, despite the age difference the gap is closing!!

[glasshalfull] 25/1/2018 13:04

Beat you to it PJ :-)

[pj 1] 25/1/2018 12:57

....... and reducing net debt.....

[glasshalfull] 25/1/2018 12:57

oh...& net debt coming in £4m lower than £11.5m forecast at under £7.5m.

I’m sure it’ll break through 50p in 2018

Well done to all at Mission Marketing!

Kind regards,
GHF

[glasshalfull] 25/1/2018 12:55

:-)

Enough said. 7 years consistent earnings growth.

Kind regards,
GHF

[jeff h] 25/1/2018 11:14

Edison update:-

[mfhmfh] 25/1/2018 09:49

very positive trading update IMHO.

[asagi] 25/1/2018 08:31

trading update is here:


reads well.

Asagi (long TMMG)

[mfhmfh] 23/1/2018 12:06

trading update surely must be coming soon. last year was on 19th January.

[bbluesky] 10/1/2018 10:35

Many thanks GHF, it is the sort of commentary that makes these boards worth reading! Thought it worth adding that M & C Saatchi has moved from under 300p to touch 400p, all time high, since October. Sector should do well as the global economy picks up.

[pj 1] 10/1/2018 09:31

Its certainly an enigma share not helped by the media sector generally being out of favour. Having said that its baffling why it isn't valued at least around 60p