Euromoney Institutional Investor — Pricing power

Euromoney Institutional Investor — Pricing power

Euromoney has delivered good FY18 results, with a particularly strong result from the Pricing, Data & Market Intelligence segment. This validates management’s strategy of focusing on specialist, global markets where pricing is opaque and the group can embed itself as an integral part of client work flow. Disposals, along with the inherently strong cash conversion, have provided Euromoney with a significant cash resource of just under £100m. Short term there may be market headwinds, but the group has a proven, resilient business model and the share price should be well underpinned.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Euromoney Institutional Investor

Pricing power

Preliminary results

Media

22 November 2018

Price

1,224.00p

Market cap

£1,336m

£1:$1.28

Net cash (£m) at 30 September 2018

78.3

Shares in issue

109.2m

Free float

50.8%

Code

ERM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.9)

(11.6)

6.0

Rel (local)

(5.6)

(4.5)

11.8

52-week high/low

1450.0p

1120.0p

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

Trading update

1 February 2019

Half-year results

26 May 2019

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5740

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

Euromoney has delivered good FY18 results, with a particularly strong result from the Pricing, Data & Market Intelligence segment. This validates management’s strategy of focusing on specialist, global markets where pricing is opaque and the group can embed itself as an integral part of client work flow. Disposals, along with the inherently strong cash conversion, have provided Euromoney with a significant cash resource of just under £100m. Short term there may be market headwinds, but the group has a proven, resilient business model and the share price should be well underpinned.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/16

403.1

102.5

66.6

23.4

18.4

1.9

09/17

428.4

106.5

76.4

30.6

16.0

2.5

09/18

414.1

109.2

81.3

32.4

15.1

2.6

09/19e

400.0

98.1

72.9

32.5

16.8

2.7

09/20e

412.0

103.6

76.9

34.2

15.9

2.8

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

Growing subscription revenues and margins

Despite the well-rehearsed difficulties of the asset management segment, where subscriptions were down 5%, overall group subscription revenues were up 2%, and now account for 56% of the group total. They were buoyed by the rebranded Fastmarkets, now the umbrella brand for price reporting agencies, including metals and mining and forest products. By moving through from reference pricing to benchmarking and increasingly, exchange pricing, the Pricing, Data & Marketing Intelligence segment (PDMI) is erecting significant barriers to entry. A focus on cost management across the group helped to lift adjusted operating margin from 25.0% in FY17 to 26.7%in FY18. Asset management is not simply in lock-down, however. While costs have been addressed to help protect profit, it has also been investing in new products, sales and digital marketing. Our forecasts are now adjusted for the disposal of Mining Indaba, with FY19e revenue estimate of £400m compared to £388m for FY18 based on continuing business.

Active portfolio management

This has been an active period for portfolio management, with three acquisitions and four disposals during the year just reported, with the Mining Indaba disposal post the year-end. Year-end net cash was £78.3m and the latter disposal netted a further £20.1m received in October, with a final payment of £10.1m due later in the financial year. The acquisition pipeline continues to be ‘healthy’ and the process of evaluation and negotiation is ongoing, but timing, as ever, is difficult to predict.

Valuation: Undeserved discount

Euromoney’s shares are trading at a notable discount to global financial data peers, which are currently valued at an CY18 EV/sales of 4.9x, EV/EBITDA of 16.8x and P/E of 25.6x. Given the resilience of the earnings, high level of subscription income and attractive cash conversion, this discrepancy appears to us to be excessive.

Pricing and Events drive the results

The main differences between our prior forecast and the FY18 results were the strong growth in events, where revenues climbed by 9% (+7% underlying), and a better than anticipated out-turn from the asset management division, which management had been flagging as a potential issue through 2017 into 2018, where revenues were 10% lower (-4% underlying). PDMI revenue was up by 17% (9% underlying) and Banking & Finance up 1% (underlying up 5%).

The net result was an EBITDA figure 3% ahead of our forecasts, with a reduced interest charge and then a tax charge below that we had anticipated, lifting EPS 12% ahead of our numbers. The disposal of Mining Indaba completed in October, and we have now adjusted our figures to strip this out.

Adjusted group revenue was £414.4m (-3%) (including continuing and discontinued operations), while underlying revenues at £388.4m were up by 3% (excluding discontinued operations). This is before the disposal of Mining Indaba, which contributed £7.3m of revenue in the year. The correct comparator for our revised FY19e revenue forecast of £400m is therefore £381.1m, growth of 5%.

Exhibit 1: Forecast revisions

EPS

PBT

EBITDA

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018

72.8

81.3

+12

103.5

109.2

+6

109.4

112.9

+3

2019e

74.6

72.8

-2

105.0

98.1

-7

110.3

101.2

-8

2020e

-

76.9

N/A

-

103.6

N/A

-

106.9

N/A

Source: Company accounts, Edison Investment Research

The net result was an EBITDA figure 3% ahead of our forecasts, with a reduced interest charge and then a tax charge below that we had anticipated, lifting EPS 12% ahead of our numbers. The disposal of Mining Indaba completed in October, and we have now adjusted our figures to strip this out.

