AIM-listed Next 15 Communications (LSE:NFC) has revealed that it expects to deliver double-digit revenue and profit growth. This could put the London digital marketing firm in prime position for another break to the upside ahead of its full-year results in April.
I have had my eye on Next 15 for a while, and the latest numbers from the Bermondsey group confirms to me that a buy now would be a sensible portfolio-booster.
Investors appreciate NFC’s serious appetite for growth: going long here would have added 252% in the last five years. That followed several years of slow appreciation as the share price trundled along in the 64p to 92p trading range. As things stand, NFC’s share price is trading around the 530p mark.
Things really started to kick off in 2013 as the group made public its desire to evolve the business away from a collection of traditional PR agencies and broaden its remit into social and digital marketing.
Repeat contract wins from major multinationals including Microsoft, REED, Photobox and Intel add a nice element of confidence too.
Zooming out, we can see that NFC has been reducing its debt to equity ratio from 39% to 22.4% in the last five years, and that debt is covered 176.2% by its operating cash flow.
Although the chartists may contend that all that matters are the lines on a screen, I still believe that management strategy is super important. Next 15’s long-serving chief executive Tim Dyson has proven his quality decision-making time and again- 28 years in charge is evidence of his good stewardship alone.
In rude health
The October 2019 cash and shares buyout of Creston plc and its subsidiary Health Unlimited LLC for $27.7 million is just the latest good move from the board to shore up organic growth with buys of profitable, debt-free rival firms.
Health Unlimited is a global health comms agency which posted pre-tax profits of $5.2 million on net revenues of $17.4 million in its 2019 year-end results.
Dyson hailed the buyout as “a major milestone” that would “greatly expand our international footprint in the healthcare sector”.
Two years earlier, NFC bought out UK consumer comms firm Elvis, again debt-free, for £5.5 million, a 5.5 earnings multiple, keeping the board and management in place allowing the company to continue doing what it does best. At the time, Dyson said “the future of marketing will be determined by how it embraces technology and data”, a prescient statement if ever there was one.
NFC’s data division is scheduled to post 20% in organic growth in its full-year figures, which are expected out in early April 2020.
Pricing
Institutions make up 75% of the shareholder base, with private retail investors only at 4%. I think that’s a missed opportunity.
A high price-to-earnings ratio of 58 may put off less-experienced traders, but I think with a consensus of City analysts forecasting 41.1% earnings growth this year there is still room for a solid long bid here. That, incidentally, is nearly four times more earnings growth than is expected from the UK equity market in 2020.
One bump in the road is that shareholders have been diluted in the last year, with the total shares outstanding growing by 8%.
In my opinion, the market has overreacted to Dyson’s confirmation today that adjusted profits would be slightly below expectations, with a near 2% drop in Tuesday trading.
With the NFC share price retracting from its July 2019 all-time high of 640p, now could be a good time to pile in.