27/02/2007
Hasgrove is a highly acquisitive pan-European communications group with a keen ambition.
Based in Brussels and Manchester, Hasgrove floated on AIM following a £5.4 million placing at 120p in November.
The group is actually the holding company for a diverse batch of niche, though highly cash generative, ventures providing services across the public affairs and public relations markets. In addition, it turns its hand to advertising, graphic design and the fast-growing area of digital online marketing.
‘There is an evolution taking place in our markets, and we want to be at the forefront of change,’ enthuses chief executive Rod Hyde. ‘We have three well-established core brands that have been around for 15 to 20 years’.
Strategy
Like all good AIM companies, Hasgrove is delivering solid organic growth while simultaneously – and successfully – pursuing an aggressive acquisition policy.
Since its inception in 2004, eight acquisitions have been completed. Hyde claims he looks for four key criteria when assessing deals. Acquisitions should either: bring a new discipline; fortify an existing discipline; bring extra skills or geographic reach to the overall group; or bring in teams or key individuals. Turnaround stories are off the menu.
The corporate ethos is all about increased inter-group collaboration, rather than painful, often value-destroying, integration, with its scalable model enabling the group to acquire profitable businesses and retain management teams rather than strip and cost-cut. ‘We always look for management strength in depth,’ he adds, ‘and we want to help them, not drag them back.’
Organic development through cross-selling is another investment plus. Clients, which include global brands such as the BBC, Marks & Spencer, Morgan Stanley, Nokia and Diageo, are increasingly looking for Europe-wide solutions to their communications challenges, and are driving a dramatic cross-selling opportunity across three core brands. ‘Our cross-selling has all been client-led, which has built good long-term relationships for us and ensures long-term business,’ enthuses Hyde.
A division definitely benefiting from this trend is Interel, Hasgrove’s Brussels-based public relations and public affairs group. It provides an array of high-level consultancy services in corporate communications, as well as European public affairs and governmental relations.
Public affairs involves lobbying to influence public policy or legislation on behalf of a client, public sector procurement consulting, as well as the monitoring of political activity to help clients react quickly to change.
Just recently, Hasgrove bought Brussels business Cabinet Stewart for up to
€2.4 million. This deal has given the firm a leading position in European public affairs consultancy. Founded in 1990, Cabinet Stewart works for regulatory bodies, trade associations, think tanks and multinational companies, and handsomely complements the Interel business.
‘Our Brussels base is very important,’ says Hyde, ‘because it is at the heart of European public affairs, and there’s so much European activity going on at the moment. For instance, we are seeing an increase in the number of companies looking to open headquarters in Brussels, rather than automatically in London.’
The two other brands are Manchester-based agencies Connectpoint and The Chase. Connectpoint focuses on public relations and public affairs, though advertising and exposure to the fast-growth online marketing sector provide the excitement, especially as marketing budgets are being diverted away from traditional media and towards online/digital channels.
The Chase brings another string to the bow, being an agency designing corporate identities as well as producing corporate literature for marketing purposes.
‘Bringing together the diverse parts of our business works,’ exudes Hyde, ‘and although we want to be niche, we want to work with the big brands.’
Management
Hyde established the company in 2004 alongside current chairman and deputy chairman Godfrey Taylor and Rob McLoughlin. Hyde is the City face, executing the strategy and overseeing acquisitions and their integration. His varied career has included a slew of design and management roles at ICI, as well as the founding of successful flight simulation games venture Rowan Software, which was sold in 2000.
Since then, he has turned his hand to corporate finance work within the technology sector, raising money for clients and advising venture capitalists by undertaking due diligence work as well as taking on company doctor roles.
Godfrey Taylor, non-executive chairman, works closely with Hyde in the evaluation of acquisitions. Taylor is a veritable heavyweight, having been the senior partner of Deloitte & Touche in Manchester between 1997 and 2003 (with responsibility for 30 partners and 700 employees) and acted as advisor to Mersey TV’s Phil Redmond for a number of years.
Adding some colour to the deputy chair is award-winning TV presenter and producer Rob McLoughlin. A former director of Granada Television, his CV includes the creation and production of programming for an array of TV channels both at home and abroad, and he has presented news and other programmes for ITV Granada since the 1980s. He joined the group following its acquisition of his Carm Media business.
Running the rule over the numbers is astute accountant Paul Sanders, who has been with the company for just over a year. Sanders has held finance director roles with a variety of public and private ventures, among them SSL International and Baltimore Technologies, where for a time he was acting chief executive.
Prospects
One of the key attractions from an investment point of view is that the group enjoys a high degree of revenue visibility, with retainer fees agreed annually and invoiced quarterly in advance. In addition, a large proportion of the group’s work is repeat business undertaken for existing clients.
Client breadth is a further strength, with the group serving 200 or more customers, including Marks & Spencer. The largest 20 clients in 2006 accounted for a reasonable 35 per cent of gross margin.
Management and staff interests are closely aligned with outside shareholders. Followers of well-respected fund managers should note the presence of Peter Webb’s Unicorn Asset Management, the ubiquitous Universities Superannuation Scheme and Octopus Asset Management on the shareholder register.
Forecasts also excite. When figures for the ten-month period to December 2006 are unveiled, analyst Dominic Convey of house broker KBC Peel Hunt will be looking for pre-tax profits of £1.7 million from £13.7 million sales, ahead of a heady leap to £3.4 million from £21.5 million sales this year.
Those estimates leave the shares trading for 17.6 times 2006 estimated earnings, falling to an undemanding 11.9 for calendar 2007. Looking towards 2008 – and factoring out any earnings-enhancing deals that are likely to take place this year – the shares are swapping hands for a budget 9.9 times earnings, based on conservative forecast profits of £4.1 million. These forecasts indicate earnings will grow 48 per cent this year and by (a conservative) 20 per cent for 2008, which means the shares are trading on PEG ratios of only 0.25 and 0.5. That screams good value.
Convey expects ‘the share price to trend towards our 12-month target price of 220p as further acquisitions are completed’, and following the Cabinet Stewart deal the group still has cash available for acquisitions and very little gearing. The AIM currency will allow the group to gun for larger deals, using a mix of shares and cash. Buy into this growth story.
| AIM | £21.84m |
97.00p
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0.00p
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