Adjusted group revenue was £414.4m (-3%) (including continuing and discontinued operations), while underlying revenues at £388.4m were up by 3% (excluding discontinued operations). This is pre the disposal of Mining Indaba, which contributed £7.3m of revenue in the year. The correct comparator for our revised FY19e revenue forecast of £400m is therefore £381.1m, growth of 5%.

Asset Management (39% group revenue)

The strategic actions here have involved a re-evaluation of the product offering and further addressing of the cost base to protect the divisional profit and margin, but also investing to grow the business. Institutional Investor was moved online only during the year and performed well, being funded generally from client marketing rather than operational budgets. Subscriptions make up the bulk of the division (79%) and were down 5%. The 6% growth in events meant the total segmental revenues were only down 4%, while the operating margins held steady at 40.5%. Annualised cost savings from the reorientation of the operation are indicated by management at £7m. Offsetting this, at least in part, were some input cost increases and the reinvestment costs.

PDMI (37% group revenue)

The changes made to this division over the last two years epitomise the strategy to focus the group on semi-opaque markets where it can form an integral part of the client’s work process. Segmental revenues were up 9%, with subscription revenues (63% of segment) ahead by 12%. Again, operating margin was maintained over the prior period.

Banking & Finance (18% group revenue)

In this segment, events are the largest revenue contributor at 74% and the change in strategy implemented over the last couple of years to focus on the larger, repeatable, more profitable events helped this division to move back into growth, with revenue climbing 5% and a tick up in operating margin.

Commodity Events (6% group revenue)

A good year in the events business lifted revenues 9% and delivered an operating margin of 43.6% from 39.3%. Included in these figures, Mining Indaba contributed revenues of £7.3m and an operating profit of £3.8m. Without this particularly large event, it no longer makes sense to report this segment separately and in future reporting periods the majority will fall into PDMI.

Outlook

The outlook statement suggests another good year in prospect for PDMI. Events are unlikely to show as much progress as they did in 2018, simply through having had such a good year. The larger question remains over the performance of Asset Management, where external factors continue to overshadow, particularly in the run up to Brexit.

We feel we have been reasonably cautious in building this circumspection into our numbers, but given the potential economic and political repercussions, we regard this as a key sensitivity, particularly given the impact of a lack of confidence on customers’ potential willingness to commit to subscription contracts.

Valuation

Exhibit 2: Peer valuations

Name

YTD perf (%)

Price - rep ccy

Quoted ccy

Market cap (m)

EV/ Sales 1FY (x)

EV/ EBITDA last (x)

EV/ EBITDA 1FY (x)

EV/ EBITDA 2FY (x)

PE last (x)

PE 1FY (x)

PE 2FY (x)

Div yield last (x)

EBITDA margin last (%)

EBIT margin 1FY (%)

EBITDA Growth (%)

Dun & Bradstreet

21

143

U$

5,303

3.7

11.0

12.5

12.0

19.8

17.4

16.8

1.7

29.3

24.7

4%

Thomson Reuters

17

64

C$

35,590

6.2

26.2

24.5

18.9

28.7

76.2

38.6

3.2

30.3

17.4

-63%

Envestnet

2

51

U$

2,330

3.5

25.0

16.8

14.3

207.4

26.6

22.9

14.1

4.9

63%

Morningstar

22

118

U$

5,035

15.1

33.0

0.9

28.6

18.6

Factset

17

226

U$

8,758

6.3

21.5

17.9

16.7

30.9

24.0

21.9

1.0

31.4

27.1

20%

Swissquote

34

51

CHF

725

9.3

26.7

14.0

14.9

12.3

2.3

30.3

21.8

Wilmington

(25)

179

£

157

1.6

9.2

7.9

7.5

987.7

10.1

9.3

3.7

22.3

14.8

-9%

Informa

(2)

705

£

9,156

5.2

12.5

15.7

12.1

26.4

15.7

14.0

2.8

33.3

32.9

30%

ITE

48

59

£

443

3.0

18.4

15.2

9.6

N/A

12.1

12.2

2.2

19.8

9.1

13%

Ascential

(2)

378

£

1,585

5.3

18.1

17.6

16.0

130.3

25.1

21.2

1.5

34.3

21.8

6%

GlobalData

3

597

£

705

5.0

35.2

23.5

18.8

33.6

26.9

1.4

15.2

2.7

80%

Average

4.9

19.9

16.8

14.0

164.2

25.6

19.6

2.1

26.3

17.8

Euromoney

7

1,226

£

1,339

3.4

12.6

13.3

11.6

15.1

16.8

15.9

2.7

27.3

24.7

2%

Source: Edison, I/B/E/S. Note: Prices at 20 November 2018.

Euromoney’s shares are clearly priced at a market discount to other global financial information companies. We feel this does not take account of the progress made to date in repositioning the group to take advantage of changing working practices in its markets and the potential returns still to be accrued.

