After jumping 140% in a year, is there still time to buy BrainJuicer Group plc?
Shares in marketing and brand consultancy BrainJuicer(LSE: BJU) are surging today after the company reported a 27% increase in profit for 2016.
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At the time of writing, BrainJuicer is up by just under 16% on the day, capping what has been a spectacular year for the company. Indeed, this time last year it looked as if the market had turned its back on what was perceived to be a struggling business. At the beginning of February 2016 the shares hit a low of 273p, but since then there's been nothing but good news from the firm. As a result, over the past year shares in BrainJuicer have gained a staggering 145% excluding dividends. Including dividends, the shares have produced a return of 153% for investors.
And today's update indicates that further gains could be on the cards. For the full year gross profit increased by approximately 15% as BrainJuicer's Advertising Testing and Brand Tracking services delivered strong growth. Gross profit from these two businesses alone rose by 80% and now represents 39% of BrainJuicer's total gross profit, compared with 27% in 2015.
As its legacy business continued to report strong growth, the group's new venture, the System1 creative advertising agency, launched in early 2016, got off to a promising start with costs already offset by revenues. System1 was set up with a relatively small capital budget of £300,000, so a quick payback is likely.
Cash machine
Shareholders will also be pleased to know BrainJuicer continues to churn out cold hard cash at an extremely impressive rate. The firm finished the year with a cash balance of £7.8m, up from £6.4m at the end of 2015 despite paying out £5.2m in regular and special dividends over the year. Based on these figures I estimate free cash flow is around £6.6m per annum.
After these impressive results, it's no surprise that shares in BrainJuicer are trading at a high multiple of 19.6 times forward earnings. Still, with earnings per share growth of 20% pencilled-in for 2016, the shares don't seem that expensive compared to the estimated growth rate.
A cheaper bet?
Another cash cow that trades at a more attractive valuation is Gocompare.com(LSE: GOCO).
Gocompare issued its full-year 2016 trading update last week, reporting a 30% year-on-year increase in adjusted operating profit. Revenue rose 19% to £142m. However, the most important figure was cash generation. For the period, the company generated enough cash to bring its operating leverage down from 2.8 times at the time of its demerger from Esure to two times at the end of the year. Considering the business has only been independent since the beginning of November, this is impressive.
Based on current earnings forecasts, shares in Gocompare are trading at a forward P/E of 13.9 for the year ending 31 December 2017. Analysts expect the company to pay dividends to investors of 1.7p per share over the year for a yield of 2.1%, although with cash generation strong, I wouldn't rule out special dividends during the year.
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Rupert Hargreaves 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.
