BUY: Subsequent 15 (NFG)
The advertising company has been affected by delays in consumer spending — however it’s nonetheless returning money to shareholders, writes Jemma Slingo.
The buying and selling setting for advertising firms is just not straightforward in the meanwhile. Subsequent 15 faces difficulties, with natural income shrinking by 1 per cent to £286mn within the six months to July 31. The “buyer have interaction” division, which accounts for nearly half of group revenues, had the hardest time, with gross sales down 6.4 per cent on account of — you guessed it — consumer delays. Analysts at Peel Hunt have trimmed their full-year 2024 income forecasts by 3 per cent because of this.
Fairly what influence sluggish gross sales had on profitability is just not instantly apparent, provided that Subsequent 15’s statutory and underlying income bear little resemblance to at least one one other. Nevertheless, its adjusted numbers are an excellent place to begin. Adjusted working revenue (after lease curiosity) fell by 7 per cent to £57mn, whereas margins edged down from 22 per cent to twenty per cent.
Macro headwinds performed a component right here, however administration additionally stated that “an encouraging revenue efficiency from nearly all of our manufacturers was offset by a troublesome comparable in relation to the distinctive revenue efficiency from Mach49 within the prior yr”. Mach49 is a development incubator Next15 bought in 2020, which secured a really profitable contract early in 2022.
From a statutory perspective, income improved within the interval, largely on account of acquisition-related accounting in 2022. Acquisitions are solely simply beginning to take a toll on the steadiness sheet, nonetheless: whereas Subsequent 15 stays very money generative, it paid £52.6mn of acquisition-related liabilities and workers bonuses within the half, pushing down its money reserves and pushing up its web debt (excluding lease liabilities).
Administration is clearly nonetheless feeling assured, nonetheless, asserting a buyback programme of as much as £30mn. Whether or not it is a smart resolution stays to be seen.
Regardless of its cyclical publicity, we nonetheless like Subsequent 15 and suppose — given its reliance on US tech sector shoppers — that it’s proving pretty resilient. It’s nonetheless unclear when financial circumstances will enhance and advertising will decide up once more however, with a ahead worth/earnings ratio of simply 6.8 in contrast with a five-year common of 13.6, it’s going extraordinarily low cost.
HOLD: Phoenix Group (PHNX)
An detached set of outcomes and an unlucky non-public fairness stake places Phoenix insurance coverage beneath stress, writes Julian Hofmann.
There have undoubtedly been few higher instances to spend money on non-public fairness — valuations are low cost as rates of interest have harrowed the sector — however the timing of Phoenix Group’s buy of a 5 per cent stake in PE agency Hambro Perks, a number of days earlier than the Monetary Conduct Authority introduced a wide-ranging investigation into valuations the sector stories, might hardly have been worse.
This follows on from accounting adjustments beneath IFRS 17 that might make the sort of expansive closed e book shopping for that the corporate specialises a lot more durable beneath a regime that’s stricter on solvency ranges.
In truth, many of the information away from the half-year outcomes contained a component of unlucky timing, and never only for Phoenix. For instance, the corporate is a part of the so-called Mansion Home Compact which additionally consists of L&G, Aviva and Scottish Widows. The group just lately pledged to speculate at the very least 5 per cent of its outlined contribution default funds in unlisted belongings, which would come with issues similar to non-public fairness, although it’s price stating that the pledge is non-binding.
These mis-steps apart, the half noticed the steadiness sheet improve its optimistic ranges of money era with £885mn of recent enterprise money rolling in, greater than double the whole at this level final yr, which comfortably covers the dividend by thrice.
Dealer Berenberg makes the purpose that the important thing for Phoenix is its A+ credit standing from Fitch that enables the corporate to borrow at affordable charges. Administration has choices over whether or not to deleverage or proceed shopping for, the dealer stated. With dividend yield now 10 per cent, the market is demanding extra surety for threat.
HOLD: Card Manufacturing unit (CARD)
Card Manufacturing unit delivered a surge in half-year statutory income, however there could also be difficulties forward, writes Mark Robinson.
Chief government Darcy Willson-Rymer warned that Card Manufacturing unit, although effectively positioned, faces a “difficult financial backdrop within the run-up to the Christmas buying and selling season”.
The festive season is central to the corporate’s monetary prospects, however the specialist retailer of greeting playing cards and items can actually level to progress throughout its shops. Income right here elevated by 10.5 per cent on a like-for-like foundation with administration highlighting enhancements in “retailer vary and format developments and the annualisation of focused worth will increase”. From a product perspective, gross sales of items and celebration necessities led the best way, though greeting playing cards additionally registered optimistic gross sales development.
Against this, monetary outcomes have been set again by a 13.1 per cent contraction in like-for-like on-line gross sales. The corporate indicated that this was to be anticipated given the “continued rebalancing of retail gross sales between on-line and in-store throughout the sector”. The adverse development is predicted to proceed over the second half, and it’s removed from clear when the transition to an “omnichannel” providing will achieve traction.
Partnerships type a part of that transition, an efficient refocusing of the gross sales channels, and so they have proved reasonably extra profitable within the interval beneath evaluate. Excluding the contribution from newly acquired SA Greetings (accomplished in April 2023), partnership gross sales have been up by 23.5 per cent to £4.2mn.
Buying and selling because the August 2023 replace has been in keeping with expectations and the board has expressed confidence within the skill of the corporate to attain the long-term monetary and operational targets set out at its Capital Markets Technique Replace in Might 2023. The lowly ahead score of eight instances consensus earnings displays the query marks hanging over the enterprise regardless of the respectable interim out-turn.