Value Play Of The Month: Mission Marketing Group

4th Jul '14 by Edmund Shing

6 comments 13274 reads

Every month, I will be focusing on a compelling mid- or small-cap value story. This month, I am going to focus on a UK media company called Mission Marketing (LON:TMMG), whose current market value is £39m, and is listed in the AIM segment of the London market.

What Do They Do?

The Mission Group is comprised of a number of marketing, advertising and public relations agencies (11 in total), based in the UK, San Francisco and Singapore. Key clients include Tesco, Volvo, Scania and Virgin Atlantic. You can find a lot more information about The Mission on their web site.

Where is the Value?

In simple terms, The Mission is cheap on a number of traditional value metrics including forecasts P/E, price/book value and price/sales (Figure 1):

1. TMMG is Cheap!

7vOcunnVJycujWpYH43S2Gj9Eu7Wy3LgX14fNWF8

Source: Stockopedia

For lovers of combining Value and Quality criteria, The Mission comes out extremely well on Piotroski's combination of low price/book value ratio (0.6x) and his F-score of quality, where the Company scores a high 8 out of a possible 9. So The Mission looks great value at least.

The Total Shareholder Yield also looks strong, combining a 2.3% dividend yield with a £1.7m reduction in net debt worth another 5% or the Company's market cap, so a total yield of well over 7%, in line with the Free CashFlow Yield of just under 10%.

What about Momentum?

Secondly, price momentum over the last 3 and 12 months has been very positive, with the shares gaining some 16% and 82% over these two periods respectively.

2. TMMG Has Already Made Some Impressive Price Gains

ijEK2hncX-pLqoj44g2r9cbaMUdq22DQyY1i4Ri4

3. But There is a Long Way to Go To Regain Prior Highs

xG7B-BZnvcmvBsICiks5uCgl-4yXM2-NcE4mLBV4

But back in late 2007, the stock reached a high of 150p, if only briefly. So even after such impressive gains over the last 12 months, it would need to nearly triple to get back to historic highs.

And Is There a Reason to Buy the Company Now?

Key highlights from The Mission's 2013 Annual Report were encouraging:

Revenue +9% to £51.6m;

Profit Before Tax +3% to £5.0m;

Net Debt sharply lower to £10.7m, -£1.6m versus FY2012;

Annual dividend of 1.0p put in place, versus nil before.

So operating trends certainly look promising, while back in February this year, the Investor's Chronicle publication highlighted The Mission as a…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Alex Naamani

5th Jul '14

Hi Edmund,

Great article! Thanks for this!

I very much agree that Mission Marketing is well placed for a cyclical recovery. the industry has endured several years of contraction through the recession, and mission was of course hit particularly hard because it went on a £50m buying spree in 2006 and 2007, only to be lumbered with heavy debt when the recession began. true, there is still a lot of debt as you point out, but the high Piotroski score shows that this trend has been in reverse as the economy picks up.

i was lucky enough to put some pocket money in mission marketing around february/march when they were 40p. i still hold the shares (at 54p) but may jump ship if they pass 60/65p simply because the company is in my opinion a pure cyclical play on the economic recovery. ie. there is no 'moat' or long-term competitive advantage in marketing, especially today when the internet and technological development make it much easier for companies to do their own marketing, advertising and PR.

it will be interesting to see if brokers upgrade from here. that could be a factor that makes me hold on until 70p - perhaps?

what do you think?

Alex

Paul Scott

Great to see you writing here, I follow you on Twitter.

I spotted the value in Mission Marketing (LON:TMMG) last year, adding it to my value/GARP list at 26.5p on 17 Jul 2013. So up 105% since then!

My main reservation here is with the Bal Sheet, but I had a meeting with the FD last summer, and he convinced me that the debt was now under control, so the company was not likely to go bust, which is true.
However it does affect valuation - yes the fwd PER is low, but it should be low because the company has a lot of debt to repay. Adjust it to cash/debt neutral, and the PER is in the low to mid teens, which is probably about the right price.

Also, it probably won't regain the previous share price highs because there are considerably more shares in issue now - no. shares in issue has risen from 32.3m in 2008 to about 77m now.

As you say though, there could be good upside from a recovering UK economy.

Cheers, Paul.

guest

6th Jul '14

HI Alex, Hi Paul, many thanks for your insightful comments on TMMG. Yes I agree, the main problem with advertising agencies is always the same: (a) they are VERY cyclical (remember even WPP nearly went bust in the early 90s), but that is a double-edged sword - the people I know and have worked with in Advertising have just managed to sell their business to larger concerns, even though they are only just above break-even. So this tells me that the UK advertising sector is very much on the up with valuations rising fast, along with profitability which benefits from the high operational leverage

(b) the value is largely in the people they employ, who can always walk away in good times... which means you need to pay them, often in share options/deferred shares, as with investment banks. So shareholders never benefit from 100% of the cyclical upturn, as top managers get their share too!

Also the highish debt (though only 1.5x net debt/EBITDA which is pretty reasonable) can also be a (temporary) positive, as the earnings then benefit from financial leverage to boot.

Finally, I agree on the debt but would note that the EV/pre-debt Free C/F is very high, so I would expect the net debt reduction to translate into higher equity value, assuming that the enterprise value remains stable (whereas it could in fact go up).

SO in summary, you are right it will never regain its highs, but I still see a first medium-term target at around 76-77p, which is still 50% above current levels...

Edmund

Alex, by the way I actually disagree with your internet-related criticism of advertising - in fact, with the fragmentation of the traditional advertising audience (decline of terrestrial TV, multiplying channels, huge growth in variety of internet advertising channels e.g. banner advertising, youtube, viral videos etc.), if anything companies need switched-on agencies with heavy digital and social media expertise more than ever, as it is getting ever-harder to reliably reach their target audiences... That is the opportunity for the likes of TMMG...

Edmund

PS FInally, I am also going to write up other interesting UK small-cap media companies Cello (LON:CLL), Creston (LON:CRE) and Centaur Media (LON:CAU) in the near future, as I find these companies also interesting and potentially under-valued...

Edmund

Hi Edmund,

Great points, I agree.

The other interesting thing about Mission Marketing (LON:TMMG) that I don't think has been covered, is that they operate outside of London, therefore have much lower overheads (mainly rent/rates & salaries) than their London-based competitors.

Another benefit of this is that staff tend stick around more than at London based firms, where the tendency is for staff to move around between competitor firms, thus pushing up salaries.

I've held shares in all of Creston, Centaur & Cello in the last couple of years. Creston's accounts are far too fiddly - too many adjusting factors make me wonder if underlying profit is really as high as they try to present. Although it has a good divi yield.
Centaur - has an even better yield, I might revisit that one too.

Thanks for the articles - looking forward to seeing more! I like your approach.

Regards, Paul.

Value Play of the Month: Mission Marketing Group

What Do They Do?

Where is the Value?

1. TMMG is Cheap!

2. TMMG Has Already Made Some Impressive Price Gains

3. But There is a Long Way to Go To Regain Prior Highs

And Is There a Reason to Buy the Company Now?

Unlock the rest of this article with a 14 day trial

About the Author

Edmund Shing

6 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...