With active portfolio management now the norm, the group is focusing its efforts on the areas where it sees the greatest potential to partner and grow alongside its clients. The current valuation gives no credit for this, nor for the inherently strong cash conversion characteristics and cash-rich balance sheet. We expect future deals to act as potential catalysts for a market reappraisal of value.

Exhibit 3: Financial summary

£m

2016

2017

2018

2019e

2020e

30-September

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

403.1

428.4

414.1

400.0

412.0

Cost of Sales

0.0

0.0

0.0

0.0

0.0

Gross Profit

403.1

428.4

414.1

400.0

412.0

EBITDA

 

 

104.3

110.3

112.9

101.2

106.8

Operating Profit (before amort. and except.)

101.5

107.1

110.7

98.9

104.3

Intangible Amortisation

(16.8)

(20.8)

(22.7)

(24.0)

(24.0)

Exceptionals

(37.3)

(31.3)

81.4

0.0

0.0

Capital Appreciation Plan

0.0

0.0

0.0

0.0

0.0

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

47.4

55.1

169.4

74.9

80.3

Associates

2.2

3.3

1.1

0.0

0.0

Net Interest

(1.1)

(4.0)

(2.6)

(0.7)

(0.7)

Exceptional financials

0.0

(13.7)

(6.6)

0.0

0.0

Profit Before Tax (norm)

 

 

102.5

106.5

109.2

98.1

103.6

Profit Before Tax (FRS 3)

 

 

48.4

40.7

161.2

74.2

79.7

Tax

(18.1)

(19.8)

(21.6)

(19.6)

(20.7)

Profit After Tax (norm)

84.5

86.6

87.6

78.5

82.9

Profit After Tax (FRS 3)

30.4

37.3

109.7

54.6

59.0

Average Number of Shares Outstanding (m)

126.5

112.5

107.4

107.3

107.3

EPS - normalised, fully diluted (p)

 

 

66.6

76.4

81.3

72.9

76.9

EPS - (IFRS) (p)

 

 

23.8

18.1

129.8

50.7

54.8

Dividend per share (p)

23.4

30.6

32.4

32.5

34.2

EBITDA Margin (%)

25.9

25.8

27.3

25.3

25.9

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

25.2

25.0

26.7

24.7

25.3

BALANCE SHEET

Fixed Assets

 

 

601.9

648.8

615.6

553.8

528.9

Intangible Assets

551.1

594.0

588.2

533.8

509.3

Tangible Assets

14.9

24.4

23.1

15.7

15.3

Investments

35.9

30.4

4.3

4.3

4.3

Current Assets

 

 

170.3

127.8

165.7

230.1

283.8

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

78.6

64.5

68.3

68.0

72.1

Cash

84.2

4.4

78.3

157.4

207.0

Other

7.5

58.9

19.1

4.7

4.7

Current Liabilities

 

 

(249.4)

(267.5)

(245.3)

(252.1)

(265.3)

Creditors

(249.0)

(267.5)

(245.3)

(252.1)

(265.3)

Short term borrowings

(0.4)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(45.3)

(212.3)

(42.4)

(57.9)

(57.9)

Long term borrowings

0.0

(168.9)

0.0

0.0

0.0

Other long term liabilities

(45.3)

(43.4)

(42.4)

(57.9)

(57.9)

Net Assets

 

 

477.5

296.8

493.6

473.9

489.6

CASH FLOW

Operating Cash Flow

 

 

103.8

118.2

108.6

103.9

107.3

Net Interest

(0.4)

(1.5)

(2.8)

0.1

0.1

Tax

(16.7)

(21.8)

(38.9)

(17.3)

(18.2)

Capex

(3.2)

(10.9)

(4.9)

(2.0)

(2.1)

Acquisitions/disposals

(3.8)

(99.9)

195.8

30.1

0.0

Equity Financing / Other

10.6

(193.0)

2.7

0.0

0.0

Dividends

(29.9)

(31.3)

(34.8)

(35.6)

(37.4)

Net Cash Flow

60.3

(240.2)

225.6

79.1

49.5

Opening net debt/(cash)

 

 

(17.7)

(83.8)

154.6

(78.3)

(157.4)

Redemption of pref

7.8

0.0

0.0

0.0

0.0

Other

(2.0)

1.8

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(83.8)

154.6

(78.3)

(157.4)

(207.0)

Source: Company accounts, Edison Investment Research. Note: Results presented above are adjusted on the company’s basis.

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 Edison analyst 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.

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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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 Edison analyst 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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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 4, 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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Healthcare

Targovax — Steady progress across pipeline

Targovax delivered a steady stream of newsflow in 2018 from R&D projects in its pipeline, and from the recent KOL event in New York and capital markets day in Oslo. Highlights include the announcement of interim data from the Phase I trial with ONCOS-102 (an oncolytic virus) and Keytruda combination in melanoma, and the full dataset from the Phase I/IIa trial with TG01 (a neoepitope cancer vaccine) with gemcitabine combination in resected pancreatic cancer. Our valuation is marginally higher at NOK1.41bn or NOK26.8/share.

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