Analysts at German investment bank Berenberg have kicked off their coverage of YouGov PLC (LON:YOU) with a ‘buy’ recommendation, claiming that the political polling company is “misunderstood”.
That description itself is one of the big misunderstandings: YouGov does far more than conducting general election polls. Perhaps surprisingly, that part of the business accounts for less than 5% of group revenue.
Data services
Instead, YouGov has been focusing on higher-margin data analytics, which give companies and marketers an ongoing source of opinion data collected from its panel of 5mln survey respondents.
If an organisation wants to find out what the general public thinks about a certain topic or brand, YouGov has the tools to tell them.
This is where Berenberg thinks the real potential is for the AIM-quoted firm and what could ultimately send the stock soaring.
“Over 2014-17, these [data services] delivered revenue compound annual growth rates of 36% and 25%, respectively, and now represent c50% of revenue, with margins almost double the company’s average,” wrote Sean Thapar and his team.
“We believe that, given their strong value proposition in a market research industry that continues to shift online, they could easily outperform this.”
The analyst reckons if data services and products can achieve growth rates similar to recent years, future earnings per share forecasts could be upgraded by as much as 25%.
Upside in custom research
Revenue growth in YouGov’s custom research division has stagnated in recent years as the company has scaled back the lower-margin one-off survey work, but profitability has jumped.
Management is still guiding for 0% organic growth this year which Thapar has worked into his forecasts, although he also thinks the risk is to the upside here.
“With Custom Research still accounting for 50% of revenue, even modest levels of organic growth could drive substantial upgrades; a 12% organic sales CAGR to 2021 adds 36% to our 2021 EBIT (underlying earnings) estimates.”
New products could shake the market
The final reason why Thapar has YouGov as a ‘buy’ is the development and launch of new products.
The company is in the process of commercialising a new modelling technique called MRP which the analyst believes could have a “wide-ranging impact on the way market research is conducted”.
It is also launching YouGov Direct – a blockchain-based advertising platform which is an attempt to make the murky of digital advertising (how many impressions did an ad actually receive) more transparent.
“With substantial upside available from YouGov’s existing products we believe the market ascribes little value to these new products, despite their significant potential,” read Thursday’s note to clients.
Alongside his ‘buy’ rating, Thapar has set a price target of 590p, some 18% above the current share price of 500p.