Arena Events Group — On time, every time

Arena Events Group — On time, every time

Arena Events is excitingly poised to use its IPO enhanced strength (FY17 net debt/EBITDA of just 1.1x) to accelerate a well-defined, proven strategy. International replication of its successful integrated UK model is likely to be a prime move, facilitated by prestigious reference customers and highly fragmented markets. Meanwhile trading continues to be encouraging with 2017 adj. EBITDA up 25% and a ‘healthy’ Q1, bolstered by two acquisitions and the promise of more. Valuation appears undemanding (6x 2018e EV/EBITDA), while a progressive dividend policy offers almost 4% yield.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Arena Events Group

On time, every time

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17 April 2018

Price

53.25p

Market cap

£62m

Share price graph

Share details

Code

ARE

Listing

AIM

Shares in issue

117.2m

Business description

Arena Events is a leading provider of event rental solutions, predominantly temporary structures, seating and design, furniture and interiors. Market leader in the UK, it also has a global reach in the US (now its largest region) and Middle East and Asia.

Bull

Quality brand exemplified by market leadership in UK, multi-year recurring contracts with high-profile customers (eg Wimbledon, The Open and Jockey Club) and work at ‘jumbo’ events such as the Olympics and the World Cup.

Focus on growing sport and entertainment markets.

Well placed to exploit significant consolidation potential in highly fragmented industry.

Bear

Competitive pricing pressure mitigated by ability to differentiate on quality or product.

Reputational risk.

Macroeconomic uncertainties and security concerns at public events.

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Arena Events is excitingly poised to use its IPO enhanced strength (FY17 net debt/EBITDA of just 1.1x) to accelerate a well-defined, proven strategy. International replication of its successful integrated UK model is likely to be a prime move, facilitated by prestigious reference customers and highly fragmented markets. Meanwhile trading continues to be encouraging with 2017 adj. EBITDA up 25% and a ‘healthy’ Q1, bolstered by two acquisitions and the promise of more. Valuation appears undemanding (6x 2018e EV/EBITDA), while a progressive dividend policy offers almost 4% yield.

At full-bore

In 2017, its first year as a public company, Arena delivered 18% revenue increase at improved margin. Impressively, the majority came from organic growth and new contract wins (especially in the US but progress was across the board) with the rest from currency and UK acquisitions. Capex and efficiencies drove the 110bp gain in gross margin which led to 25% higher EBITDA, adjusted for exceptional costs of £4.9m relating mainly to the IPO and restructuring in the US and UK. After £56m IPO proceeds, low year-end net debt (£11.5m) afforded a 0.9p final dividend in line with management’s intended balance between capital investment and dividends.

Strong momentum

The award in 2017 of major multi-year contracts, particularly by the US PGA (Arena’s largest-ever win at up to $40m over five years), and the impact of bolt-on acquisitions (two in 2017 and two already this year) appear to justify management confidence of sustained growth. Meanwhile, Q1 (admittedly its weakest quarter) was “healthy”, as expected; highlights were first delivery at the AT&T Pro-Am at Pebble Beach and substantial set-ups at the Super Bowl and Abu Dhabi HSBC Golf Championship. With medium-term guidance of EBITDA margin of 12%+ (last year 9.8%), consensus assumption for 2018 of c 11%, allied with current momentum, suggest that forecasts are reasonable, indeed cautious if expansion is stepped up.

Valuation: Deserves greater recognition

We believe 2018e EV/EBITDA of 6x underestimates the potential benefits of a clear strategy, experienced management, robust finances and large, visible markets with repeat business (c 70% of revenue contracted or recurring). Competitor, GL events, if much bigger (c €1bn revenue) and with other activities, is at 7x. Potential legal action by the US Attorney’s Office regarding Arena’s relationship with a previous client charged with a financial violation is unlikely to change the investment case, with company guidance of a possible fine of $1-8m.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA*
(x)

12/16

93.2

8.5

1.4

1.0

N/A

N/A

12/17

109.6

10.6

4.2

3.5

1.4

6.9

12/18e

114.5

12.5

6.0

4.7

2.0

6.0

12/19e

120.0

13.8

7.5

5.8

2.4

5.0

Source: Bloomberg. Note: *2016 and 2017 adjusted for exceptional costs.

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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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" 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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Arena Events Group — On time, every time

Arena Events is excitingly poised to use its IPO enhanced strength (FY17 net debt/EBITDA of just 1.1x) to accelerate a well-defined, proven strategy. International replication of its successful integrated UK model is likely to be a prime move, facilitated by prestigious reference customers and highly fragmented markets. Meanwhile trading continues to be encouraging with 2017 adj. EBITDA up 25% and a ‘healthy’ Q1, bolstered by two acquisitions and the promise of more. Valuation appears undemanding (6x 2018e EV/EBITDA), while a progressive dividend policy offers almost 4% yield.

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