Euromoney’s Q3 trading update shows little change from the position at the interims in May, with overall underlying revenues flat. This, however, masks divergent segmental performances. Structural issues in the asset management sector persist, while the pricing, data and market-intelligence subscription revenues are relatively robust. The net result is no change to our full year or prospective forecasts. The group’s cash position of £94.1m at end June reflects the GMID proceeds and gives plenty of scope for M&A. News on this may be a catalyst for closing the rating discount to peers.
Euromoney Institutional Investor |
On track |
Q3 trading update |
Media |
19 July 2018 |
Share price performance
Business description
Next events
Analysts
Euromoney Institutional Investor is a research client of Edison Investment Research Limited |
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Euromoney’s Q3 trading update shows little change from the position at the interims in May, with overall underlying revenues flat. This, however, masks divergent segmental performances. Structural issues in the asset management sector persist, while the pricing, data and market-intelligence subscription revenues are relatively robust. The net result is no change to our full year or prospective forecasts. The group’s cash position of £94.1m at end June reflects the GMID proceeds and gives plenty of scope for M&A. News on this may be a catalyst for closing the rating discount to peers.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/16 |
403.1 |
102.5 |
66.6 |
23.4 |
21.0 |
1.7 |
09/17 |
428.4 |
106.5 |
76.4 |
30.6 |
18.3 |
2.2 |
09/18e |
405.0 |
103.5 |
72.8 |
30.6 |
19.2 |
2.2 |
09/19e |
410.0 |
105.0 |
74.6 |
31.5 |
18.8 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Subscription revenues ahead
Adjusting for currency and M&A, subscriptions and content revenues and those from events were ahead of Q317, by 2% and 1% respectively. The growth in subscriptions is despite the previously disclosed issues at BCA and NDR, where the underlying customers’ markets have been undergoing fundamental changes. The consequent changes to the business model at BCA are underway although its fundamental strengths as a digital subscription business should not be overlooked. There are also opportunities to diversify its customer base to include a broader spectrum of wealth and asset management. The membership business of Institutional Investor continues to build well, while the magazine business has now transitioned to digital only. The events segment looks well placed as it concentrates on the larger, higher-quality (and margin) events.
Cash resource
The only M&A in Q3 was the GMID disposal, bringing in £117.8m net, which we addressed at the interims in May (although there may be some additional tax and transaction costs before the year end). The group has converted operating profit to cash at a rate averaging 102% over the last 10 years. With additional banking facilities in place, this is plenty of acquisition firepower. Management is focused on only buying where it sees opportunities to add value and on sensible multiples.
Valuation: Overshadowed by asset management
The shares have risen 27% over the last year but the discount to peers (based on a mixture of multiples) has opened to 11% from 5% at the interims, reflecting concerns over the outlook for the asset management sector. However, the cash resource and inherently strong cash flow characteristics give plenty of capacity for earnings-enhancing M&A. Meanwhile, a reverse DCF shows that the current valuation implies just 2% medium-term revenue growth on stable EBITDA margins.
