Our first stock of the week in 2021 is YouGov (YOU), a market research and data analytics firm known for its political polls and more general surveys of the national mood (28% of Britons reported being bored in 2020, a big jump from 2019).
Polls are big business these days and have moved on from the time when a person with a clipboard asked you questions about your shopping habits on the local high street. In a fast-changing and unpredictable world, surveys are used extensively by media companies, professional investors and politicians to decide strategy and how to allocate capital before key events like elections.
But with the expansion of the market has come greater scrutiny of the reliability of surveys. There have been some particularly notable wrong calls in recent years, such as in 2016 when the Brexit vote and election of Donald Trump wrongfooted professional pollsters (ont to mention currency and stock markets).
Stock of the Week
YouGov has carved itself a niche in this competitive field, moving above a £1 billion market cap as has successfully tapped into the world’s growing demand for reliable data and analytics. It was one of the best performers in the Morningstar Small-Cap Growth category in 2020 with a gain of 63% for the year, and 17% in December alone as UK small and mid-caps swung back into favour and US Election fever boosted business. The Morningstar UK Small Cap index had a strong final quarter of the year, rising 20%, but was down nearly 2% in the year itself.
For those who bought into the YouGov story early, the rewards have been staggering and on a par with other Alternative Investment Market success stories like Fevertee Drinks (FEVR). 10 years ago YouGov shares were trading at 45p and they are now over 1,000p, a gain of 2,200%, turning a £18 million company into a billion pound one.
But such strong growth comes at a price, and YouGov has a price/earnings ratio of 60 (you can learn more about the p/e measure here), making it one of the most expensive stocks in this sector. But broker Edison says this reflects the group’s strong market position, attractive cash generation and cash-positive balance sheet (it had £35 million of net cash, according to its full-year results in October 2020).
A US Election year in 2020 helped boost YouGov’s profile, Edison says, and the company has seen no material impact from the Covid-19 crisis: any drop-off in work from retail clients has been offset by contracts from governments, tech firms and healthcare. Listed rivals include FTSE 100 advertising and research giant WPP (WPP) and Paris-based Ipsos (IPS), which is behind Ipsos Mori polls, as well as private companies like Kantar and Survation.
YouGov features prominently in the portfolios of some highly rated UK smaller companies funds: it makes up more than 7% of the Baillie Gifford British Smaller Companies fund, which is rated as 3 stars by Morningstar analysts, and returned 32% in 2020. Silver-rated and 5 star SLI European Smaller Companies fund weights 3% of the portfolio towards YouGov, according to Morningstar Direct data.
Fund manager BlackRock holds nearly 9% of YouGov via a number of funds and trusts such as the Silver-rated BlackRock Smaller Companies Trust (BRSC), where it is the largest holding. In the trust’s latest half-year report, the managers said of YouGov, which is the trust’s largest holding: “YouGov’s vast amount of consumer data and market leading analytical tools, make it a key partner for clients that are trying to understand changing industry dynamics in order to adapt ahead of the competition.” The trust’s manager Roland Arnold recently flagged up data analytics as a key theme for investors in the coming years, particularly with consumer behaviour changing so dramatically last year during the pandemic.
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