Goldman Sachs expects continued growth at Ascential; reiterates 'buy'

Goldman Sachs reiterated a Conviction List ‘buy’ rating on Ascential as it expects its growth to continue with acquisitions, disposals and new product launches.

The business-to-business media company could return 25% to investors as its business mix has improved “significantly” since it floated last February and with the acquisitions of MediaLink and OneClick Retail and the planned sale of its ‘heritage brands, GS said. This would drive organic growth up by 100 basis points and earnings before interest tax depreciation and amortisation (EBITDA) margins by 150 basis points.

The bank said that profitability will stall in 2017 due to the planned investments, but these initiatives could set the stage for future growth.

On top of this, Goldman expects continued deployment of cash in mergers and acquisition activity to add 2-3% per year to EBITDA.

Goldman’s 2017/18 financial year EBITDA estimates declined 3.8%/3.1% due to planned investment in new products and its 12 month price target of 398p from 402p, remains 70% based on 16.5 times the 2018 price-earnings ratio and 30% based on a merger and acquisition value of 470p, reflecting historic transaction multiples.

The stock trades on about 14 times the 2018 price-earnings ratio and an 11% free cash flow yield which Goldman sees as attractive against the EU media sector, which is on 16 times the price-earnings ratio, with a free cash flow yield of 6.5%.

Shares in Ascential were down 1.07% to 314.90p at 0811 BST.