Headwinds still blowing

Euromoney Institutional Investor 29 January 2016 Update

Euromoney Institutional Investor

Headwinds still blowing

Q1 trading update

Media

29 January 2016

Price

886.00p

Market cap

£1,136m

£1:$1.43

Net cash (£m) at end December 2015

30.3

Shares in issue

128.2m

Free float

32.2%

Code

ERM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.1)

(6.7)

(16.1)

Rel (local)

(4.7)

(1.1)

(6.8)

52-week high/low

1261.0p

885.5p

Business description

Euromoney Institutional Investor is a leading international B2B media group focused primarily on the international finance, metals and commodities sectors.

Next events

Capital markets day

9 March 2016

Interim results

19 May 2016

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 (ERM) Q1 update shows trading conditions remaining challenging, with the poor start to the year in equity markets added to the mix. Subscription revenues are still growing (up 2% at constant currency), but the continuing depressed oil price is showing through in lower delegate revenues. Currency has clearly swung in the group’s favour and the cash performance remains strong. The capital markets day, when new CEO Andrew Rashbass will present the strategy update, is now six weeks away and the shares are likely to mark time in the meantime.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/14

406.6

116.2

70.6

23.0

12.5

2.6

09/15

403.4

107.8

70.1

23.4

12.6

2.6

09/16e

390.0

101.0

64.5

23.4

13.7

2.6

09/17e

397.5

106.6

68.0

23.4

13.0

2.6

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

Markets difficult, currency helpful

The issues surrounding confidence in banking markets have been well rehearsed and the impact of weak commodity markets is also built into market consensus. The revenue from Delegates is bearing the brunt of the low energy prices (down 19% at constant currency in Q1), while advertising continues to drift as expected. The activities addressed at the asset management markets have been much more resilient to date, primarily coming through in subscription revenues. Should equity markets remain weak, there may be some further impact down the line, although the recent strength of the US dollar will be helpful in buoying revenues, with a translation effect at the operating profit level of £0.6m for every one cent movement. We have only made minor adjustments to our numbers on the back of this statement, with a small (2%) reduction in revenue, but maintaining our profit projections, which were previously at the lower end of market range.

Cash gives flexibility

Cash at the end of December was £30.3m, and cash flows in the current year will benefit from the receipt of the Dealogic proceeds. Coupled with the group’s good record on cash conversion, our model shows a considerable build in cash resources over the year, with an end-September projection of £84.8m. This gives plenty of flexibility in drawing up the strategic plan – to be announced on 9 March.

Valuation: Traditional premium eroded

The current valuation can only be looked at in the current context. Having recovered post the final result in late November, ERM’s share price has fallen 18% over the last couple of weeks, with equity market weakness having an impact at the direct and indirect level. The valuation is now at a premium of just 3% to the B2B media average on CY16 EV/EBITDA (a 1% discount on P/E), with the market’s judgement at least partially suspended until the new strategy can be assessed.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016e

2017e

30-September

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

404.7

406.6

403.4

390.0

397.5

Cost of Sales

0.0

0.0

0.0

0.0

0.0

Gross Profit

404.7

406.6

403.4

390.0

397.5

EBITDA

 

 

125.0

122.7

109.4

102.8

108.3

Adjusted Operating Profit (before amort. and except.)

121.1

119.8

106.7

98.8

104.0

Intangible Amortisation

(15.9)

(16.7)

(17.0)

(17.8)

(17.8)

Exceptionals

2.2

2.6

33.4

0.0

0.0

Capital Appreciation Plan

(2.1)

(2.4)

2.5

0.0

0.0

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

105.3

103.3

123.1

81.0

86.2

Associates

0.3

0.3

2.4

2.4

2.4

Net Interest

(2.7)

(1.6)

(1.3)

(0.1)

0.2

Exceptional financials

(7.6)

(0.6)

(0.9)

0.0

0.0

Profit Before Tax (norm)

 

 

116.5

116.2

107.8

101.0

106.6

Profit Before Tax (FRS 3)

 

 

95.3

101.5

123.3

83.2

88.8

Tax

(22.2)

(25.6)

(17.6)

(19.2)

(20.2)

Profit After Tax (norm)

94.3

90.8

88.9

81.8

86.3

Profit After Tax (FRS 3)

73.0

75.9

108.2

64.0

68.5

Average Number of Shares Outstanding (m)

125.5

126.5

126.4

126.4

126.4

EPS - normalised fully diluted (p)

 

 

71.0

70.6

70.1

64.5

68.0

EPS - (IFRS) (p)

 

 

57.9

59.1

83.4

50.5

54.0

Dividend per share (p)

22.8

23.0

23.4

23.4

23.4

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

30.9

30.2

27.1

26.4

27.2

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

29.9

29.5

26.5

25.3

26.2

BALANCE SHEET

Fixed Assets

 

 

528.9

564.2

579.1

559.5

539.7

Intangible Assets

505.6

545.4

531.4

512.3

493.1

Tangible Assets

22.6

18.6

9.5

8.9

8.3

Investments

0.7

0.1

38.3

38.3

38.3

Current Assets

 

 

94.9

86.0

110.1

171.0

226.5

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

77.4

68.4

83.7

78.0

79.5

Cash

10.3

8.6

18.7

85.3

139.2

Other

7.2

9.1

7.7

7.7

7.7

Current Liabilities

 

 

(236.0)

(208.9)

(208.3)

(209.2)

(216.4)

Creditors

(214.8)

(208.4)

(207.3)

(208.7)

(215.9)

Short term borrowings

(21.2)

(0.5)

(1.0)

(0.5)

(0.5)

Long Term Liabilities

 

 

(46.0)

(84.7)

(33.2)

(45.2)

(43.4)

Long term borrowings

0.0

(45.7)

0.0

0.0

0.0

Other long term liabilities

(46.0)

(39.1)

(33.2)

(45.2)

(43.4)

Net Assets

 

 

341.7

356.5

447.7

476.1

506.4

CASH FLOW

Operating Cash Flow

 

 

105.0

110.2

109.5

102.9

104.2

Net Interest

(2.9)

(1.1)

(1.1)

0.1

0.4

Tax

(19.0)

(22.5)

(13.7)

(16.9)

(17.8)

Capex

(10.7)

(6.3)

9.4

(3.5)

(3.7)

Acquisitions/disposals

(26.5)

(58.9)

(15.6)

13.5

0.0

Equity Financing / Other

(21.7)

(21.5)

(4.4)

0.0

0.0

Dividends

(27.3)

(29.0)

(29.4)

(29.1)

(29.1)

Net Cash Flow

(3.1)

(29.3)

54.6

67.1

54.0

Opening net debt/(cash)

 

 

30.8

10.9

37.6

(17.7)

(84.8)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

23.0

2.6

0.7

0.0

0.0

Closing net debt/(cash)

 

 

10.9

37.6

(17.7)

(84.8)

(138.7)

Source: Company accounts, Edison Investment Research

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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