Centaur Media — BIG27 under way

Centaur provides thought leadership and insight for business leaders in the global marketing and legal sectors, alongside practical support, such as training, to help them optimise and grow their own businesses. It operates highly regarded brands in the marketing space under the Xeim (excellence in marketing) umbrella brand and addresses the legal sector as The Lawyer. The group has come a long way from its publishing origins and is now clearly focused on content and tools, based on data, that help its blue-chip client base deliver their own commercial agendas. Centaur is increasingly supplying data and analysis to help its clients in their digital transformation and e-commerce implementations. It is leveraging its expertise through a content delivery strategy that is building its subscription base and improving the quality of earnings.

Centaur has continued to trade at a substantial discount to peers after a short-lived rally while the preliminary expression of corporate interest was extant. The group has a high-quality share register, and the shares are (generally) tightly held, with the result that liquidity in the stock is poor. With reinstated forecasts at a lower level than those published earlier in the year, there is inevitably some disappointment, meaning that a discount to peers may persist until evidence that the new programme is bearing fruit. Were the shares to trade at parity with UK and global B2B peers and global peers in research and consultancy, the price would be 51p, 36% ahead of the pre-half-year announcement level.

Over recent years, Centaur Media has undergone a substantial transformation programme, migrating from a specialist consumer and professional print business across a wide variety of sectors, to an organisation that helps senior business leaders drive change on their organisations in the marketing and legal sectors. This is facilitated through the provision of expert insight, training and networks.

In FY10, the group’s revenues were split 39% print advertising, 31% live events, 15% digital advertising and 14% paid-for content. In 2018, the group undertook a strategic review to identify those markets where prospects were strongest, resulting in the decision to concentrate on the marketing and legal sectors, where the group had scale and where rapid structural change was most likely to lead to demand for business insight and guidance. The following year (FY19), Centaur trimmed its portfolio from 28 to 13 brands, raising gross disposal proceeds of £22.0m and bolstering the balance sheet. With the interim results that year, management set out its strategy for resuming growth and improving profitability, MAP22 (extended to MAP23 to reflect the impact on the business of the pandemic). In August 2020, and in response to the COVID-19 pandemic, the group slimmed down further, with the closure of MarketMakers, a low-margin telemarketing operation. Really B2B and Design Week exited the group in FY23, the former by closure and the latter brand sold for a small sum.

Management realigned the reporting lines after the strategic review, with the group brands organised into two segments, Xeim, which operates in the marketing services industry, and The Lawyer, which serves the legal profession. These are described in greater detail below. Both areas offer premium content and events, alongside other revenue streams such as training & advisory at Xeim and recruitment advertising at The Lawyer.

As these are effectively two businesses, within the same umbrella, with the holding company providing the supporting infrastructure such as finance, it makes sense for them to be appraised separately. From a valuation perspective, there is insufficient data for this approach to be carried through into a sum-of-the-parts valuation, so we work from a whole group perspective.

Before we break down into those components, though, it is worth noting the elements of commonality between the types of revenue generated across the group, with premium content the largest component. These two streams also represent Centaur’s higher-quality earnings, being subscription revenues or repeating and recurring revenues in some other form.

At a capital markets day in April 2024, management unveiled its new framework for the next phase of the group’s development, termed BIG27, with BIG standing for build, invest and grow. We will describe how this manifests in the sections on the individual brands below.

Firstly, we look at the current positioning of the group’s two key brands.

Xeim itself is effectively a holding company for a number of different brands addressing the needs of the marketing sector, as shown in Exhibit 3, above. Although the management reporting does not disclose the revenues and adjusted operating profit by brand, we understand that Econsultancy and the MW Mini MBA are the larger contributors, which tallies with the breakdown of revenue by stream shown below.

Overall, Xeim aims to provide business intelligence to senior leaders (and not just those with ‘Marketing’ in their job titles), which will help them to navigate change and testing trading environments. It seeks to equip them and their teams with the skills and information needed to deliver on their objectives. Its target market is organisations with over £1bn of revenue, with the greatest opportunities in those with over 10,000 employees. Xeim sizes its total addressable market at £2.9bn, with the US the largest market, with that sum being the total of spending in those companies on internal learning, technology and structural information.

Xeim has a blue-chip client base, including Google, JLR (Jaguar Land Rover), John Lewis, Sky, Specsavers, Barclays and Unilever, so across a broad range of end verticals.

