BrainJuicer Group plc beats forecasts, but is it a better buy than Next Fifteen Communications plc?

Updated: 
Apple store

This morning BrainJuicer plc(LSE: BJU), the unorthodox marketing firm, upgraded full-year profit forecasts on the back of strong performances from its Advertising Testing and Brand Tracking services. The company boasts an impressive client portfolio, including Heineken, Hershey's and Shell.

Another extraordinary marketing firm, Next Fifteen Communications (LSE: NFC), has an equally impressive customer base including Alphabet, Apple and Microsoft.

Many investors believe these two companies could grow alongside their clients, but is BrainJuicer the better buy after today's positive update, or does Next Fifteen's consistent track record give it the edge?

BrainJuicer doesn't believe in persuading customers using facts and figures. Humans tend to make snap decisions and consider only the top three or four brands when buying low-ticket items like ice creams.

Therefore, rather than focusing on the logical qualities of a product BrainJuicer bases its campaigns around "Fame, Feeling and Fluency."

This novel approach drove an incredible 30% compound annual revenue growth rate between 2005 and 2013, with profits following along. The company's expansion has been more muted in recent years however, growing only 3% total since then.

Its share price is approaching all-time highs, which seems overdone considering recent lacklustre revenue growth. Management also failed to quantify the outperformance, therefore lowering its value.

Today's news is great for current shareholders, but a PE of 20 times might seem a little steep for those looking to buy the shares, especially if BrainJuicer can't reignite revenue growth.

Two decades of growth

Next Fifteen Communications provides tech giants with PR, marketing and niche technical services.

The company might not have expanded as quickly as BrainJuicer, but its track record is no less impressive given its consistency. It has been profitable in all but two of the last 20 years and has grown revenue from £7.9m to £129.8m, or a CAGR of 6.9% in the same period.

A slew of acquisitions has turned it into a full-service provider over the last few years, which could facilitate revenue growth for some time.

BrainJuicer's revenue growth has slowed down a little over the last few years, but Next Fifteen's has been picking up the pace, jumping 23% last year.

I believe Next Fifteen's revenues could be more defensible than BrainJuicer's too because serving companies like Apple requires a deep understanding of tech that isn't easily replicated.

BrainJuicer or Next15?

BrainJuicer has used its pause in growth to focus on margin expansion. The company reported an impressive 19% operating margin last year, compared to Next Fifteen's 8%. Such a high figure implies that its services are still unique, otherwise competition would likely drag down profitability towards single-digits.

Next Fifteen trades at a rich 60 times last year's earnings, but this figure doesn't take into account the company's rapid expansion, or its strong cash-flow. You see, earnings have recently been hit by high amortisation costs following past acquisitions. If we ignore these non-cash charges, the company looks a little cheaper at only 23 times free cash flow generated in the last 12 months.

Interestingly, BrainJuicer trades on 22 times the same metric. 

Both these companies are worth a closer look, in my view, but I believe Next Fifteen's recent momentum make it a more attractive proposition than BrainJuicer's, in spite of today's upgrade.

If you're not attracted by either of these marketing companies, or simply need a high conviction idea while you conduct further research, I recommend you consider our top small-cap pick

The analyst behind the recommendation sees a 70% upside from the current share price. This fast-moving business currently trades at a pedestrian seven times profits, in spite of potential double-digit earnings growth. 

Click here to download the investment thesis behind our top small-cap stock. 

Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.