Awaiting Asset Management resolution

Euromoney Institutional Investor 27 November 2019 Update
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Euromoney Institutional Investor

Awaiting Asset Management resolution

Full year results

Media

27 November 2019

Price

1,230.00p

Market cap

£1,343m

$1.29/£

Net cash (£m) at 30 September 2019

50

Shares in issue

109.2m

Free float

99.0%

Code

ERM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.6)

(10.9)

(1.6)

Rel (local)

(15.9)

(15.1)

(7.3)

52-week high/low

1,498.00p

1,132.00p

Business description

Euromoney Institutional Investor is a global, multi-brand information business that provides critical data, price reporting, insight and analysis to global and specialist markets.

Next events

Trading update

Late January 2020

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

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

As indicated in the year-end trading update, FY19 figures were ahead of expectations, with continued good progress in Pricing, Data and Market Intelligence (PDMI), where the Fastmarkets brand is gaining traction. There was no new news on Asset Management, now accounted as discontinued. £50m of net cash at the year-end allows plenty of scope for investment and M&A towards the goal of a fully ‘3.0’ business model, embedded in its clients’ workflows. The $20.4m purchase of Wealth–X clearly fits with this. Recent share price weakness has opened up a notable discount to global B2B information peers.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/18

390.3

99.9

73.6

32.5

16.7

2.6

09/19

401.7

104.6

77.7

33.1

15.8

2.7

09/20e

415.5

105.0

77.8

33.7

15.8

2.7

09/21e

428.0

111.0

82.3

35.0

14.9

2.8

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

Flat revenue, improving margin

FY19 flat underlying revenues reflect the mix between good performance in PDMI (up 4%) and continued weakness in Asset Management (-4%), with some softness in the smaller Banking & Finance segment (-1%). Subscriptions income was 60% of group revenues, with Events now at 31% and Advertising/other reduced to the 9% balance. Underlying PBT, though, was up by 9%, again with PDMI leading the way, with 5% adjusted operating profit growth. PDMI adjusted operating margin dipped slightly from 36% to 35% due to acquisition mix changes. For Asset Management, adjusted operating margin picked up from 41% to 43% as restructuring savings fed through. Group operating cash conversion at 98% remains very strong, with only modest capex requirements within the business (£10m in FY19), with further investment expensed at the operating level.

M&A timing and directional sensitivities

Asset Management remains in our forecasts until the position is resolved, with disposal not dependent on acquisition. Assets in the pricing space are particularly attractive but securing them in a competitive landscape is not easy and other 3.0 B2B opportunities, like Wealth-X, may take precedence. It fits well with BoardEx, bought last year. With Asset Management stripped out, subscription income dips to 48% of group revenues, with Events rising to 41%. Reporting segments are to be realigned from FY20, with Pricing to be standalone and the remaining elements of PDMI to join with Banking & Finance in a new Data & Market Intelligence segment.

Valuation: Discount opened up

Global B2B information peers’ shares have performed well over 2019 to date, climbing on average by 31%, while Euromoney has come back from around £15 prior to the announcement of the strategic review in September. Its shares are now at a discount of around 25% to peers across EV/EBITDA and P/E metrics, more reflecting the uncertainty associated with the business review, despite the intrinsically strong business model.

Trading and IFRS 16 adjustments

We have made adjustments to our forecasts, based on these results, but also now incorporating IFRS 16 for FY20 and FY21 and Wealth-X for ten months of FY20 and a full year for FY21. Broadly, the impact of IFRS16 is to increase EBITDA by around £2m and add £1m to the interest line. In terms of the balance sheet, the leases now shown as debt amount to £71.2m. Visually, this has a substantial impact on the forecast net debt for end FY20, which we now model at £10m (post the Wealth-X purchase), rather than £106m net cash, as before. Bank covenants continue to reflect the non-IFRS 16 position, as standard.

Exhibit 1: Forecast changes

Year end

Normalised EPS (p)

Normalised PBT (£m)

EBITDA (£m)

September

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY19

73.5

77.7

+6

99.0

104.6

+6

102.2

108.2

+6

FY20e

77.9

77.8

u/c

105.0

105.0

u/c

108.2

113.5

+5

FY21e

87.1

82.3

-6

117.3

111.0

-5

120.7

121.6

+1

Source: Euromoney Institutional Investor accounts, Edison Investment Research. Note: FY19 ‘old’=reported.

FY20e numbers take account of a large event, ABS East, being rescheduled from September to October to lessen the potential impact of the Florida hurricane season and the closing down of CIE in Australia. With the Wealth-X contribution now included in the figures, the implication is therefore that we are taking a slightly more cautious stance on the prospects for FY21e than when we made our first projections earlier in the year.

