The acceleration of digital sales has been one of the most prominent trends to emerge since the outbreak of Covid-19. Inevitably, some consumers will revert to shopping in store after lockdown measures abate. However, the pandemic has encouraged a wider pool of consumers to experience the convenience of eCommerce. A sizeable proportion will continue to shop online meaning businesses will need to invest in their digital strategies. The Aubrey European Conviction Strategy aims to capitalise on these changing behaviours.
There is a UK company in the portfolio which helps address the needs of brands to raise their game when it comes to eCommerce. It has built a hosting eCommerce platform which provides a fully integrated direct-to-consumer eCommerce solution for consumer brand owners under Software as a Service licences (SaaS). This allows brands to borrow this company’s supply chain and distribution network to create a web-only retail shop, allowing the brand owners to focus on what they do best.
In a recent trading update, the company announced several new partnerships across a range of sectors. For example, the company has helped a premium chocolate brand focus on international expansion by developing its online presence in the US, where there is significant potential for growth. This company has essentially implemented its five year online plan within 6 months as 51% of UK sales are now online, and the company’s USA customer data base increased by 170% compared to last year. This is testament to the company’s commitment to its online proposition, and the efficacy of the eCommerce solutions provider’s service. Management targets £100m in revenue from the platform in the medium term (2-3 years) versus current revenue of only £7m with a 70% EBITDA margin target, implying a £70m contribution to group EBITDA. This would translate into a 20% 3-year CAGR in EBITDA, assuming no growth in the group’s legacy businesses of nutrition and beauty, which already delivered £1.3bn of revenue in 2020.
We also hold a company in the portfolio that helps optimise the digital marketing strategies of brands. Digital is by far the fastest-growing segment of the advertising market. The main tech players comprise a large portion of the company’s client base (Amazon, Apple, Facebook, Google and Microsoft, Alibaba, Tencent) as well as FMCG companies, car manufacturers etc. Management estimates pure-play digital media owners will collectively capture 61% of all advertising next year. This represents a doubling of share since 2015 and the total size of the market is estimated to grow from $290bn in 2020 to $387bn by 2022, a 15.5% 2-year CAGR.
Management believes it can double the size of the company organically, at both top line and EBITDA level, between 2020 and 2022. This suggests the company will substantially outgrow the market over the next two years at the very least.
We also believe there is growth to capture in the digital Public Relations (PR) market. This sector is more about helping businesses manage their online brand identity. A company we own that plays to this theme, quoted in Norway but operating globally, is a leading provider of social media intelligence in a market estimated to be $26bn in size. This company helps businesses make more informed decisions about their online operations, working behind the scenes to help companies manage their brand image. By using the technology offered, a business can sift through social media posts as well as internet news in real time and gain insight into brand presence and perception relative to competitors. The software allows brands to take the pulse of influencers and journalists who are writing about the industry, as well as consumers of the brand through a variety of channels. Management targets 20% organic annual growth with a rising operating margin.
The above companies are active in areas of the market which although sizeable, are still relatively immature. They are well positioned to capture value as the increasing shift towards digital channels should become substantially larger over time. We believe their growth potential is not yet fully appreciated in the market.
Please click here for a pdf version
This document has been issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction. This document has been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed in this presentation should not be taken as a recommendation or advice.
Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated.
Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. This document does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.
