Euromoney Institutional Investor — Subscribing to growth

Euromoney Institutional Investor — Subscribing to growth

Euromoney’s AGM trading update indicates performance continuing in line with full year expectations, subject to currency which is now a headwind. Our forecasts are adjusted to take this, and recent M&A, into account. Q118 subscriptions and content are showing underlying growth of 2%. This masks the divergence between a strong showing from Pricing (+10%) and continued MiFID II-prompted drag from Asset Management (-6%). Portfolio changes (as well as strong cash conversion) have resulted in a marked reduction in net debt to £49.0m as at end December 2017, with the prospect of moving into net cash during FY19, subject to M&A.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Euromoney Institutional Investor

Subscribing to growth

AGM update

Media

2 February 2018

Price

1160.00p

Market cap

£1266m

£/US$1.38

Net debt (£m) at 31 December 2017

49.06

Shares in issue

109.1m

Free float

50.8%

Code

ERM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.1)

1.2

4.6

Rel (local)

(8.8)

1.3

(1.8)

52-week high/low

1305.0p

1027.0p

Business description

Euromoney Institutional Investor (ERM) is an international B2B information and events group. Its portfolio of over 50 specialist businesses spans macroeconomic data, investment research, news and market analysis, industry forums and institutes, financial training and excellence awards.

Next events

Interims

May 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Euromoney Institutional Investor is a research client of Edison Investment Research Limited

Euromoney’s AGM trading update indicates performance continuing in line with full year expectations, subject to currency which is now a headwind. Our forecasts are adjusted to take this, and recent M&A, into account. Q118 subscriptions and content are showing underlying growth of 2%. This masks the divergence between a strong showing from Pricing (+10%) and continued MiFID II-prompted drag from Asset Management (-6%). Portfolio changes (as well as strong cash conversion) have resulted in a marked reduction in net debt to £49.0m as at end December 2017, with the prospect of moving into net cash during FY19, subject to M&A.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/16

403.1

102.5

66.6

23.4

17.4

2.0

09/17

428.4

106.5

76.4

30.6

15.2

2.6

09/18e

429.4

103.0

75.8

30.6

15.3

2.6

09/19e

442.5

108.0

79.9

31.5

14.5

2.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Underlying trading broadly +ve, currency -ve

Q1 underlying trading patterns from subscriptions have extrapolated the trends of Q417, with encouraging progress in Pricing, accelerating from 8% (exit rate for Q4) to 10% growth, while Asset Management, afflicted by the uncertainties surrounding the implementation of MiFID II, declined by 6%. The quarter is a quiet one for the events business, but the trading news is again of the positive impact of the strategic focus on the larger events, with underlying revenues ahead by 9%. These changes were already built into our figures. We have now adjusted for M&A since our last publication, principally the disposal of the minority stake in Dealogic, along with three other business disposals, as well as mechanistic changes as a result of the move in the £/US$ exchange rate. Around two-thirds of group revenues and c 80% of profits are earned in US$, and each 1 cent change results in a £0.7m movement in profits on an annualised basis. Our earnings estimates for FY18 are trimmed by 5-6%, while FY19, with a full year effect, is pulled back by 8%.

Cash building

The balance sheet has benefited from the proceeds from disposals (as well as cash conversion of over 100%), with net debt of £49m at end December from £155m at the September year-end. In the absence of M&A (which is a very unlikely scenario), our model indicates this coming down to £28.5m by the year-end and moving to net cash during FY19.

Valuation: Overshadowed by asset management

The group continues to trade at a modest discount to peers (we estimate this at around 7% based on a mixture of multiples), reflecting concerns over the outlook for the asset management sector and the tougher y-o-y comparatives as of Q218. However, the group has strong cash flow characteristics and capacity for earnings-enhancing M&A, with a reverse DCF showing that the current valuation implies just 2% medium-term revenue growth on stable EBITDA margins.

