LBG Media (LON:LBG): A Hidden Gem in the Digital Advertising Landscape

The market's focus on short-term volatility in digital advertising may be overshadowing LBG Media's (LON:LBG) robust fundamentals. With recurring revenue streams, strategic tech partnerships, and a deliberate expansion into the U.S. market, LBG appears undervalued compared to its growth potential. Let's dissect why investors should take notice.

Recurring Revenue: The Engine of Growth

LBG's financials paint a compelling picture of sustainability. For the year ending September 2024, total revenue hit £86.2 million, a 22% year-on-year surge, driven by two pillars: Direct and Indirect revenue.

• Direct Revenue (51% of total revenue): This segment, fueled by branded content campaigns for clients like Google, L'Oreal, and Netflix, grew by 39% to £43.9 million. Client retention is exceptional, with 74% of revenue from repeat clients and a 29% brief conversion rate. This recurring revenue model offers predictability in an otherwise volatile sector.
• Indirect Revenue (47% of total): Despite temporary headwinds from Facebook's algorithm changes, LBG adapted swiftly, leveraging its Web platform investments to diversify revenue. Web revenue now accounts for 49% of Indirect streams, with yields rising 67% to £10.07 per 1,000 sessions.

Strategic Partnerships and Tech Agility

LBG's partnership ecosystem is a key underappreciated asset. The acquisition of Betches in late 2023 has been a masterstroke, boosting U.S. market penetration and unlocking high-value client relationships. For example:
- Google: Collaborated on campaigns for Android, Pixel, and Gemini, leveraging LBG's Gen Z/Millennial audience.
- Netflix: Partnered on content tailored to younger demographics, a demographic LBG dominates with its 503 million global audience (up 19% year-on-year).

Crucially, LBG's Web technology stack—optimized for programmatic advertising—positions it to capitalize on the shift toward data-driven ad delivery. Its ability to adapt to platform changes (e.g., Facebook's recent model shift) underscores its operational resilience.

Valuation: A Contrarian Opportunity

At current prices, LBG is trading at a P/E ratio of ~20x (based on FY24 profit of £14.5 million) and an EV/EBITDA of ~15x, both below the sector average. For context:

This valuation gap is perplexing given LBG's 10% FY25 revenue growth target and its path to £200 million revenue. With a strong cash balance of £27.2 million and a focus on disciplined reinvestment (e.g., U.S. expansion), the company is primed to outperform.

Why Now?

The near-term sector volatility—driven by platform shifts and macroeconomic uncertainty—creates a buying opportunity. LBG's diversified revenue streams, client stickiness, and U.S. dominance mitigate risks, while its valuation suggests the market is ignoring its long-term potential.

Conclusion: A Contrarian Buy

LBG Media's blend of recurring revenue, strategic tech partnerships, and a fortress balance sheet makes it a compelling contrarian play. With upside potential as the market recognizes its undervalued growth trajectory, investors who act now could capitalize on a re-rating.

The time to position for LBG's ascent is now—before the market catches up.