Companies: CRE    DGM    EQI    MSQ    RAF   

Buoyed by the economic revival and an increase in spending by larger companies, the small band of listed marketing companies are expecting significant growth in 2004. Vikki Kunz reports

Most experts are of the view that the recession in the marketing and advertising sector over the past three years was the worst in living memory. Happily, they also suggest that the longed-for recovery is gathering momentum.

The latest Bellwether report, compiled on a quarterly basis by the Institute of Practitioners in Advertising, found that of the 250 companies it surveyed, over half reported that 2004 budgets had been set higher than actual spend in 2003.

On top of this, the latest Chartered Institute of Marketing (CIM) report revealed that sales plans by companies are close to the average level during the upturn in 1997-8 and that marketers are cautiously planning on sales growth of 5.6 per cent for 2004.

Adding further credence to the creeping confidence in this space is advertising giant WPP, whose famously pessimistic chief executive Sir Martin Sorrell commented that improving corporate profitability should ensure advertising and marketing spending will rise as a result.

Marketeers first

While this increase will take its time to work its way to companies that focus on 'above-the-line' marketing (magazine, newspaper, television and radio advertising), it is likely to very quickly affect marketing companies concentrating on 'below-the-line' activities. These services include direct mail campaigns, affiliate marketing deals (off-line and online) and magazine inserts, to name but a few.

These ventures have an edge because companies who spend on advertising want to reach the right audience and 'the conventional media channels are too fragmented,' asserts Jeremy Middleton, operations director for marketing solutions provider Media Square. 'For instance, you now have over 600 TV channels to advertise on. It makes the audience so much harder to reach.'

Below-the-line marketing firms, on the other hand, use all their market intelligence to deliver the right message to a very targeted – and often very niche – audience, where the response to any initiative is easily measured.

Media Square is one of the growing number of ambitious small- to medium-sized marketing businesses profiting from companies' hunger to find alternative highly targeted methods to reach their own particular consumers.

Its communications business provides integrated marketing communications across all the main disciplines. However, realising that customers are no longer prepared to pay inflated rates for the production side of marketing, the company also has a marketing services team, which now accounts for 60 per cent of the company's business, providing implementation systems for large-scale marketers. Its clients include catalogue giants such as Argos as well as regionalised companies such as London-based Young's Breweries.

In the 12 months to October, with chairman Ken Steed at the helm, Media Square increased sales 71 per cent to £8.33 million comparatively and turned pre-tax losses of £922,529 into a pre-tax profit of £255,692.

In the period, it also acquired six small complementary companies, and on 10 February announced it had purchased Leeds-based retail and home shopping advertising business Hudson Advertising and Marketing.

Consolidation growing

Media Square's acquisition spree highlights another exciting development in the market sphere, namely the consolidation that is occurring amongst the smaller players as they bid to offer a portfolio of services rather than just one.

Online advertising specialist Deal Group Media reversed into AIM-listed search engine marketing concern IBNet in September 2003 in an all-share £7 million deal.

'The acquisition bolted-on a significant high growth area,' says chief operational officer Nicky Iapino, 'it now means we can offer clients a one-stop shop, which sets us apart from many of our competitors. It also provides our customers better value through bulk-buying, as our negotiating power has increased,' she adds.

Deal Group Media focuses on marketing solutions such as affiliate marketing, where revenues are shared between online advertisers, and the rates they are paid by companies are based on performance measures such as sales, click-throughs and registrations.

Iapino is firm in her belief that the online retail market, reinforced by increased broadband usage, will continue to grow exponentially this year, helping to fuel further growth in online advertising.

Her views are backed up by the Internet Advertising Bureau, which recently published data in conjunction with PricewaterhouseCoopers. This showed that the original goal of online advertisers – to account for two per cent of total UK advertising revenue – was smashed 12 months early. In the first half of 2003, £151.6 million was spent online, an impressive 85 per cent year-on-year growth.

Since being readmitted onto AIM, Deal Group Media, which posted £583,000 pre-tax profits from a turnover of £7.4 million in the year to May, has seen its share price almost double from 3.76p to its current trading price of 7p.

Others on the up

Another on the acquistion trail is Creston, the fully-listed 'international diverse marketing group'. It acquired public relations company Nelson Bostock Communications in September for a maximum price of £10.7 million.

In the six months to September, Creston's turnover improved from £7.9 million to £13 million compared to the same period last year, with profits before tax soaring 247 per cent to £750,000, despite difficult marketing conditions. The past year has seen its share price rise 162 per cent to 157p.

Other companies to look out for in this sector include former cash shell and now thriving marketing services group EQ, which recently announced like-for-like sales in January were 50 per cent up compared to last January, and Real Affinity, which bought sports marketing company Navigator in February for an all-share deal worth £590,000. It has also recently won a significant deal with Daimler Chrysler.