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Next Fifteen Communications (LON:NFC)

Share price: 203p (up 2.3% today)
No. shares: 65.6m
Market cap: £133.2m

Interim results to 31 Jul 2015 - this is a group of marketing & PR agencies. I'm impressed with today's interim results, although it's important to remember that most of the top line growth has come from acquisitions - turnover being up 18.4% to £61.8m in H1, of which organic growth was 4.1%.

Three agencies were acquired during the period - "Encore, Incredibull and Animl acquired during period and performing to expectations". Who thinks up these names (and are they in the right job?!).

Net debt - has increased considerably, from £1.4m a year ago, to £8.9m at 31 Jul 2015, although that doesn't strike me as a problem, as it's only slightly more than 6 months EBITDA.

Operating profit margin - is good, and improved, at 11.7% of revenue, at £7.2m. Mind you, people businesses are coming under increasing pressure to give pay rises & bonuses to staff, so there may not be much scope to extend profit margins further, perhaps?

Outlook - the all-important forward-looking comments today sound positive, and reassure on full year expectations;

As stated earlier, the Group has made a good start to the financial year ending 31 January 2016. Current trading is encouraging with good activity levels across the Group and the benefit of recent acquisitions coming through. Despite increased investment, the Group is on track to meet expectations for the full year.

"Good start" is an odd description, considering they are almost three-quarters of the way through the financial year now!

Note that the financial year was moved from 31 July to 31 January, so there was an odd 18-month period to bring that about - hence why the prior year comparatives look unusual, with high turnover of £158.5m.

Balance sheet - overall I'd say this is a tad on the weak side, but given the good level of profitability and cashflow, I don't see this as a particular problem.

Although net debt of £8.9m looks reasonable, note that gross debt is a good bit higher, at £19.7m, partially offset by cash of £10.8m. Companies often scramble to collect in cash for the year end date, to minimise the net debt reported figure. So it's important to look at gross debt, of £19.7m in this case, which is probably the worst-case cash position, as…

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