At the chief marketing officer (CMO) level, it can offer thought leadership and practical application, benchmarking and trend analysis and can facilitate peer-to-peer knowledge sharing and community events. This is catered by the Xeim umbrella brand, rather than within the individual brands described below.

Specifically, the key sub-brands offer the following:

We run through the main attributes of these brands below.

MW Mini MBA: Ongoing professional training

MW Mini MBA provides MBA-level, flexible, accessible and applied training for marketing professionals. The initial course was the Mini MBA in Marketing, with the range since extended to the Mini MBA in Brand Management and, more recently, the Mini MBA in Management. The first two of these are written by the highly-experienced and well-known marketing industry expert Mark Ritson, while the newer management courses are written and delivered by a network of respected professors from business schools globally, including Yale, Harvard, London Business School and INSEAD.

Over 32,000 professionals have now taken these courses, generating an important referral network and a potentially commercially valuable community of alumni. There are currently over 5,000 active alumni registered. Management estimates the current market share at less than 2%, with significant opportunities to extend to new territories.

Marketing Week: Agenda setting for brand marketers

Originally a regular physical magazine, Marketing Week holds a key role in the industry for delivering insight and market intelligence. With approaching 0.5m monthly page views and 122k registered users, it is highly influential, with an estimated 73% of its audience working in medium-sized or large multinationals and with the same proportion in management roles. In addition to the website and newsletters, Marketing Week also organises a leadership summit and the annual Festival of Marketing (sold out in 2023), reported within Events, alongside the Marketing Week Awards. It is also the ‘MW’ in the MW Mini MBA. Its target market is companies with large marketing teams or high levels of marketing spend, particularly those within the FMCG, pharma, technology and professional service sectors, as well as those that supply the marketing sector.

The brand has a substantial opportunity to adopt a more commercial approach to its market and customers, with only 1.2% of newsletter sign-ups currently subscribing. As that proportion increases, and the target market is expanded, the amount of first-party data should also build and develop into a valuable resource.

Econsultancy: Upskilling global business customers in digital marketing and e-commerce

Econsultancy works with its largely blue-chip customer base to address the issues they are facing, such as benchmarking with the competition and ensuring continuing learning programmes. This is delivered through consultancy and through what the company terms ‘multi-touch learning’, being a mix of on-demand, live and structured learning programmes (complementary to Centaur’s MW Mini MBA offering, described below).

The Influencer Group: Authoritative resources in more specialist marketing areas

Xeim is now bringing together some of its smaller, more specialist brands under this title, being Influencer Intelligence, Fashion & Beauty Monitor and Foresight News.

Oystercatchers: External partner selection advice

Oystercatchers works with corporate customers as they select which marketing service partners to use for which service. This business can be lumpy, with large accounts reviewing their supplier rosters. An independent voice on these big-ticket discussions is highly valued.

The Lawyer is a highly respected source of news, data and information for the commercial legal sector, with that expertise having been built over the brand’s 120+ year history. Again, originally a physical magazine, it now combines online resources, newsletters and high-profile events. The Lawyer is used by 91 of the top 100 law firms in the UK, 32% of the top 100 European firms and 78% of the top 50 US firms that have London operations.

In addition to the written word, The Lawyer curates substantial troves of financial data generated by law firms over the last 30 years – a resource that would be virtually impossible to replicate. This is accessed by 28.5k users including large corporates, tech companies and investment banks. The website www.thelawyer.com is the key property, with the company disclosing 4.8m annual users in FY23.

The Lawyer’s overall revenue across FY19 through FY23 is a little above flat, having rebuilt following the inevitable setback during the lockdowns of FY20. Recruitment advertising was traditionally a key element and revenue generator. During the pandemic, this obviously fell away sharply, accelerating the strategic shift towards improving the quality of the earnings by focusing on the recurring revenues. Subscriptions accounted for 59% of The Lawyer’s FY23 revenue base, from around 26% in FY19, representing a CAGR of 23%. Initiatives such as Litigation Tracker and the daily Signal newsletter are building engagement and community.

The management team here is looking to broaden its horizons, seeing the total addressable market opportunity as being ‘competitive intelligence’, based around its existing competencies but looking to increase its presence in international markets, lawyers in private practice and in in-house corporate legal teams.

The Lawyer Awards are an important landmark in the UK and London legal scene. The brand name itself is clearly a distinctive and valuable asset. There is plenty of potential to leverage it further.

