Analysts cool on Next 15 after "disappointing" contract news

(Alliance News) - Next 15 Group PLC must be able to give "some reassurance" with its half-year results later this month, as the loss of a vital contract and other weaknesses having left analysts concerned about its outlook.

Next 15 shares plummeted 48% to 432.50 pence each on Friday afternoon in London, leaving it with a market cap of GBP835.6 million.

The London-based public relations agency said a contract with Mach49's largest customer has not been renewed after its initial three-year term and will now end on December 31. Mach49 is Next 15's venture-building and investing business.

This contract had been expected to contribute just over GBP80 million of revenue in the year ending on January 31, 2026, which means forecasts for that year will need to be adjusted.

"The contract was won in February 2022 and was meant to be worth USD400m over the FY23-27 period. As a result of the discontinuation of the contract, we forecast that the outstanding [approximately] GBP167m of the contract will not be realised," Berenberg analysts noted.

AJ Bell analyst Russ Mould, meanwhile, called the news "a significant blow".

"Rough calculations suggest it will result in a 12% hit to consensus forecast revenue for the January 2026 financial year," he added.

Shore Capital analysts agreed that this was "undoubtedly a disappointing update", adding: "The impact of this contract not being renewed will be downgrades to revenue and earnings forecast for FY26 and, in turn, reduce the earn-out obligation to Mach49's shareholders due over the next three years."

They further noted that Mach49 operates within Next 15's 'Business Transformation' brands, "which has been one of the key growth drivers in recent years and traditionally has the highest operating margin across the group's verticals".

Additionally, Next 15 has continued to see "an ongoing weakness in spend" from its technology customers, as well as a reduction in revenue from its public sector clients which Berenberg attributes to "the earlier-than-expected UK general election".

As a result of these factors and the contract ending which will impact the last month of the financial year, Next 15 now believes financial 2025 revenue will be lower than planned, and profits to be materially below management expectations.

"As a result, we adjust our FY25, FY26E and FY27E forecasts accordingly," the Berenberg analysts said. "We reduce our sales forecasts by 5%, 19% and 18% in FY25, FY26E and FY27E respectively. Moreover, we reduce our respective adjusted Ebit forecasts by 12%, 34% and 33% for these three years."

Berenberg further stated that it expects respective 12%, 33% and 35% reductions in free cash flow for financial 2025, 2026 and 2027.

"According to Bloomberg, current FY25 consensus forecasts for revenue and adjusted Ebit are GBP608 million and GBP129.8 million respectively," Berenberg said. "Our updated revenue and adjusted Ebit forecasts for FY25 are 3% and 11% below consensus respectively."

If Berenberg is correct, this will mark a sharp contrast from mid-April, when Next 15 said trading was in line with expectations.

Revenue for financial 2024 rose 2.0% to GBP734.7 million; pretax profit jumped to GBP80.3 million from GBP10.1 million; and adjusted operating profit rose 6.1% to a "record" GBP121.1 million. At the time, Chief Executive Officer Tim Dyson said this showed "the benefit of the decentralised and diversified business model".

On Friday, however, AJ Bell's Mould commented: "It is always dangerous if a business is reliant on a single client or contract for a big chunk of its revenue and shareholders in Next 15 have had a painful reminder of that fact this morning."

Next 15 will publish its half-year results on September 17 at which point, Mould said, it will "need to find a way of giving the market some reassurance".

Shore said it will "formally update our financial forecasts with the benefit of a more detailed information set and greater visibility on trading expectations for the remainder of FY25F and further" once it digests any "further guidance" the interim earnings report provides.

For now, Shore said it has changed its earlier 'buy' recommendation to 'under review', "until we've had the opportunity to speak with management".

Berenberg meanwhile maintained its 'buy' recommendation, but cut the price target to 885p from 1,450p "to reflect the change in our forecasts".

By Emma Curzon, Alliance News reporter

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