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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17 April 2018 |
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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.
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Consensus estimates
Source: Bloomberg. Note: *2016 and 2017 adjusted for exceptional costs. |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Disclaimer
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Disclaimer
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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.