Gordon Brown has until June 2010 to call an election. Although he has said it would be wrong to go to the country while the economy is in crisis, that hasn’t dampened speculation that an election may occur this autumn. When it does, there’s sure to be an onslaught of opinion polls – creating a deluge of work for YouGov, a leading online polling and market research firm.
Gamble of the week: YouGov (Aim:YOU)
In the meantime trading conditions will remain ‘challenging’ (director-speak for lousy), as chief executive Nadhim Zahawi explained in February. Despite revenues rising 20% in the first half, higher costs mean profits will be “significantly below expectations” – hence the nosedive in the share price. Good performances in Germany and America failed to offset a marked slowdown in Britain (its largest region), where clients, especially in financial services, have cut back aggressively. But all is not lost. YouGov has £13.5m of net cash and a strong stable of online panels covering all ages and socio-economic groups in the UK. This, alongside a recognised brand and a roster of blue-chip clients (including Asda, Vodafone and McDonald’s), provide it with the strength to defend itself against rivals such as TNS and Mori. YouGov is also well placed to benefit from growth in the global $4.3bn online market research sector, which is outperforming the rest of the industry as it’s faster, cheaper and more accurate.
The City expects revenues and underlying earnings per share of £47m and 2.5p respectively for the year ending July 2009, rising to £49m and 3.6p in 2010. That puts the shares on p/es of 12.8 and 8.9. I would value YouGov on a ten-times normalised operating profit multiple, giving an intrinsic worth of around 58p a share. There are risks – such as the recession and potential problems in its Middle Eastern unit (representing 20% of turnover), where bad debts could be an issue. Yet its robust model of using internet panels covering a wide cross-section of society has a proven track record. There’s also a chance that the low rating may attract a takeover bid, either from a trade buyer such as WPP, or from the management team. Results are out on Monday 6 April.
Recommendation: SPECULATIVE BUY at 32p (market cap £30.6m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments