Adtech business stays afloat despite market scepticism

COVID has been responsible for more than a few shots in the arm – and digital advertising has been no exception, with the onset of the pandemic triggering 32% growth in the global industry to US$537 billion in the year to 2021.

Among the companies riding the wave is ASX-listed Enero Group, an advertising technology company that owns advertising agencies in several major cities globally, with the jewel in its crown being adtech platform OB Media.

Westferry Investment Group’s Managing Director Peter Johns featured Enero Group as one of his favourite stocks on our The Insider: Meet the Fund Manager session in February.

“They’re not classic big agencies that are producing TV ads and the like. They tend to be very focused on internet and online advertising,” Mr Johns said.

“[Enero Group] has grown really well over the last few years and probably has had a lot of scepticism as to how sustainable that growth was but I’ve been won over.”

Mr Johns noted the company’s stake in OB Media as a key driver for Westferry’s valuation of Enero.

“OB Media is the most exciting of the companies that they own,” he said. “It’s an incredibly fast-growing company and one that is focused exclusively on internet advertising.”

According to the fundie, the adtech platform is a marketplace that uses artificial intelligence to help website owners attract the best and most relevant advertising for their site in an incredibly efficient manner.

As at February 2022, Enero owned 100% of the companies in its group but only owned ~50% of OB Media. However, the platform had performed well for the group in the first half of FY22.

“Enero’s share was making around $7.5 million, up from $5 million in the first half of last year,” Mr Johns said. “If you go back, you’ll see that that $5 million is well above the previous year.”

Speaking to the broader market sentiment, Mr Johns added: “People who don’t like the stock say that it’s a fairly buoyant time for advertising and there’s some downside risk there.

“It’s a good profitable business producing a profit of around $25 million a year. And perhaps there’s some aspects of the things we’ve seen with COVID and the changes to the advertising market that may have buoyed that profit.

“In my view, there’s enough of a margin of safety there that makes it an investment that we’re certainly invested in. In the meantime, it’s paying out a fairly healthy dividend.”

Click here to view more videos from Peter Johns’ The Insider: Meet the Fund Manager session.

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