Automation And Regulatory Risks Will Compress Margins Though Loyalty Continues

Key Takeaways

• Industry-wide adoption of AI and automation may lead to service commoditization, price pressure, and challenges in sustaining revenue growth and profitability.
  
• Operational complexity from acquisitions and talent competition could weaken efficiency, compress margins, and erode agency relevance amid evolving client and regulatory landscapes.
  
• Reliance on tech clients, macro uncertainty, integration hurdles, industry automation, and high-risk strategic shifts threaten revenue stability, margins, and future growth prospects.

Catalysts

Next 15 Group plc, together with its subsidiaries, customer insight, customer delivery, customer engagement, and business transformation services in the United Kingdom, Africa, the United States, Europe, Middle East, and Africa.

• Although Next 15 Group is actively investing in AI-driven platforms such as JourneyLab and aiming to shift toward higher-margin and recurring subscription-based revenue models, the increasing adoption of these same AI and automation technologies across the industry could accelerate the commoditization of digital marketing services, leading to pressure on pricing and ultimately constraining long-term revenue growth and net margins.
  
• While the company has demonstrated resilience in retaining a stable, high-value client base with 70% of top customers onboard for over five years, ongoing regulatory challenges around data privacy and compliance continue to heighten operational risk, making it difficult to maintain the effectiveness and measurability of digital marketing campaigns, which could undermine future fee income and profitability.
  
• Even though management is committed to simplifying the business and integrating previously siloed subsidiaries to unlock operational efficiencies, persistent complexity from rapid M&A activity and efforts to harmonise organizational incentives risk introducing friction and inefficiency, putting downward pressure on operating margins in the coming years.
  
• Despite a successful transition toward more scalable, data-centric offerings and significant investments in talent retention-with average employee tenure well above industry norms-competition for digital and data specialists is intensifying, which may lead to increased wage costs or diminished service quality, compressing net margins over the long term.
  
• Although strategic acquisitions and a refocus on high-growth service lines like B2B influencer marketing and U.S. retail media expansion offer meaningful upside, the ongoing threat of large tech platforms and in-housing trends among brand clients may weaken agency relevance, heightening client attrition risk and limiting sustained revenue recovery or growth.

Next 15 Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Next 15 Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Next 15 Group's revenue will decrease by 13.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.4% today to 7.2% in 3 years time.
• The bearish analysts expect earnings to reach £33.7 million (and earnings per share of £0.24) by about July 2028, down from £39.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 7.5x today. This future PE is greater than the current PE for the GB Media industry at 12.0x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.72%, as per the Simply Wall St company report.

Next 15 Group Future Earnings Per Share Growth

Risks

• Increasing dependence on technology sector clients, which will account for one third of revenues this year after the loss of the Mach49 contract, exposes Next 15 Group to revenue volatility and sector-specific downturns that could significantly pressure group revenues.
  
• Ongoing macroeconomic uncertainty and a cautious outlook from management, especially regarding US government policy and global advertising client spend, create material near-term and longer-term risks for organic growth, profitability, and overall earnings.
  
• Integration challenges arising from recent acquisitions and efforts to simplify the operational structure underline the risk of operational inefficiencies or write-downs, which could weigh on future margins and net profits.
  
• Industry-wide trends toward increased automation, self-serve advertising solutions from large tech platforms, and growing in-housing of marketing services among clients threaten to erode the strategic value proposition of agencies, leading to potential revenue compression for Next 15 Group.
  
• The shift from project-based to subscription-based models and accelerated AI investment require significant upfront capital and successful execution, but if adoption lags, or if these investments fail to deliver scale, margins could be compressed and future cash flows strained.

Valuation

• The assumed bearish price target for Next 15 Group is £3.29, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Next 15 Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.8, and the most bearish reporting a price target of just £3.29.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £469.5 million, earnings will come to £33.7 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of £2.95, the bearish analyst price target of £3.29 is 10.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.