Investors in small cap marketing firms may be feeling a little nervous as one of their number, Sheffield-based Jaywing (JWNG:AIM), unveils a big profit warning alongside disappointing first half results.

Blaming the difficult trading conditions faced by consumer-led businesses in the UK since a snap election was called earlier this year, Jaywing says its expects ‘profits to be substantially below market expectations for the full financial year’.

The news is disappointing given our previous positive stance on the stock and suggestions from management at the time that its earnings had a defensive slant.

Noting the squeeze on household spending and ‘general economic uncertainty’ it says clients have cut marketing costs adding that ‘we have experienced the impact of these market pressures in particular parts of our business, alongside every other agency’.

If Jaywing is right then we could potentially expect similar warnings from its peers.

Only buy-and-build outfit Be Heard (BHRD:AIM) has actually warned about an impact from UK economic uncertainty since the election (and then only in reference to one of its subsidiary businesses).

However, as the table showing year-to-date share price performance of small cap marketing businesses indicates, the market has been pricing in a more difficult backdrop.

Company Year-to-date performance (%)
Be Heard -22.5
Cello +17.5
Jaywing -33.6
M&C Saatchi -13.2
Mind plus Machines -9.3
Mission Marketing +0.6
Next Fifteen Communications 23.3
Porta Communications -26.3
St Ives -39%
AVERAGE -7.9

Source: SharePad, 21 November

The notable exceptions are Next Fifteen Communications (NFC:AIM) and Cello (CLL:AIM).

Next Fifteen is largely US-based and is focused on a relatively buoyant tech industry and Cello is also expanding across the Atlantic and is focused on the healthcare sector.

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Issue Date: 21 Nov 2017