The sudden departure of Ben Langdon as chief executive of AIM listed Digital Marketing Group ends another chapter in the colourful career of this ambitious entrepreneur.
An Oxford graduate now aged 48, his CV reads impressively:
Stock markets are often irrational, but having said that it is nevertheless interesting to note the recent fall in share prices among the few UK publicly listed marketing businesses engaged in the digital sector. And it is particularly so when we learn that JP Morgan Chase is launching a $500m fund to invest in social media, fuelled by investor interest in Facebook and Twitter.
Hidden amongst the small print of financial announcements from various agencies in the last couple of weeks were a number of hints that, while the advent of digital is transforming the shape of the marketing industry, it is not necessarily helping to maintain its profitability.
The post-tax loss of almost £2 million, reported by Digital Marketing Group today for the year to 31 March 2010, arose after writing off £3.8 million relating mainly to the cost of past acquisitions that had been attributed to goodwill and customer relationships. The result would have been even more depressed if the group had not benefitted from a £1.7 million settlement received from the administrator of a client for breach of a contractual obligation (see Digital Marketing Group hopeful after dull half year).
The goodwill write-offs related to the acquisition of Cheeze, Graphico, Inbox, Gasbox and Jaywing, suggesting either that the prices paid were excessive or that group restructuring initiatives have prompted premature write-downs to comply with current accounting rules. Or both.
Whichever performance yardsticks are used, the group seems to have slipped backwards from last year. Revenues were down 14.5% in the wake of the recession. The operating profit margin deteriorated – whether measured before or after exceptional items, share incentive costs and amortisation charges. Before those items, the operating margin fell from a very healthy 20.3% to a still respectable 17.1%. After those items, there was no margin left at all.
Further evidence – if ever it was required – that well regarded marketing services companies’ share prices run ahead of (and over-react to) underlying economic conditions is provided by the movement in their share prices since the stock market’s low point in March last year.
Share prices of marcoms companies that comprise Fintellect’s MSFI Index have begun to recover at a faster rate than the FTSE All-Share Index. But there’s a big gap to fill. The MSFI Index has gradually improved since February while the FTSE All-Share Index has risen and then fallen back again (see chart). The FTSE All-Share Index showed a net gain of 5.6% in the three months to 12 May while the MSFI Index grew by 6.9%.
A year ago the stock market was at its lowest point for many years. Not surprisingly, shares in marketing services companies had fallen even more sharply than most others, as investors worried about the sector’s particular vulnerabilities. Recessions are always expected to hit marketing agencies more severely than most other type of business and the relatively small size of most marketing companies is perceived as an additional investment risk.