Group CEO Swag Mukerji joined Centaur in 2016, after a career focused on value creation at several blue-chip FMCG companies, including United Biscuits, Diageo and Virgin. At Biocompatibles International plc, he led the commercialisation and international growth of the company, while running the product licensing division. Since then, he has been a C-suite director of three private equity backed businesses in a variety of sectors with the common theme of increasing shareholder value through strategy refresh, transformation and revitalising corporate culture. He has also led a substantial number of M&A transactions and multi-lender refinancings. Swag qualified as a chartered accountant at PricewaterhouseCoopers LLP and is a Warwick MBA.

CFO Simon Longfield joined Centaur in November 2019. He spent the previous 10 years as CFO of BMI Research, a leading provider through its subscriptions model of macroeconomic, industry and financial market analysis, which was acquired by Fitch Group in 2014. During his time at BMI Research revenue more than doubled as the company expanded internationally with Simon’s support. Prior to this, Simon was CFO of Newfound, an AIM-listed property and leisure group. Simon began his career at PricewaterhouseCoopers LLP where he qualified as a chartered accountant.

Xeim is headed up by Steve Newbold, who joined Centaur in March 2015. He is responsible for the 9 brands in the Xeim portfolio including Econsultancy, Influencer Intelligence, Marketing Week and the MW Mini MBA series. Steve has extensive experience in leading content-led, multi-channel businesses in both the B2B and consumer sectors. He has played a key role at Centaur in accelerating the growth of the company’s digital information and training business with a focus on establishing long-term relationships with customers and developing repeatable revenue streams. Prior to joining Centaur, Steve held managing director roles at WGSN, i2i Events, Emap Communications (now Ascential) and Emap Consumer Media (now Bauer).

Sarah Sanderson has recently taken over as managing director of The Lawyer. She joined Centaur in May 2024, following more than 30 years in global market research organisations (Kantar Group, Ipsos) where she worked in partnership with clients across a wide range of industries and target audiences, both B2B and B2C, to deliver actionable customer insight programmes. During 17 years in senior leadership roles at Kantar Media she played a key role in growing subscription revenue for its market-leading consumer intelligence business (the Target Group Index, TGI) and in developing new data, analytics and insights offers.

In early 2021, management launched MAP23, which set out a plan to grow revenues (the original target of £45m for FY23 was scuppered by the impact of the pandemic) and to achieve adjusted EBITDA margins of 23%. The latter was considerably exceeded, with 25.9% posted for FY23, and marks a significant uplift from FY19, when the margin reached 10%. With this achievement banked, management has now set out its stall for the next phase of growth. Termed BIG27, this is lighter on financial specifics, with £60m set as a goal for annualised revenues to be reached on an organic basis over the medium term, with a revenue growth CAGR target of 10–12%, as set out on the roadmap below.

The short-term priorities (current year) are for:

As described above, Xeim consists of a number of different brands addressing varying aspects of the marketing sector. Each has its own interpretation of tackling the next phase of the group’s development.

For the MW Mini MBA, there are two key strands: maximising the existing market opportunity; and developing the product offering. Firstly, there is additional mileage to be gained from making the two main areas of expertise (marketing and brand management) more distinct. Much of the existing business is done at the corporate level, with customers such as Google, Tesco and Nestlé putting cohorts of students through the course so delivering what effectively amounts to repeat business at scale, including the cross-selling opportunities between courses. The BIG27 plan also includes more effort into individual online sales for continuing professional development.

This also chimes with the ambition to grow the offering to alumni of the marketing and brand management courses. The new Mini MBA in Management is designed for marketing professionals to expand their understanding of broader business dynamics, and there is potential to broaden out this approach to address wider market needs. There can then be further courses launched to serve the needs of the alumni community and increase their lifetime value to Centaur. The acceleration of the online offering, and a new platform, are included in the ‘mid-term’ indicative timeline, with the new course launches in the ‘long-term’ bracket.

Marketing Week’s task under the programme is to drive subscription revenues through the delivery of premium content. The brand is already a leading voice in its space and is now set to put more of that premium content behind a paywall, with the newsletter acting as a marketing funnel.

MW’s BIG27 strategy has three strands:

MW also intends launching a ‘CMO club’ to build network and community.

Econsultancy identifies four elements:

We regard the last of these as the most telling. The company has an extensive blue-chip client list but often in very specific areas, with the client therefore having limited understanding of Xeim’s and Centaur’s total offering. This is clearly an opportunity that has previously been underexploited.

