Wellcom: Result 2016

Advertising and marketing production agency Wellcom reported a good 2016 result.

Advertising and marketing production agency Wellcom reported a good 2016 result (see Table 1), with its three segments each recording rising revenue and earnings before interest and tax (EBIT).

The company still earns more than half its net revenue from Australasia. Ignoring the $345k lost on Dick Smith entering administration, $500,000 in foreign exchange fluctuations and other one-offs, this segment’s margin improved in 2016.

Table 1: Wellcom result 2016
Year to June 2016 2015 /(–)
Net revenue ($m) 103.4 85.9 20
EBITDA ($m) 19.1 16.1 19
EBIT ($m) 16.4 13.9 18
NPAT ($m) 11.1 9.8 13
EPS (c) 28.3 24.9 14
DPS (c) 22.5* 20.5 10
* 13.5c final div (up 13%), fully franked, ex date already past

However, most of Wellcom’s 20% increase in net revenue was due to continuing growth in its UK and US businesses, driven by the purchase of Dippin’ Sauce and Additive Pixel in these two countries respectively.

Despite an impressive 39% increase in net revenue, to $28m, higher costs meant the US segment only reported a 17% increase in EBIT. By contrast, the expansion of Wellcom’s partnership with advertising agency Bartle, Bogle & Hegarty in the UK resulted in the partnership performing the marketing production for car manufacturer Audi and UK supermarket giant Tesco, helping segment EBIT rise more than seven-fold. 

Foreign revenue as a percentage of total revenue should continue to grow as Wellcom looks to expand further overseas, with management considering both complementary acquisitions and further strategic partnerships. 

Wellcom’s advertising and marketing agency partners are responsible for coming up with the advertising ideas, campaigns and media strategies, whereas Wellcom performs the more mundane work of producing content such as videos, animations, artwork and so on. As such, Wellcom operates in a competitive industry where the lowest cost producer is in prime position, which explains why it has many of its production staff based in Malaysia.

Wellcom has risen 35% over the past year. That’s a nice return for an ordinary business which, on a PER of 19, is now selling for a high price. CEASE COVERAGE.

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