Exhibit 1: Financial summary
£m |
2016 |
2017 |
2018e |
2019e |
||
30-September |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
403.1 |
428.4 |
405.0 |
410.0 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
403.1 |
428.4 |
405.0 |
410.0 |
||
EBITDA |
|
|
104.3 |
110.3 |
109.4 |
110.3 |
Operating Profit (before amort. and except.) |
101.5 |
107.1 |
108.2 |
109.0 |
||
Intangible Amortisation |
(16.8) |
(20.8) |
(24.0) |
(24.0) |
||
Exceptionals |
(37.3) |
(31.3) |
(0.1) |
0.0 |
||
Capital Appreciation Plan |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit before ass's & fin. except'ls |
47.4 |
55.1 |
84.2 |
85.0 |
||
Associates |
2.2 |
3.3 |
(0.1) |
0.0 |
||
Net Interest |
(1.1) |
(4.0) |
(3.6) |
(3.0) |
||
Exceptional financials |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
102.5 |
106.5 |
103.5 |
105.0 |
Profit Before Tax (FRS 3) |
|
|
48.4 |
54.4 |
80.5 |
82.1 |
Tax |
(18.1) |
(19.8) |
(21.5) |
(24.6) |
||
Profit After Tax (norm) |
84.5 |
86.6 |
81.5 |
81.4 |
||
Profit After Tax (FRS 3) |
30.4 |
34.6 |
59.0 |
57.5 |
||
Average Number of Shares Outstanding (m) |
126.5 |
112.5 |
107.3 |
107.3 |
||
EPS - normalised (p) |
|
|
66.6 |
76.4 |
72.8 |
74.6 |
EPS - (IFRS) (p) |
|
|
23.8 |
30.3 |
54.6 |
53.1 |
Dividend per share (p) |
23.4 |
30.6 |
30.6 |
31.5 |
||
EBITDA Margin (%) |
25.9 |
25.8 |
27.0 |
26.9 |
||
Operating Margin (before GW and except.) (%) |
25.2 |
25.0 |
26.7 |
26.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
601.9 |
648.8 |
391.6 |
366.5 |
Intangible Assets |
551.1 |
594.0 |
370.7 |
345.9 |
||
Tangible Assets |
14.9 |
24.4 |
16.9 |
16.5 |
||
Investments |
35.9 |
30.4 |
4.1 |
4.1 |
||
Current Assets |
|
|
170.3 |
127.8 |
333.6 |
336.5 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
78.6 |
64.5 |
68.7 |
70.8 |
||
Cash |
84.2 |
4.4 |
206.4 |
207.2 |
||
Other |
7.5 |
58.9 |
58.5 |
58.5 |
||
Current Liabilities |
|
|
(249.4) |
(267.5) |
(239.2) |
(248.0) |
Creditors |
(249.0) |
(267.5) |
(239.2) |
(248.0) |
||
Short term borrowings |
(0.4) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(45.3) |
(212.3) |
(167.4) |
(121.8) |
Long term borrowings |
0.0 |
(168.9) |
(110.5) |
(65.0) |
||
Other long term liabilities |
(45.3) |
(43.4) |
(56.8) |
(56.8) |
||
Net Assets |
|
|
477.5 |
296.8 |
318.7 |
333.2 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
103.8 |
118.2 |
105.2 |
109.4 |
Net Interest |
(0.4) |
(1.5) |
(3.7) |
(0.4) |
||
Tax |
(16.7) |
(21.8) |
(18.6) |
(19.0) |
||
Capex |
(3.2) |
(10.9) |
(5.5) |
(5.5) |
||
Acquisitions/disposals |
(3.8) |
(99.9) |
207.3 |
(3.0) |
||
Equity Financing / Other |
10.6 |
(193.0) |
0.0 |
0.0 |
||
Dividends |
(29.9) |
(31.3) |
(33.4) |
(34.3) |
||
Net Cash Flow |
60.3 |
(240.2) |
251.3 |
47.1 |
||
Opening net debt/(cash) |
|
|
(17.7) |
(83.8) |
154.6 |
(95.9) |
Redemption of pref |
7.8 |
0.0 |
0.0 |
0.0 |
||
Other |
(2.0) |
1.8 |
0.0 |
(0.0) |
||
Closing net debt/(cash) |
|
|
(83.8) |
154.6 |
(95.6) |
(143.0) |
Source: Company accounts, Edison Investment Research
|
|
Research: Metals & Mining
On 12 July 2018, Pan African Resources (PAF) announced that production to the end of June was 160,421oz cf prior guidance of 157-160koz for the year, with the outperformance exclusively attributable to underground operations at Evander (EGM). More significantly, for the first time management provided guidance of 170koz for FY19, which was materially above our prior expectation of 140koz on account of construction at Elikhulu continuing to progress “ahead of schedule”, such that it is now entering the commissioning phase with first gold expected in August ahead of a two-month ramp-up to full production. As a result, we have increased our EPS forecasts modestly for FY18 (although large in percentage terms) and materially for FY19.