The central aspirations for The Lawyer are to capitalise on the existing penetration into global law firms and build the subscription revenue streams. The operation has extensive resource of data and content that can be used more widely in a business intelligence context, broadening and deepening established relationships. There are also substantial potential opportunities in addressing the market beyond the current focus on the largest UK and US law firms and in-house corporate legal departments.

Within the target market, there is also ground to be gained by extending into other areas within the legal firms, such as IT, operations and talent management.

The objectives are threefold:

Achieving this is predicated on product and platform development, falling under the following tasks:

Recent years at Centaur have been more about focusing the portfolio to fewer brands with greater potential for growth. That, and the depressed share price limiting the potential for utilising equity as part of a deal, has pushed back any M&A-driven agenda. However, the group is highly cash generative (see the financial section below) and has both cash reserves and an undrawn £10m RCF. Any deals would need to fit strategically and enhance shareholder value.

More specifically, management set out the following criteria at April’s CMD, with three categories of investment identified. These are:

We identify several key sensitivities to the financial outcome. These include:

Centaur was trading at around the 40p level prior to the potential bid approach from Waterland Private Equity (WPEF) in April. The price immediately climbed to 50p, reaching a peak of 53p on 1 May. On the news that no bid would result from the preliminary expression of interest, the share price fell back to 41.5p on 7 May and has since traded back in a range of 36–41p.

Centaur has a high-quality share register, comprising multiple institutions, listed below, with the shares (generally) tightly held. Aberforth Partners controls a stake of 22.96%, including 8% held for The Wellcome Trust. In the aftermath of the potential bid in April this year, Downing Partners reduced its holding from 4.56% to 3.05%. Harwood Capital, which continues to hold a 29.6% stake on the group, is represented at board level by Richard Staveley, who is a non-independent non-executive director.

Management’s commitment to paying a dividend of 40% of adjusted post tax earnings, or the previous year’s dividend, whichever is the higher, means the stock is carrying an attractive and secure yield of 4.8% at the current share price.

We look at Centaur’s valuation in both a peer group context and then, as a sense check, using a discounted cash flow (DCF) methodology.

Centaur does not have an obvious direct set of quoted peers. We therefore evaluate the rating in comparison with other quoted UK B2B media companies, with an eye also to the global peer sets of B2B media companies and also those in the research and consulting space. It is interesting to note that the UK B2B companies are valued, on average, at a higher level than their global peers.

Using just the forward multiples, parity with the chosen UK-listed peer set would suggest a value of 61p per share. On our previous numbers at the time of the full year results, the same exercise produced an equivalent value of 68p. Using a broader global B2B media peer group gives a value of 37p, whereas the comparative group of global research and consulting groups lifts the implied fair value to 54p. The average of these three values is 51p, 36% ahead of the price at the close prior to the half-year announcement.

We have also run our projections through a DCF methodology, with medium-term growth of 5% beyond our forecasting horizon and a terminal growth rate of 2.0%. In the latest report and accounts, the company uses a weighted average cost of capital (WACC) of 10.8% in its internal risk calculations. If we apply this to our DCF, we derive an implied value of 76p per share, well ahead of the value suggested by the peer group parity exercise.

Both approaches result in a figure well in excess of the current share price of 37.5p.

When the group received a preliminary expression of interest in April 2024, we withdrew our forecasts. We now reinstate estimates, informed by the updated strategy with regards to the BIG27 programme and in light of the H124 results.

The first half results were affected by continuing sector headwinds, with macroeconomic uncertainty delaying decision making within the client base.

This particularly affected Xeim, where Econsultancy in particular has higher levels of what could be considered by its clients as discretionary spending, and revenues from this brand were 17% down on the prior year. Within Xeim as a whole, revenues defined as Training & Advisory were 15% below H123, whereas those from Premium Content, where subscriptions are more prevalent, were down by 9%.

At The Lawyer, Premium Content revenues were ahead by 8% and those from Events by 15%, with ‘Other’ revenues, including recruitment advertising, down 11%. There was a 102% renewal rate across its subscription products and good progress on new business wins, which more than doubled.

The variation in performance at Xeim is also evident at the brand level. The most encouraging performance was at the MW Mini MBA, where revenues were broadly flat on the prior year, representing a good recovery from the position in September 2023, which had an 18% smaller cohort. Marketing Week is undergoing a transition to increase the amount of compelling content behind paywalls and so drive the level of subscriptions. Revenues here were down 14% on the prior year, but subscription revenue was up 8%, a pattern we would expect to see continuing in H224. The Festival of Marketing is the main feature of the Events portfolio within Xeim and this is held in October, so falling into H2 each year.

