At the start of the year, Next Fifteen Communications (LSE: NFC) was looking like a tempting growth buy. After reading my Motley Fool colleague Tom Rodgers’ take on the company, I thought I was looking at the potential to double my money.
The technology-driven marketing group had been picking up some big clients. And it was expanding through acquisition using what looked like a cost-effective approach.
But then came the Covid-19 pandemic and the stock market crash. Companies started to focus on survival, not marketing. And any bullish prospects for Next Fifteen in 2020 evaporated. Current forecasts suggest the past few years of earnings growth will hit a jarring reversal, as analysts expect a 16% EPS drop.
Against this background, the Next Fifteen share price hit a slump. By mid-March, the shares were down 60%. Double your money? I’d have been wondering whether I’d have any of it left by the end of the year.
But I can’t help thinking the 2020 slump is just a short-term hurdle, and I reckon I’m still seeing the same long-term growth potential.
Resilient first half trading
A first-half update Tuesday backed that up. The firm told us that “trading has continued to remain resilient over the first half of the financial year and is well ahead of management expectations set in March of this year.”
The company says first-half revenue is ahead approximately 6.5% compared with the same period last year, at an estimated £126m. Adjusted profit before tax should come in 16% higher, hitting “at least £20m.”
And the crowd went wild. Well, the punters pushed the Next Fifteen share price up 18% during morning trading. If you’d managed to buy at the year’s lowest price, you would have already doubled your money, and then some. Next Fifteen shares have recovered to just a 20% drop on the year.
Second half even better?
A fair bit of the upbeat performance is down to the firm’s acquisitions, and organic revenue fell approximately 6% — with US organic revenue down by a very modest 2.5%. That’s mostly due to sectors hit hardest by Covid-19. And against that background, I see this as a remarkably resilient performance.
While Next Fifteen faces considerable uncertainty in the second half, it remains upbeat. The firm said: “We currently expect results for the year to be materially ahead of current market expectations.”
Can you still double your money?
This is all fine, but a company is less likely to double your money if it emerges from the crash in a weakened financial position. But, thankfully, Next Fifteen has an impressively strong balance sheet. With a combination of careful cost management and strong cash generation, the firm reports net debt at 20 August of less than £1m. That’s even after recent acquisition costs.
Analysts expect a return to earnings growth for the year to January 2022, with a 19% EPS hike on the cards. They may want to revise their estimates upwards now.