LBG Media “significant untapped growth opportunities” says Zeus

LBG Media plc (LON:LGB) confirms trading for the full year is to be ‘at least’ in line with current consensus, despite a challenging macro environment. The assured outlook reflects strong growth in volume of views (H1 FY22 +c.40% YOY) driven by increased content publication, an improving trend in RPM into H2, and investment in marketing the Group’s Direct services.

¨ H1 trading: H1 revenue of £24.8m is +8.0% YOY (H1 FY21: £23.0m) with moderated top line growth reflecting incredibly strong prior year comps (H1 FY21 revenue +133% YOY). Direct revenue of £10.6m increased 11% YOY (H1 FY21A: £9.5m) driven by a strong performance in the Group’s emerging international business. Indirect revenue of £13.6m is 4% higher YOY (H1 FY21: £13.1m). This reflects strong growth in the volume of content views across the Group’s platforms, +c.40% YOY, representing growth in market share for the Group. This has been offset by a reduction in revenue per view across third party platforms driven by the current economic environment and subsequent impact on marketing spend and RPM (revenue per views). The Group had net cash of £28.5m at 30 June 2022, down slightly versus FY21 year end reflecting the typical working capital cycle of the Group and payment of IPO related costs in H1. The Group confirmed it has completed the small bolt on acquisition of the Go Animals, a Facebook page with a total of 6.8 million followers. The acquisition will increase LBG Media’s target audience, bringing a new genre of animal content to the Group’s brand portfolio.

¨ Outlook: Management remain confident that the Group’s full year performance will be ‘at least’ in line with consensus expectations, specified as revenue of £65.4m (Zeus: £65.5m) and EBITDA of £20.1m (Zeus: £20.8m). We believe this is a strong signal of confidence in the Group’s ability to deliver growth through H2. Current forecasts imply a 38%/62% H1/H2 revenue split which we see as achievable given the typical seasonality of the business (H2 FY21 was 58% of FY21 revenue) as well as the relatively softer prior year comp as we enter H2 (H2 FY21 growth of 55.2% versus the 133.0% delivered in H1 FY21). The Group has confirmed it is in the process of establishing operations in the US, with trading expected to commence in 2023.

¨ Forecasts: Our forecasts are unchanged, reflecting managements confident outlook statement. Zeus FY22 estimates imply H2 growth of 29.2% (Direct division +17.5% and Indirect +47.5%). Activity in the Direct division has been supported by investment in marketing over H1, resulting in a solid pipeline of opportunities going into H2 which underpins confidence in full year forecasts. Today’s statement confirms revenue per view (RPM) has seen an improving trend into H2, which combined with strong c.40% growth in volume views delivered in H1 supports our H2 assumptions. Confirmation of US operations from 2023 should also provide upside to our current forecasts.

¨ Valuation: LBG Media trades on an FY22E PE of 14.7x falling to 13.9x, equating to a FY22E PEG of 0.7x. The Group is set to deliver revenue growth of 20% in the current year, reflecting its robust market position and increasing market share against a backdrop of yield compression through H1. Over the medium term there remains significant untapped growth opportunities including international expansion (confirmed through the announced establishment of US operations), monetisation of new platforms (Instagram and TikTok not included in our forecasts) and diversification into new verticals, as evidenced by the acquisition of Go Animals. Our revised DCF (WACC increased to 9.5% from 7.4%) implies intrinsic value of 182.8p per share, +78.4% versus current levels.

Summary financials

Price102.5p
Market Cap£211.6m
Shares in issue206.4m
12m Trading Range95.0p–213.0p
Free floatc.30%

Financial forecasts

Yr end Dec (£’m)2021A2022E2023E2024E
Revenue54.565.57279.2
y.o.y growth (%)80.620.11010
Adj. EBITDA16.820.822.925.2
Adj. EBIT14.618.220.322.3
Adj. PBT14.41820.122.1
Adj. PAT11.714.615.416.9
EPS (p) basic adj.5.77.17.58.2
EPS (p) ful dil. adj.5.677.48.1
Net cash34.348.664.682.4
P/E18.414.713.912.7
EV/EBITDA10.67.86.45.1
EV/Sales3.32.521.6
Source: Audited Accounts and Zeus estimates
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