The revenue reduction has naturally had an impact on the achievable adjusted EBITDA margin at Xeim and for H124 this was 16%, from 22% in H123. The scale of margin decline was constrained by some careful management of costs. The Lawyer’s adjusted EBITDA margin was less affected, dipping from 40% to 39%. Across the group, operating costs associated with the commencement of BIG27 are indicated at £0.2m.

We withdrew our forecasts at the time of the company receiving a preliminary expression of interest, so the ‘old’ figures quoted in the table above pre-date the launch of BIG27 and were not current in the market prior to the release of the H124 figures. Our new revenue forecast for FY24 is £36.1m, which is 3% down on the prior year and in line with management guidance. To reach this level implies group second half revenue growth of 1%. While we are looking for some progress at Xeim, we expect progress at The Lawyer to outstrip it, with both premium content and events likely to be comfortably ahead. For reference, at the time of the prelims in March, when economic recovery was expected to start to kick in at an earlier point in the year, we were looking for FY24 revenue of £39.2m.

This revenue reduction is inevitably reflected in the revised adjusted EBITDA number for the year of £7.1m, which represents a margin of 20%, so an uplift from the H124 margin figure of 15%. We expect this to be supported by tight control of costs. This excludes the early BIG27 investment, which will principally comprise additional personnel costs for those providing the premium content that will draw in potential subscribers and keep those who have signed up happy that they are getting good value for their spend. There will also be additional costs in technical, programming and data personnel and also in enlarging and upskilling the sales team. Our assumptions earlier in the year were for a maintained margin of 25%, prior to this investment.

For the following year (FY25), we are anticipating top-line growth of 6.0%, benefiting from some amelioration in the macroeconomic backdrop, but mostly from the increasing attractiveness of the offering from both Xeim and The Lawyer. This is still some way off the targeted revenue CAGR post FY27 as envisaged in the BIG27 plan (illustrated in Exhibit 8, above). In terms of margin, we are anticipating a modest uptick (from 19.7% in FY24 to 20.4% in FY25), again to reflect the additional operating costs in implementing the stated strategy. We did not previously publish estimates for FY25.

We have extended our forecasting horizon to FY26 (Edison normally forecasts the current year plus one further year out). This is to give a better understanding of the way the benefits from the investment will start to show through (the positive returns will likely be limited in the earlier months). With the caveat that looking this far out will naturally compound any incorrect underlying assumptions, so conclusions should be regarded as indicative rather than as a true projection, we would look for revenue growth of around 10% and with the adjusted EBITDA margin starting to pick up again as the benefits of scale kick in. We have pencilled in 22.1%, being progress towards the 25%+ level achieved in FY23.

Management aspires to build the revenue base on the current assets to £60m but has not put a timescale on achieving this target. Obviously if suitable M&A opportunities arise, this would accelerate progress.

Centaur is essentially highly cash generative, with strong cash flow characteristics, given its level of repeat and recurring revenues. This is made even more clear if we look at the patterns across more than one year.

This representation highlights the comparative lightness of the capex spend requirement, allowing a more substantive return of capital to shareholders via dividends (including special dividends in FY23) in the absence of suitable M&A opportunities.

For the current year, there was a modest (£0.6m) cash outflow in the first half, as would be expected from a normal pattern of seasonality. The growth in subscription and contractual revenues should be beneficial for working capital, so we have modelled a flat working capital position for the full year. The group still has some deferred tax benefit to release, so we expect the cash tax to be limited and have modelled a payment of £0.4m, with some further benefit into FY25. Exceptional items of £0.4m were declared, which will doubtless include some legal costs relating to the potential bid in the period.

The result is that we are looking for broadly flat total operating cash flow for FY24, despite the lower likely operating profit.

Management has committed to paying a dividend at 40% of adjusted earnings after taxation or the previous year’s dividend, whichever is the higher. We therefore model the dividend staying at 1.8p for FY24e, FY25e and FY26e.

Centaur had £8.9m of cash and cash equivalents at the half-year end, with the bulk held in short-term deposits. This compares with £8.8m at the end of June 2023 and £9.5m as at the year-end. Our modelling indicates a broadly similar level at the end of the current year at £9.3m.

The group also has an undrawn RCF in place of £10m. This combined resource should give plenty of comfort that the BIG27 investment programme, which is to be expensed at the operating level, is not likely to cause any funding issues. Indeed, at the funding burden that we anticipate, we would expect cash to start to build again – in the absence of M&A materialising – more notably from FY26.