Euromoney Institutional Investor |
Embedded solutions |
Analysts’ presentation |
Media |
11 February 2020 |
Share price performance
Business description
Next events
Analysts
Euromoney Institutional Investor is a research client of Edison Investment Research Limited |
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Euromoney’s teach-in focused on Finance & Professional Services (FPS) within the newly reconfigured Data & Market Intelligence (DMI) segment. FPS represents 37% of pro forma group FY19 revenues including Asset Management; 59% without. Its attributes epitomise Euromoney’s journey to becoming a fully embedded partner to its clients, with a high proportion of recurring revenues. Uncertainty regarding the Asset Management strategic review continues to undermine the share price, with the valuation at a wide discount to peers (c 37%), which we view as unjustified on fundamentals.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/18 |
390.3 |
99.9 |
73.6 |
32.5 |
16.5 |
2.7 |
09/19 |
401.7 |
104.6 |
77.7 |
33.1 |
15.6 |
2.7 |
09/20e |
415.5 |
105.0 |
77.8 |
33.7 |
15.6 |
2.8 |
09/21e |
428.0 |
111.0 |
82.3 |
35.0 |
14.7 |
2.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FPS infrastructure in place
FPS now has a management and operational structure in place to enable it to grow its brands. It offers services in workflow solutions, market intelligence and support for business development. The group’s shift towards a ‘3.0’ business model, embedded in a client’s workflow and with a growing proportion of licensing income, should accelerate top-line progress. Margin expansion potential is balanced by the need to continue to invest in product, sales and service. The top 11 brands in the portfolio account for 83% of FPS pro forma revenues, which are split 45% subscription, 42% events, 8% advertising and 5% other, with subscriptions the fastest-growing element (revenue CAGR of 8% in FY17–19).
Financing firepower
With a very recent Q120 trading update (see our January update note), no new financial information was given at the analysts’ presentation and our forecasts are unchanged. The strategic review of the Asset Management segment, initiated in September 2019, is continuing. Regardless of the outcome, Euromoney has plenty of firepower for potential acquisitions, as well as resource for organic investment. It had £27.3m net cash at end December and an undrawn committed revolving credit facility of £240m (with an uncommitted £130m accordion). The group is inherently highly cash generative (with an average of 99% conversion of operating profit over the last 10 years).
Valuation: Discount persists
Global B2B information peers’ shares performed very well over the last 12 months, climbing on average by 42%. The recent markdown in Euromoney’s share price leaves it valued 6% below a year ago, having hit highs of around £15 prior to the announcement of the strategic review in September. This represents a discount of around 37% to peers across EV/EBITDA and P/E metrics, reflecting the uncertainty associated with the strategic review, despite the intrinsically strong business model.
FPS showcase
The presentation did not cover the Pricing segment or the Telecoms vertical within DMI.
FPS has been carved out of the previous Banking & Finance and Specialist Information divisions. It is led by Jeff Davis, who presented at the teach-in and joined the group with the purchase of BoardEx and The Deal in February 2019. The division also now has its own dedicated CFO and CTO, etc, in addition to the individuals heading the segments outlined below.
FPS is itself segmented into three: NextGen, IMN & Derivatives, and People Intelligence. NextGen is the largest of these, with revenues of £97m, followed by IMN & Derivatives (£40m), then People Intelligence (£19m).
Group strategy is predicated on driving toward a 3.0 business model (see our March 2019 outlook note), increasing the proportion of recurring revenues and the degree of ‘stickiness’ within clients. Management estimates that around 32% of FPS revenues would currently fall into this 3.0 category, in particular the people data/relationship mapping (within BoardEx and Wealth-X), derivatives data (IMN a key brand here) and in running Events focused on facilitating deals. Only around 8% of revenue is derived from advertising, with the balance in ‘2.0’ activities with the potential to move towards 3.0. 3.0 businesses are capable of faster growth as they gain traction, typically growing in a range of 9–13%. There is always a danger, however, of trying to drive change faster than clients are comfortable with.
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Exhibit 1: FPS revenue streams |
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Source: Euromoney Institutional Investor, Edison Investment Research |
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Exhibit 1: FPS revenue streams |
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Source: Euromoney Institutional Investor, Edison Investment Research |
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The activities can be grouped into three elements:
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Workflow solutions: this could be hosting events whose explicit purpose is the facilitation of deals between participants, such as those run by GlobalCapital and Airfinance Journal or in learning solutions, where Euromoney has expertise.
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Market Intelligence and Market Data, primarily within the finance and legal segments, including insight and analytics.
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Business Development: helping clients grow their businesses through lead generation products, sponsored events, thought leadership and advertising.
The scale of the operation brings its own benefits, with websites migrated onto one platform and a unified CRM being rolled out over the next couple of years. The number of events, over 300, means that the group has the leverage to renegotiate deals with venues, rather than dealing with venues at a brand level.
NextGen more diverse portfolio
NextGen serves clients in the financial services and professional services sectors. Its key brands are shown below. Each is addressing very specific end-markets and has a high level of relevance within its specialism.
Exhibit 2: Key NextGen brands
Financial Services |
% revenue by industry |
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Banking |
Euromoney |
29% |
Asset Financing |
IJGlobal, Airfinance Journal |
17% |
Insurance |
Insurance Insider |
14% |
Capital Markets |
GlobalCapital |
12% |
Transactions |
The Deal |
10% |
Professional Services |
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Legal |
IFLR, Intl Tax Review, Managing Intellectual Property, Asialaw Profiles |
18% |
Source: Euromoney Institutional Investor
All are considered domain experts in their markets.
