Value Play of the Month: Mission Marketing Group

Friday, Jul 04 2014 by
9
Value Play of the Month Mission Marketing Group

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!

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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

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

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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…

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Disclaimer:  

My opinions only, not investment recommendations: Please Do Your Own Research

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The Mission Marketing Group plc (the mission) is a United Kingdom-based marketing communications and advertising company. The Company's portfolio comprises integrated, multi-discipline, multi-sector agencies, specialists in specific marketing/communications activities and specialists in particular market sectors. The Company's segments include Branding, Advertising and Digital; Media; Events and Learning, and Public Relations. The mission includes a network of entrepreneurial marketing communications agencies in approximately 20 offices in the United Kingdom, as well as offices in Asia and San Francisco. Its subsidiaries include April Six Ltd, which is engaged in marketing communications and specializes in the technology sector; Big Dog Agency Ltd, which is engaged in Marketing communications, Speed Communications Agency Ltd, which is engaged in public relations, and Bray Leino Ltd, which is engaged in advertising, media buying, digital marketing, events and training, among others. more »

LSE Price
75.5p
Change
-2.6%
Mkt Cap (£m)
64.4
P/E (fwd)
7.7
Yield (fwd)
3.1



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6 Comments on this Article show/hide all

Alex Naamani 5th Jul '14 1 of 6
1

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

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Paul Scott 5th Jul '14 2 of 6
2

Hi Edmund,

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.

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guest 6th Jul '14 3 of 6
2

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

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guest 6th Jul '14 4 of 6
2

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

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guest 6th Jul '14 5 of 6

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

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Paul Scott 6th Jul '14 6 of 6
2

In reply to post #84564

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.

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About Edmund Shing

Edmund Shing

Edmund Shing is currently Global Head of Equity & Derivative Strategy at BNP Paribas, and formerly a Global Equity portfolio manager at BCS Asset Management. Edmund focuses on a combination of high-level investment themes and fundamental stock-picking, with a dash of technical analysis in the mix. He has a book published in 2015 by Harriman House, “The Idle Investor”, which provides investors with three simple, easy-to-implement strategies using low-cost ETFs to give a good combination of portfolio performance at a measured level of investment risk. Edmund has previously worked at Barclays Capital (as Head of European Equity Strategy), BNP Paribas (as a Prop Trader), Julius Baer, Schroders and Goldman Sachs over a 21-year career in financial markets based in Paris and London. He also holds a PhD in Artificial Intelligence from the University of Birmingham. You can follow him on Twitter: https://twitter.com/TheIdleInvestor more »

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