System1

11 December 2020
By Maynard Paton

Results summary for System1 (SYS1):

• A pandemic-disrupted first half, albeit with headline numbers that disguised a remarkable return to profitability during Q2.

• Revenue improvements within the Communications and UK segments suggest the tie-up with ITV is working.

• A bold pricing structure, greater ambition clarity and even improved film-making may explain why adidas has become a client.

• The accounts are in reasonable shape, with significant net cash, positive cash generation and perhaps a decent profit margin following various cost savings.

• Extrapolating the Q2 profit leads to a lowly 8x multiple and intriguing recovery/upside possibilities. I have bought more shares.

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17 July 2020
By Maynard Paton

Results summary for System1 (SYS1):

• Somewhat academic annual figures that showed pre-AdRatings profit down 27% due to weak trading prior to Covid-19.

• The pandemic has since caused demand for SYS1’s services to drop 38% and created pre-tax losses.

• AdRatings continues to generate minimal revenue at significant cost, although the tie-up with ITV suggests the fledgling service has some inherent value.

• SYS1 bizarrely remains very poor at marketing its own services. A flagship company film commences with references to 18th century German literature. 

• A £3.9m cash buffer ought to keep SYS1 afloat as it moves towards more reliable revenue sources. Valuation in the meantime remains anyone’s guess. I continue to hold.

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20 December 2019
By Maynard Paton

Results summary for System1 (SYS1):

• Another unremarkable performance, with underlying gross profit up 4% and profit (without AdRatings) rebounding 24% due mostly to improved cost control.  

• The start-up AdRatings service continues to lose £2m a year and is increasingly dictating the company’s progress, potential and valuation.

• An ITV competition to determine the most “emotionally engaging” advert during Euro 2020 could create extra recognition for System1-type marketing and SYS1’s services. 

• The accounts remain cash rich and the business (without AdRatings) exhibited a healthy 21% margin.

• The P/E could be anywhere between 8 and 26 depending on how AdRatings, share-based payments and the cash position are viewed. I continue to hold.

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25 June 2019
By Maynard Paton

Results verdict on System1 (SYS1):

• An unspectacular performance with gross profit unchanged and profit rebounding due only to cost cuts.  

• The new AdRatings service suffered a woeful start after generating revenue of just £3k.

• The lack of all-round progress prompts awkward questions as to whether the group’s advert-analysis services are actually of much interest to the marketing industry.

• The accounts remain cash rich and would exhibit respectable ratios were it not for the chunky AdRatings start-up costs.

• The P/E could be somewhere between 10 and 15 assuming AdRatings one day breaks even (or is scrapped). I continue to hold.

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06 November 2018
By Maynard Paton

Update on System1 (SYS1).

Event: Interim results for the six months to 30 September 2018 published 02 November 2018.

Summary: A couple of earlier updates had already signalled this lacklustre first-half performance. Indeed, several references to competitive pricing and re-designed products implied the advertising research specialist may no longer be the ‘pioneering’ force it once was. Furthermore, the new Ad Ratings service could be hard pushed to become a real money-spinner and return the group to growth. That said, margins remain good, there is cash in the bank and the P/E might be 9… if you believe some significant development expenditure will eventually pay off. I continue to hold.

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08 June 2018
By Maynard Paton

Update on System1 (SYS1).

Event: Annual results for the twelve months to 31 March 2018 published 01 June 2018

Summary: A series of poor updates had already heralded what SYS1’s founder described as a “miserable” performance. However, shareholders did receive a candid explanation of what went wrong — with a Warren Buffett-backed bid to buy Unilever taking some of the blame. However, a greater concern is whether SYS1’s pioneering market-research techniques remain that pioneering — the competition is apparently catching up. A lot now rests on whether SYS1’s founder has the ability to lead another recovery. I continue to hold.

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27 October 2017
By Maynard Paton

Update on System1 (SYS1).

Event: Interim results and shareholder presentation for the six months to 30 September 2017 published 27 October 2017

Summary: The marketing-services group had already alerted investors to these disappointing figures. However, the setback was explained honestly by management and I note 50% of the business continues to grow at a fair rate. So everything does not appear completely lost just yet. That said, adopting the tag of industry ‘pioneer’ will always court competition and it seems rivals have tempted some customers away. The share price has been thumped since the summer, but is now looking quite interesting. I continue to hold.

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16 June 2017
By Maynard Paton

Quick update on System1 (SYS1).

Event: Annual results and shareholder presentation for the twelve and fifteen months to 31 March 2017 published 15 June 2017

Summary: A change of year-end meant SYS1 had a second opportunity to impress shareholders with a bumper set of annual results. However, this time the group admitted recent trading had been “a little slower than expected” and the highly rated share price reacted accordingly. Still, the group’s executives remain confident about the long term and underlined their confidence by declaring a super 26.1p per share special dividend. I continue to hold. 

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10 February 2017
By Maynard Paton

Quick update on BrainJuicer (BJU).

Event: Annual results and shareholder presentation for the twelve months to 31 December 2016 published 09 February 2017

Summary: These impressive annual figures confirmed BJU had enjoyed a magnificent second half. The market-research pioneer confirmed all of its core products had performed well, including the group’s best-selling system that had suffered a wobble during H1. I’m also pleased the accounts remain first class, while it’s not surprising the share-price rating is now expecting further robust growth. However, the usual “limited visibility” of client orders remains a drawback. I continue to hold.

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16 September 2016
By Maynard Paton

Quick update on BrainJuicer (BJU).

Event: Interim results for the six months to 30 June 2016 published 16 September 2016

Summary: A very respectable set of figures that confirmed this market-research agency has now returned to double-digit growth. However, the group’s best-selling system has started to face “pricing pressure” and the wider competitive advantage may not be as strong as it once was. The statement’s highlight was news of a 12p per share special dividend — the third in four years. The accounts remain in good shape and I continue to hold.

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07 September 2016
By Maynard Paton

Today I’m reviewing one of my recent investments.

The company in question is BrainJuicer (BJU), which you may recall I revealed as a fresh holding within this second-quarter portfolio update.

I purchased my BJU shares at an average price of 325p (including all costs) during March and April 2016. The bid price is now 425p and the position currently represents about 2% of my portfolio.

I have to admit, BJU is somewhat quirky in comparison to many of my existing holdings. The group is a market-research agency and has pioneered techniques to judge the potential success of adverts using ‘behavioural science’.

If you’re wondering what on earth behavioural science is, don’t worry. For years BJU’s business never made much sense to me — until I read this year’s annual report, watched a beer advert… and finally got to grips what this £58m small-cap actually does.

Anyway, supporting the notion that BJU had above-average investment potential was a respectable record of progress, decent financials, an executive team led by the firm’s founder/major shareholder… as well as the opportunity to further ‘disrupt’ the wider market-research industry.

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