71% of NextGen’s revenues are recurring and just under half are from the business development stream, supporting clients in building new commercial relationships. It has customers in over 150 countries, mostly served from London and New York. Five of the brands were showcased at the presentation, each outlining their activities and relevance to their audiences and, interestingly, identifying which of their attributes was useful for other brands in the portfolio.
IMN & Derivatives
The key brands within this segment are IMN, Tradedata, SRP and Total Derivatives, which have combined revenues of £39.5m, and a revenue CAGR of 9% over FY17–19. Markets addressed are structured finance and products (a global market), along with real estate (more domestically focused, using local expertise), with a smaller proportion in trading. Within structured finance, there are attractive opportunities to grow in Asia; for real estate the better prospects are in regional US.
31% of revenues are subscription, mostly through embedded information services, with another 50% from events focused on deal-making. The balance comes from other industry events and awards, which typically achieve a high margin.
Tradedata has built a strong business from identifying a point of friction within futures and options trading, and addressing it with a market-embedded solution. This has dramatically reduced error rates and speeded up trading. Expanding into ETFs provides a further growth opportunity.
People Intelligence
Again, primarily addressing the financial services and professional services segments, this operation provides workflow solutions (identification of candidates, meeting Know Your Customer requirements, getting connected) and business development facilitation (lead generation, fund raising, new sources of capital, new sources of wealth). With a 15% revenue CAGR in FY17–19 and a net renewal rate on subscription of 94%, there is clearly a lot more market to go for here. In the near term, the major opportunity is in cross-selling between BoardEx, acquired in February 2019, and Wealth-X, bought in November 2019 (see our update note).
Exhibit 3: Financial summary
£m |
2018 |
2019 |
2020e |
2021e |
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Year end 30 September |
IFRS |
IFRS |
IFRS |
IFRS |
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PROFIT & LOSS |
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Revenue |
|
|
390.3 |
401.7 |
415.5 |
428.0 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
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Gross Profit |
390.3 |
401.7 |
415.5 |
428.0 |
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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) |
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Exceptionals |
81.4 |
0.0 |
0.0 |
0.0 |
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Capital Appreciation Plan |
0.0 |
0.0 |
0.0 |
0.0 |
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Operating Profit before ass's & fin. except'ls |
160.3 |
80.3 |
81.9 |
88.3 |
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Associates |
0.1 |
(0.1) |
0.0 |
0.0 |
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Net Interest |
(1.8) |
(0.7) |
(2.5) |
(2.9) |
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Exceptional financials |
(6.6) |
0.0 |
0.0 |
0.0 |
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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) |
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Profit After Tax (norm) |
79.3 |
83.8 |
84.0 |
88.8 |
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Profit After Tax (FRS 3) |
102.5 |
58.7 |
58.4 |
63.2 |
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Average Number of Shares Outstanding (m) |
107.4 |
107.6 |
107.6 |
107.6 |
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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 |
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EBITDA Margin (%) |
26.9 |
26.9 |
27.3 |
28.4 |
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Operating Margin (before GW and except.) (%) |
26.0 |
26.3 |
25.9 |
26.6 |
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BALANCE SHEET |
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Fixed Assets |
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|
616.5 |
433.9 |
430.9 |
404.5 |
Intangible Assets |
588.2 |
405.4 |
401.1 |
379.6 |
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Tangible Assets |
24.0 |
23.2 |
24.5 |
19.6 |
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Investments |
4.3 |
5.3 |
5.3 |
5.3 |
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Current Assets |
|
|
165.7 |
397.4 |
419.1 |
473.5 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
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Debtors |
68.3 |
49.0 |
62.3 |
64.2 |
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Cash |
78.3 |
50.1 |
59.9 |
112.3 |
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Other |
19.1 |
298.4 |
296.9 |
296.9 |
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Current Liabilities |
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|
(262.2) |
(273.2) |
(217.3) |
(225.0) |
Creditors |
(262.2) |
(273.2) |
(217.3) |
(225.0) |
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Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
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Long Term Liabilities |
|
|
(41.4) |
(31.7) |
(191.6) |
(120.4) |
Long term borrowings |
0.0 |
0.0 |
(71.2) |
(71.2) |
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Other long term liabilities |
(41.4) |
(31.7) |
(120.4) |
(49.2) |
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Net Assets |
|
|
478.6 |
526.4 |
441.1 |
532.6 |
CASH FLOW |
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Operating Cash Flow |
|
|
108.6 |
92.4 |
110.3 |
121.7 |
Net Interest |
(2.8) |
(0.2) |
0.1 |
(0.4) |
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Tax |
(38.9) |
(38.4) |
(37.5) |
(19.5) |
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Capex |
(4.9) |
(10.0) |
(10.3) |
(11.0) |
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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) |
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Net Cash Flow |
226.2 |
(28.5) |
9.8 |
52.5 |
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Opening net debt/(cash) |
|
|
154.6 |
(78.3) |
(50.1) |
11.3 |
Redemption of pref |
0.0 |
0.0 |
0.0 |
0.0 |
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Other |
0.0 |
0.3 |
(71.2) |
0.0 |
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Closing net debt/(cash) |
|
|
(78.3) |
(50.1) |
11.3 |
(41.1) |
Source: Company accounts, Edison Investment Research
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