Few businesses launch a product or service without first understanding what the demand potential is or garnering feedback from potential buyers.
Information is a hugely valuable commodity — retailers are desperate to know their customers, politicians want to know what really matters to voters and a whole array of organisations and individuals want to know which politicians are going to be elected, because their policies will have an impact on everything from our earnings and portfolios to how much mortgages cost.
Polling companies can help with all these quandaries. But while the biggest part of YouGov’s revenues come from bespoke consumer research for companies which are seeking insights and data to give them an edge and provide solid foundations to their decision making, it is predictions, especially in election years, that get people’s attention.
Of course, pollsters don’t always get their projections right. In the 2015 election the Conservatives were not predicted to win, and polling companies also got the result of the biggest consequence of that government wrong, with a prediction that Remain would win the Brexit referendum. YouGov was right, however, when it said Labour would win power in this year’s UK’s general election, although it predicted a much larger majority for the party than it eventually secured.
Somewhat ironically, a surprise revenue and profit warning from the company in June this year sent YouGov shares plummeting back to earth, nicely proving the point that no one, particularly markets, likes unexpected shocks and that forewarned is forearmed.
BUY: YouGov (YOU)
Faltering sales growth and rising staff costs have constrained margins, writes Mark Robinson.
Shareholders in YouGov were probably expecting a fairly glum analysis of the group’s full-year figures following the summer profit warning, but the shares were marked up sharply on results day.
In January, YouGov completed the €315mn (£263mn) deal to acquire the consumer panels services (CPS) business of Nuremberg-based GfK, a move deemed “transformative” by management. Given the subsequent 60 per cent increase in administrative expenses, shareholders would be entitled to ask what long-term impact the group’s metamorphosis will have on its cost base.
Unfortunately, given where we are in the integration process that’s probably unknowable at this stage, not least because the full extent of rationalisation measures has yet to be brought to bear.
Management has taken initial action to reduce annualised costs by around £20mn, but the bottom line is that the increase in leverage brought about by recent M&A activity is atypical where YouGov is concerned, so management will look to retire debt as soon as practicable.
We’ll get a more meaningful idea of how the business is faring post-acquisition when the group’s interim figures are released in March, but full-year revenue was ahead of guidance, while adjusted operating profit edged up 1 per cent to £49.6mn, partly thanks to the contribution from CPS. Unfortunately, the underlying margin contracted by 400 basis points due to faltering sales growth and increased staff and technology costs.
The group has not been immune to the general slump in demand for B2B services of all stripes, a situation which will hopefully reverse if the cost-of-capital continues on its downward path. The good news is that the group’s Americas segment saw underlying sales growth of 8 per cent, “driven by an increase in spend from the technology sector and multiyear tracking studies”.
Although a step-up in M&A activity invariably gives way to intensified scrutiny on the part of investors, YouGov is faced by the dual challenge/opportunity presented by the spread of artificial intelligence (AI) across data analytics markets, hence the post period-end £4.5mn deal to acquire Yabble, a New Zealand-based company that has pioneered the use of generative AI to deliver audience insights, a point of leverage given YouGov’s vast resource of consumer data.
There’s no denying that the stock is out of favour after the summer warning. The shares now trade at 12 times FactSet consensus earnings, on a 34 per cent discount to the target price, while a PEG ratio of 0.7 times suggests that the market could be underestimating growth prospects, particularly given the recent sales performance in the Americas.
HOLD: Ultimate Products (ULTP)
The company sells to half of the top 10 European retailers, and now has more in its sights, writes Christopher Akers.
Ultimate Products released its annual headline trading numbers in an August update, so the more relevant question on results day was about the path of future trading at the homeware business. Unsurprisingly, the owner of the Salter and Beldray brands flagged that “weak UK consumer sentiment continues to hold back” domestic sales, meaning the bigger story regards European growth prospects.
The annual revenue decline was driven by supermarket overstocking, subdued consumer demand and a tough comparative when air fryer sales soared. UK sales fell 12 per cent, while revenue went backwards at every one of the six premier brands.
While the domestic market struggled, international sales rose 7 per cent on the back of a strong European performance which was helped by demand from discounters and the opening of a new showroom in Paris. The company is focusing on bringing on board four leading French supermarkets as part of its expansion strategy.
International markets accounted for 35 per cent of total revenue in the year, up from 31 per cent in 2023 and from less than 5 per cent a decade ago. Chief executive Andrew Gossage told Investors’ Chronicle that he expects international markets to take 40 to 45 per cent of total revenue in 2025, and to hit the 50 per cent in the next few years.
Gross margin nudged up 30 basis points to 26 per cent, although management flagged that higher shipping rates would be a drag in the first half of the current year. The Ebitda margin dropped from 12.2 per cent to 11.6 per cent, on an 11 per cent fall in Ebitda.
Ultimate Products trades on nine times forward consensus earnings. That’s an undemanding rating, but while European growth is encouraging the demand picture in the UK is more uncertain.
HOLD: BP (BP.)
Supermajor beats low expectations for the third quarter, but flags review of share buyback levels, writes Alex Hamer.
BP has reported third-quarter profits $1bn (£770mn) lower than last year, at $2.27bn, as lower energy and midstream prices knocked the company’s performance. This was 11 per cent ahead of analyst expectations.
The company has flagged a shift in approach towards buybacks, which were maintained at $1.75bn for the December quarter. A February strategy update could see the $14bn total spending on repurchases by the end of 2025 goal reduced, analysts said. The quarterly dividend was maintained at 8¢ a share.
Energy market conditions contributed to the lowest quarterly net income since 2020.
Oil traded below $70 a barrel at times in the quarter, pushed down by weak demand in China and uncertainty over Opec supply levels. Saudi Arabia will shift focus to maintaining market share over pushing prices up.
Across BP’s divisions, there were improvements on the second quarter, including gas and low carbon energy swinging from a $315mn loss to $1bn profit, using BP’s favoured replacement cost (RC) before interest and tax measure. Oil production and operations saw its RC profit tumble, however, from $3.3bn in the second quarter to $1.9bn, while the company flagged a “weak” trading result.
BP chief executive Murray Auchincloss said the company’s focus was on cutting costs and focusing only on “highest value” projects for growth. He said BP had delayed or cancelled 24 projects, including a biofuels plant that resulted in a $1.5bn impairment in Q2. Investors have questioned BP’s continued focus on renewables projects as the US energy giants and Shell aim to keep growing oil and gas production. BP has committed to building a major new wind farm in the German North Sea, on which it spent $700mn in the third quarter, which is 10 per cent of the total bid amount.
At the same time, the company has cut $200mn in annual costs from its hydrogen and renewables businesses. Auchincloss said the goal of $2bn in annual cost savings by the end of 2026 remained.
RBC Capital Markets analyst Biraj Borkhataria said the company would have to balance investor returns with managing the debt load. “Given the weaker macro [environment], we continue to anticipate a [buyback] cut into next year, however we also expect BP to walk away from its ‘surplus payout ratio’ guidance and move towards the rest of the sector on a cash flow from operations payout, which would also allow more room for deleveraging,” he said.
BP’s net debt stood at $24.3bn as of September 30, up from $22.6bn. The company said the receipt of $1bn from divestments would cut this in the current quarter.
BP’s shares are down 17 per cent year-to-date, compared to Shell’s slide of just 2 per cent. While a higher oil price would have a positive impact, investors expect more.
https://www.ft.com/content/fe1077c0-cb45-4dbc-96a6-f6c2af906787
