Even if the social media market newcomers may be experiencing some turbulence, established and profitable US technology names are proving resilient and that has to be good for marketing communications (marcom) group Next Fifteen Communications (NFC:AIM), which has a large client roster stateside including Google (GOOG:NDQ). A better-than-expected second-half trading update on 5 August, despite sterling strength, underlined the momentum currently being experienced on the other side of the Atlantic from where the group derives more than half of its revenues (55% in 2013).

Next Fifteen is not the only small-cap marcom to be enjoying exciting growth in the US technology space, with Mission Marketing’s (TMMG:AIM) star agency April-Six on a tear, underlined by the 4 August purchase of Proof Communications. Proof’s global technology public relations experience will be used to support April-Six, which in October opened an office in San Francisco, with a client list including Microsoft (MSFT:NDQ)Thomson Reuters (TRI:NYSE) and Cisco (CSCO:NDQ).


In addition to a strong performance from its technology-focussed agencies, The Outcast Agency and Text 100, there is also the potential for Next’s UK-focussed units, Lexis and Bite UK, to recover after a difficult first half following a number of client losses. The second-half trading update revealed ‘an improvement in the performance of the UK’ following quite a sticky first-half when revenues declined by 4.5%, in marked contrast to a 17% first-half increase in US sales, equivalent to 13% on an organic basis.

This year’s acquisitions - its Agent3 subsidiary acquired Continuous Insight in February hot on the heels of January’s purchase of a majority stake in digital marketing group Republic Publishing - have been small bolt-on deals, which is encouraging given that the marcom sector has a chequered history of overpaying for ‘transformational’ acquisitions.

The company also shares the characteristic with Mission of being cheap. Both are carrying borrowings, but the gearing ratios were a respective 13.5% and 16.5% at their respective 1 January 2014 and 31 December 2013 year ends. This is nowhere near the level of indebtedness that has got larger peer Huntsworth (HNT) into trouble. Next trades at a slight premium to Mission, on a prospective price to earnings ratio of 11.3, based on forecasts to July 2015, while its peer’s multiple is 9.6-times this year’s consensus call for EPS of 5.1p. Both, should arguably trade on mid-teens multiples. 

Issue Date: 26 Aug 2014