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.
Euromoney Institutional Investor |
Pricing power |
Preliminary results |
Media |
22 November 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 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* |
EPS* |
DPS |
P/E |
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.
|
|
Research: Healthcare
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.