Exhibit 1: Financial summary

£m

2016

2017

2018e

2019e

30-September

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

403.1

428.4

429.4

442.5

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

403.1

428.4

429.4

442.5

EBITDA

 

 

104.3

110.3

110.8

112.8

Operating Profit (before amort. and except.)

101.5

107.1

106.9

108.6

Intangible Amortisation

(16.8)

(20.8)

(20.6)

(12.3)

Exceptionals

(37.3)

(31.3)

0.0

0.0

Capital Appreciation Plan

0.0

0.0

0.0

0.0

Operating Profit before ass's & fin. except'ls

47.4

55.1

86.3

96.3

Associates

2.2

3.3

0.0

0.0

Net Interest

(1.1)

(4.0)

(3.9)

(0.6)

Exceptional financials

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

102.5

106.5

103.0

108.0

Profit Before Tax (FRS 3)

 

 

48.4

54.4

82.4

95.6

Tax

(18.1)

(19.8)

(21.1)

(21.6)

Profit After Tax (norm)

84.5

86.6

81.9

86.4

Profit After Tax (FRS 3)

30.4

34.6

61.3

74.0

Average Number of Shares Outstanding (m)

126.5

112.5

107.3

107.3

EPS - normalised (p)

 

 

66.6

76.4

75.8

79.9

EPS - (IFRS) (p)

 

 

23.8

30.3

56.7

68.6

Dividend per share (p)

23.4

30.6

30.6

31.5

EBITDA Margin (%)

25.9

25.8

25.8

25.5

Operating Margin (before GW and except.) (%)

25.2

25.0

24.9

24.6

BALANCE SHEET

Fixed Assets

 

 

601.9

648.8

352.5

340.0

Intangible Assets

551.1

594.0

317.1

303.9

Tangible Assets

14.9

24.4

5.1

5.7

Investments

35.9

30.4

30.4

30.4

Current Assets

 

 

170.3

127.8

131.8

180.2

Stocks

0.0

0.0

0.0

0.0

Debtors

78.6

64.5

68.7

70.8

Cash

84.2

4.4

4.6

50.9

Other

7.5

58.9

58.5

58.5

Current Liabilities

 

 

(249.4)

(267.5)

(239.2)

(248.0)

Creditors

(249.0)

(267.5)

(239.2)

(248.0)

Short term borrowings

(0.4)

0.0

0.0

0.0

Long Term Liabilities

 

 

(45.3)

(212.3)

(89.9)

(89.9)

Long term borrowings

0.0

(168.9)

(33.1)

(33.0)

Other long term liabilities

(45.3)

(43.4)

(56.8)

(56.8)

Net Assets

 

 

477.5

296.8

155.1

182.3

CASH FLOW

Operating Cash Flow

 

 

103.8

118.2

99.0

108.7

Net Interest

(0.4)

(1.5)

(3.7)

(0.4)

Tax

(16.7)

(21.8)

(18.6)

(19.0)

Capex

(3.2)

(10.9)

(5.5)

(5.5)

Acquisitions/disposals

(3.8)

(99.9)

88.4

(3.0)

Equity Financing / Other

10.6

(193.0)

(0.0)

0.0

Dividends

(29.9)

(31.3)

(33.4)

(34.3)

Net Cash Flow

60.3

(240.2)

126.1

46.4

Opening net debt/(cash)

 

 

(17.7)

(83.8)

154.6

28.5

Redemption of pref

7.8

0.0

0.0

0.0

Other

(2.0)

1.8

0.0

0.0

Closing net debt/(cash)

 

 

(83.8)

154.6

28.5

(17.9)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Euromoney Institutional Investor and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Euromoney Institutional Investor and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Keywords Studios — Marching on

FY17 was a transformational year for Keywords, both operationally and financially. Acquisitions have bolstered the company’s capability set and geographical reach, while driving strong double-digit earnings growth. Organic growth remains strong and we see potential for market share gains to accelerate, driven by a strengthened platform for cross-selling. It is not unreasonable to expect a similar scenario into FY18/19. Execution of this should drive further share price upside, despite the premium rating.

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