Company Overview: Enero Group Limited (ASX: EGG) is an Australia-based company that manages a portfolio of marketing, technology, and communications businesses. The principal activities of EGG are integrated marketing and communication services, including strategy, market research and insights, advertising, and public relations.

1.1 Results Update: On 18 August 2023, EGG posted its FY23 results for the period ended 30 June 2023.

• The company stated that its net revenue grew 24.9% year over year and stood at AUD 241.6mn. EGG has a well-diversified revenue base across businesses and benefits through acquisitions synergies (ROI DNA and GetIT) and divestments (The Leading Edge and Digital Edge). In FY23, revenue from Brand Transformation went up by 20% YoY, whereas revenue from Creative Technology and Data was up by 31%. The Group continued to win clients worldwide and took necessary steps for cost reduction initiatives. Given the company’s track record and diversified portfolio, it remains on track to continue to build momentum in FY24 and beyond.
• EBITDA for the period came in at AUD 78.8mn, depicting a rise of 19.1% year over year. The increase was buoyed by growth in higher margin businesses such as OBMedia and continued efficient operating cost base structure. EGG expects OBMedia to benefit from its recent rebased trading with EBITDA margins in the target range of 55%-65% in FY24. Net profit after tax (NPAT) came in at AUD 24.4mn, down by 10% year over year, owing to softer earnings in wholly-owned agencies and higher amortisation and interest expense related to acquisitions.
• Cash inflows from operating activities in FY23 came in at AUD 61. 5mn, compared to AUD 48.8mn reported in FY22. The rise in inflows is primarily attributable to EBITDA growth.The company converted 102% of EBITDA to cash for the period ended 30 June 2023. Free cash flow for the period increased by around 29.8% year over year. EGG targets a cash conversion of 85% in the coming year. The company's healthy balance sheet supports the delivery of its capital management strategy, supports its ongoing commitment to offer rising shareholder returns, and adds to the Group’s value and growth opportunities.

1.2 Key Risks and Challenges

Potential further lockdowns, related restrictions in response to the COVID-19 pandemic, and unfavourable global macroeconomic conditions may impact Group’s revenue performance. Changing requirements of clients’ marketing needs and certain regulatory risks may affect the company’s success. Integration risks and risks of foreign currency fluctuations add to the woes.

1.3 Stock Update

EGG has a well-diversified revenue base across businesses and benefits through acquisitions, synergies and divestments. It focuses on its core R&D strengths and enhances its market position in FY24 and beyond. The stock has witnessed a dip of ~19.9% in the last month, and over the last six months, it has declined by ~33.6%. The stock has a 52-week low and 52-week high of AUD 1.335 and AUD 3.480, respectively and is currently trading below the 52-week high-low average. At the market close of 22 August 2023, EGG was trading at a price of AUD 1.460.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an Indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 22 August 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual’s appetite for upside potential, risks, holding duration, and any previous holdings. An ‘Exit’ from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

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