Digital Marketing Group

Despite ongoing contraction in advertising spend, DMG, the UK’s largest digital marketing agency, has delivered resilient first half financials and insists its business pipeline is the best it has been for 12 months.

For the half to September, DMG, the brainchild of industry guru Ben Langdon, made creditable profits of £2.93m (2008: £3.15m) – before tax, amortisation and share-based payments – despite a decline in gross revenues from £26.5m to £24.7m which reflected spend deferrals from cautious clients in certain sectors.

The group's digital agencies demonstrated strength, with October 2008 acquisition Cybercom growing profits 34% year-on-year. Unfortunately, the data analytics business, with heavy exposure to financial services, proved less resilient, with revenues reducing by £3.4m.

Cannily positioning itself for eventual upturn, DMG, which has proved it can integrate acquisitions and pay down debt, says it has stripped out some £4.25m of costs, the bulk from the data business, leaving it far leaner and fighting fit for recovery in its markets.

For the year to March, pre-tax profits and earnings are forecast to reduce from £8m to £6.5m, downgraded from an earlier £7.4m, and from 8.6p to 6.9p respectively. Based on those estimates, the shares are selling for 8 times earnings, a rating that looks far too low for a well-managed company so perfectly placed to profit from the inevitable shift in marketing spend towards online channels.

We are convinced the shares will eventually receive a thorough re-rating and DMG, already up 41% since a recent recommendation by Growth Company Investor at 39p, remains in strong buy territory.

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