M&A includes disposals

Management’s strategy remains one of continuing recycling of capital to align the group with its 3.0 objectives and the last three years have seen a considerable realignment of the portfolio. The strategic review of the Asset Management segment, though, is on a different scale, as this segment accounted for 36% of FY19 group revenue and 43% of operating profit. Exhibit 3, below, shows how the blend of revenue by type changes in the context of a full disposal. Pre-central costs, a full disposal would reduce operating margins from 36.0% to 32.3%. However, at this stage, it is not possible to model how much those central costs (£36.7m in FY19) would reduce on a disposal.

The segment consists of three assets: Institutional Investor, BCA and Ned Davis Research; and it may happen that any disposal is conducted by stages rather than all together.

Exhibit 2: FY19 revenue by type including Asset Management

Exhibit 3: FY19 revenue by type excluding Asset Management

Source: Euromoney Institutional Investor accounts

Source: Euromoney Institutional Investor accounts

Exhibit 2: FY19 revenue by type including Asset Management

Source: Euromoney Institutional Investor accounts

Exhibit 3: FY19 revenue by type excluding Asset Management

Source: Euromoney Institutional Investor accounts

The acquisition of Wealth-X brings a complementary revenue stream to BoardEx, as a provider of data-driven intelligence on the world’s wealthiest individuals, used for business development and Know Your Client activities. Its proprietary database is embedded in the workflow of banks, wealth managers, luxury brands and non-profit customers. The purchase, for $20.4m, is at 1.6x FY19 revenue and 25.6x FY19 EBITDA, expected to fall below 12x FY20 EBITDA. Revenue has been growing at a CAGR of 13% for the three years to December 2019. We have assumed a small moderation of this rate of growth and included it for ten months of FY20.

New segmental split proposed

The reporting segments now stand as Asset Management, PDMI and Banking & Finance. Pricing has become an increasingly important element of PDMI, although the extent was not previously disclosed. The Fastmarkets brand grew well in FY19, with revenues ahead by 10%, and has been building traction, which can only be helped by the LME decision to use it for the benchmarking of lithium contracts. Along with the Commodity Events of GlobalGrain and the Coaltrans conferences, it will now constitute the new Pricing reporting segment.

The remaining group businesses will join with the previous Banking & Finance segment to form the Data & Market Intelligence segment (DMI), made up of two parts: Telecoms; and Financial & Professional Services.

Exhibit 4: New segments by FY19 revenue

Exhibit 5: FY19 revenue excluding Asset Management

Source: Euromoney Institutional Investor accounts

Source: Euromoney Institutional Investor accounts

Exhibit 4: New segments by FY19 revenue

Source: Euromoney Institutional Investor accounts

Exhibit 5: FY19 revenue excluding Asset Management

Source: Euromoney Institutional Investor accounts

Pricing’s revenues are predominantly subscription at 77%, with 17% from Events and 6% from Advertising and Other, while DMI will be more heavily skewed to Events. These represent 55% of its FY19 revenues, with 32% coming from subscriptions and the balancing 13% from Advertising/ Other.

Of course, additional new assets that come into the group as the proceeds from any Asset Management disposal are spent and existing facilities deployed may change the picture considerably. Group management is confident that the acquisition pipeline is healthy, with a good number of projects at various stages. The group carries minimal debt (bar the leases now categorised as such under IFRS 16) and has an undrawn committed revolving credit facility of £240m (and an uncommitted £130m accordion). It therefore has the potential to do a substantial deal or a number of smaller deals.

Uncertainty in the price

The current position of the business is weighing on the valuation, as the market waits to see how the changes will play out. Euromoney’s shares are trading at a notable discount to the peer group across all metrics, as is shown in the table below.

Exhibit 6: Comparative valuation

Name

Price -

reporting currency

Quoted

currency

Ytd

performance (%)

Market

cap (m)

EV/sales

last (x) 

EV/EBITDA (x)

P/E (x)

FCF

last

1FY

2FY

last

1FY

2FY

yield 1

Thomson Reuters Corp

71.64

C$

48

35,811

6.5

21.0

25.2

19.5

64.0

57.2

36.9

2.1

Envestnet Inc

65.22

US$

33

3,422

4.6

43.2

20.9

18.1

241.0

30.5

25.2

0.0

Morningstar Inc

155.55

US$

42

6,659

Swissquote Group Holding-reg

45.48

CHF

1

697

7.4

3.2

2.9

2.6

16.5

16.3

13.8

2.3

Wilmington plc

2.30

GBp

29

201

1.9

9.5

9.4

8.9

13.3

12.6

11.9

4.1

Informa plc

7.86

GBp

25

9,842

4.6

15.7

12.9

12.6

14.4

15.6

14.7

3.0

Hyve Group plc

80.60

GBp

27

598

3.5

51.6

12.9

11.9

18.4

16.5

15.2

3.1

Ascential plc

3.26

GBp

(14)

