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Ebiquity's proposed sale of its advertising intelligence business gets the thumbs-up from Numis

The disposal will result in the group becoming a less complex business, focused on higher growth segments
Digital marketing
“This is a transformational moment for Ebiquity,” said CEO Michael Karg

Ebiquity plc (LON:EBQ) is to sell its advertising intelligence (AdIntel) business to Nielsen Holdings PLC for £26mln in cash.

Ebiquity said the disposal would increase its focus on its Media Value Measurement (MVM) and Marketing Performance Optimisation (MPO) divisions, which historically have shown faster rates of growth than the Market Intelligence (MI) division.

The consideration, which is subject to adjustments for working capital, will substantially reduce the group’s debt position from 2.1 times annual underlying earnings (EBITDA) as at the end of 2017 to a level roughly equivalent to annual EBITDA on a pro forma basis.

The AdIntel business represents more than 90% of the group’s Market Intelligence (MI) division, and its disposal will result in the group becoming a more focused and less complex business. It will also provide the firepower to invest in proprietary technology and data analytics capabilities across the remainder of the business.

“This is a transformational moment for Ebiquity,” said Michael Karg, the chief executive officer of Ebiquity.

“Our Growth Acceleration Plan, which focuses on seizing market opportunities in our faster growing MVM and MPO segments, will be enhanced through our ability to invest in these services to seize and establish a leadership position. Nielsen is the logical home for our colleagues in MI and we wish them every success for the future," he added.

Pre-close trading statement for 2017

As well as announcing the disposal, Ebiquity released a pre-close trading statement for 2017.

Revenues grew 4.9%, or 1.5% on a constant currency (CC) basis, to £87.6mln. Stripping out the Market Intelligence – most of which is the soon to be disposed of AdIntel business – revenue growth was 7.0% or 3.3% on a CC basis.

As expected, revenue growth was faster in the second half of the year than in the first; CC revenue growth in the second half of the year (excluding the MI division) was 7.3% year-on-year.

READ: Ebiquity expects momentum to continue in second half

As previously indicated, the revenue performance in the US from the MVM and MPO businesses was below expectations, which diluted the group’s growth.

Excluding US revenues, the MVM and MPO practices grew by 10.5% and 10.9% respectively on a constant currency basis.

New leadership is now in place for the US business units in order to facilitate a sustained turnaround with the appointment of a US-based global chief operating officer. 

Numis Securities said the disposal price was slightly above its own valuation of the AdIntel business.

More pertinently, it regards the strategic rationale for the sale as “compelling”, as it enables the group to focus on its faster-growing, higher-margin technology-enabled consultancy practices while materially reducing debt.

News that the previously flagged problems with the US divisions continued into the second half prompted the broker to cut its full-year profit before tax and earnings per share forecasts to £10.8mln and 9.7p respectively, from £12.0mln and 10.5p previously.

Forecasts for fiscal 2018 were lowered to £10.2mln and 8.8p from £11.3mln and 9.4p previously, although obviously the sale of AdIntel – if it goes through – will have an impact on those numbers.

Numis indicated that on a pro forma basis its 2018 profit before tax forecast would move to £7.0mln and its earnings per share estimate to 5.9p.

“Although initially dilutive, in our view the disposal provides a platform for the group to generate sector-leading growth which can be supported by focussed investment,” Numis said, as it stuck with its ‘buy’ recommendation and 145p target price.

Shares in Ebiquity were down half a penny at 100p.

--- adds broker comment and share price ---

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Ebiquity plc Timeline

Big Picture
February 13 2018

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