LBG Media PLC (AIM:LBG) is quietly transforming. A recent profile in The Sunday Times highlighted how its flagship publication, LADBible, has matured over the last 13 years. Once known for its sometimes crude and ‘laddish’ content, the brand has evolved while still maintaining its quirky, irreverent, and humorous tone.
Founder and CEO Alexander “Solly” Solomou told the newspaper that LBG Media is now a "champion of the environment, mental health, under-represented communities, and protecting women and girls". But the change is more than just a shift in tone. LBG is emerging as a significant player in digital media, free from the burden of legacy assets like magazines and newspapers.
Compelling results
For me, this is the more compelling story. While LBG’s operational and financial success is likely intertwined with its cultural shift, the company’s strategic direction is equally noteworthy.
Let’s start with the numbers. LBG employs around 500 people across its offices in Manchester, London, and New York. In 2023, its global audience reached 452 million, a nearly 25% increase year-over-year. Its videos amassed 128 billion views, and the company claims the title of the most viewed and engaged publisher ever on Facebook, driven by its popular brands among young adults.
Hard-to-reach audience
This audience - the hard-to-reach 16-34 age bracket - sits at the core of LBG’s advertising machine, attracting blue-chip clients such as Nike, Disney, Visa, and Diageo. The ‘Direct’ division, which deals directly with these global companies, is making a strong impression. In 2023, repeat business accounted for 75% of its total revenues.
“This reflects the value that these and other brands see in LBG’s offering, underpinned by the reach it provides into this valuable audience,” said investment bank Berenberg, which expects Direct to grow by 10% this year.
Web continues to grow
LBG’s ‘Indirect’ operation, so-called because income is generated via third-party platforms such as the major social media players and through programmatic advertising on LBG’s owned and operated websites, is just as significant. Facebook continues to be the main social platform and key partner for LBG, but ‘Web’ continues to grow in prominence, driving further revenue diversification.
The split between Direct and Indirect is approximately 43:55, with the remainder coming from content licensing, and other smaller operations.
Last year, LBG generated revenues of £67.5 million, a figure expected to rise to £85-£86 million this year, leading to a 36% increase in pre-tax earnings to around £23.7 million, according to analysts at Investec.
Asset-light, cash generative
LBG’s asset-light model resulted in a 76% cash conversion rate last year, with £15.8 million on the balance sheet at the end of 2023. The company is expected to add a further £6-£6.5 million to that total in 2024.
In its April update, LBG stated it had ‘line of sight’ to a £200 million top-line figure. However, it frustratingly did not provide a timeline for achieving this goal. The growth will come through a mix of organic expansion and acquisitions.
Already there has been meaningful progress towards its objective, with a July trading update providing evidence of the positive momentum. LBG expects to report first-half revenue growth of around 55% when it releases its interims on September 18, with the Direct business seeing a 92% increase in revenues, or 33% when you strip out the impact from the acquisition of Betches Media last October.
Highly accretive deal
The purchase of Betches was for an initial $24m and was a deal described as "highly accretive". It is also a complementary acquisition, affording LBG a far bigger footprint in the US - the world’s largest advertising market - with a focus on millennial and Gen Z women, balancing LADBible’s traditionally male audience.
“Betches has performed well since it was acquired... and we think management will focus on the US for future acquisitions,” said Berenberg.
The opportunity for LBG is significant. While still a comparatively small player, the digital advertising market is immense, valued at $617 billion. Where digital was a backwater 10 years ago, it is now around double the size of the TV advertising by some metrics.
Investor recognition
Investors are starting to recognise LBG’s potential, with the shares almost doubling in value from an April low of 63.5p to its current price of 129p. Even at this level, analysts believe LBG is undervalued compared to its peers.
“[It] has unrivalled engagement with its valuable and growing youth audience and has proven its ability to successfully navigate the ever-evolving media landscape, with clear potential to outperform expectations should we see a sustained recovery in demand for advertising,” said Zeus Capital.
“The group has restated its ‘line of sight’ to £200 million of revenue over the medium term, supported by a strong, cash-backed balance sheet and the capability to execute further earnings-enhancing M&A.”