1,314

3.7

13.5

11.6

10.9

15.7

18.8

16.7

1.9

Relx

18.56

GBp

15

35,991

5.5

16.0

15.0

14.4

20.8

20.2

18.8

2.4

GlobalData

10.65

GBp

81

1,258

7.9

45.5

31.7

28.4

45.5

39.9

1.3

MSCI

256.00

US$

74

21,690

28.3

28.1

25.0

42.2

40.1

36.0

1.0

MarketAxess

398.00

US$

88

15,089

52.1

51.5

44.6

74.9

73.0

64.4

0.5

Average

37.3

5.1

27.2

20.2

17.9

52.1

31.5

26.7

2.0

Median

30.7

4.6

21.0

15.0

14.4

19.6

20.2

18.8

2.1

Euromoney

12.54

GBp

5

1,359

3.2

12.0

11.3

10.0

16.1

15.7

14.7

4.8

Discount

-30%

-43%

-24%

-30%

-18%

-22%

-22%

130%

Source: Refinitiv, Edison Investment Research. Note: Prices as at 22 November.

Exhibit 7: Financial summary

£m

2018

2019

2020e

2021e

30-September

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

390.3

401.7

415.5

428.0

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

390.3

401.7

415.5

428.0

EBITDA

 

 

105.0

108.2

113.5

121.6

Operating Profit (before amort. and except.)

 

 

101.6

105.4

107.5

113.9

Intangible Amortisation

(22.7)

(25.1)

(25.6)

(25.6)

Exceptionals

81.4

0.0

0.0

0.0

Capital Appreciation Plan

0.0

0.0

0.0

0.0

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

160.3

80.3

81.9

88.3

Associates

0.1

(0.1)

0.0

0.0

Net Interest

(1.8)

(0.7)

(2.5)

(2.9)

Exceptional financials

(6.6)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

99.9

104.6

105.0

111.0

Profit Before Tax (FRS 3)

 

 

152.0

79.5

79.4

85.4

Tax

(20.6)

(20.8)

(21.0)

(22.2)

Profit After Tax (norm)

79.3

83.8

84.0

88.8

Profit After Tax (FRS 3)

102.5

58.7

58.4

63.2

Average Number of Shares Outstanding (m)

107.4

107.6

107.6

107.6

EPS - normalised (p)

 

 

73.6

77.7

77.8

82.3

EPS - (IFRS) (p)

 

 

122.2

54.4

54.2

58.6

Dividend per share (p)

32.5

33.1

33.7

35.0

EBITDA Margin (%)

26.9

26.9

27.3

28.4

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

26.0

26.3

25.9

26.6

BALANCE SHEET

Fixed Assets

 

 

616.5

433.9

430.9

404.5

Intangible Assets

588.2

405.4

401.1

379.6

Tangible Assets

24.0

23.2

24.5

19.6

Investments

4.3

5.3

5.3

5.3

Current Assets

 

 

165.7

397.4

419.1

473.5

Stocks

0.0

0.0

0.0

0.0

Debtors

68.3

49.0

62.3

64.2

Cash

78.3

50.1

59.9

112.3

Other

19.1

298.4

296.9

296.9

Current Liabilities

 

 

(262.2)

(273.2)

(217.3)

(225.0)

Creditors

(262.2)

(273.2)

(217.3)

(225.0)

Short term borrowings

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(41.4)

(31.7)

(191.6)

(120.4)

Long term borrowings

0.0

0.0

(71.2)

(71.2)

Other long term liabilities

(41.4)

(31.7)

(120.4)

(49.2)

Net Assets

 

 

478.6

526.4

441.1

532.6

CASH FLOW

Operating Cash Flow

 

 

108.6

92.4

110.3

121.7

Net Interest

(2.8)

(0.2)

0.1

(0.4)

Tax

(38.9)

(38.4)

(37.5)

(19.5)

Capex

(4.9)

(10.0)

(10.3)

(11.0)

Acquisitions/disposals

195.8

(48.4)

(15.8)

0.0

Equity Financing / Other

2.7

11.9

0.0

0.0

Dividends

(34.2)

(35.8)

(36.9)

(38.4)

Net Cash Flow

226.2

(28.5)

9.8

52.5

Opening net debt/(cash)

 

 

154.6

(78.3)

(50.1)

11.3

Redemption of pref

0.0

0.0

0.0

0.0

Other

0.0

0.3

(71.2)

0.0

Closing net debt/(cash)

 

 

(78.9)

(50.1)

11.3

(41.1)

Source: Euromoney Institutional Investor accounts, Edison Investment Research


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This report has been commissioned by Euromoney Institutional Investor and prepared and issued by Edison, in consideration of a fee payable by Euromoney Institutional Investor. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

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General disclaimer and copyright

This report has been commissioned by Euromoney Institutional Investor and prepared and issued by Edison, in consideration of a fee payable by Euromoney Institutional Investor. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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