Euromoney’s AGM trading update indicates performance continuing in line with full year expectations, subject to currency which is now a headwind. Our forecasts are adjusted to take this, and recent M&A, into account. Q118 subscriptions and content are showing underlying growth of 2%. This masks the divergence between a strong showing from Pricing (+10%) and continued MiFID II-prompted drag from Asset Management (-6%). Portfolio changes (as well as strong cash conversion) have resulted in a marked reduction in net debt to £49.0m as at end December 2017, with the prospect of moving into net cash during FY19, subject to M&A.
Euromoney Institutional Investor |
Subscribing to growth |
AGM update |
Media |
2 February 2018 |
Share price performance
Business description
Next events
Analysts
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Euromoney’s AGM trading update indicates performance continuing in line with full year expectations, subject to currency which is now a headwind. Our forecasts are adjusted to take this, and recent M&A, into account. Q118 subscriptions and content are showing underlying growth of 2%. This masks the divergence between a strong showing from Pricing (+10%) and continued MiFID II-prompted drag from Asset Management (-6%). Portfolio changes (as well as strong cash conversion) have resulted in a marked reduction in net debt to £49.0m as at end December 2017, with the prospect of moving into net cash during FY19, subject to M&A.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/16 |
403.1 |
102.5 |
66.6 |
23.4 |
17.4 |
2.0 |
09/17 |
428.4 |
106.5 |
76.4 |
30.6 |
15.2 |
2.6 |
09/18e |
429.4 |
103.0 |
75.8 |
30.6 |
15.3 |
2.6 |
09/19e |
442.5 |
108.0 |
79.9 |
31.5 |
14.5 |
2.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Underlying trading broadly +ve, currency -ve
Q1 underlying trading patterns from subscriptions have extrapolated the trends of Q417, with encouraging progress in Pricing, accelerating from 8% (exit rate for Q4) to 10% growth, while Asset Management, afflicted by the uncertainties surrounding the implementation of MiFID II, declined by 6%. The quarter is a quiet one for the events business, but the trading news is again of the positive impact of the strategic focus on the larger events, with underlying revenues ahead by 9%. These changes were already built into our figures. We have now adjusted for M&A since our last publication, principally the disposal of the minority stake in Dealogic, along with three other business disposals, as well as mechanistic changes as a result of the move in the £/US$ exchange rate. Around two-thirds of group revenues and c 80% of profits are earned in US$, and each 1 cent change results in a £0.7m movement in profits on an annualised basis. Our earnings estimates for FY18 are trimmed by 5-6%, while FY19, with a full year effect, is pulled back by 8%.
Cash building
The balance sheet has benefited from the proceeds from disposals (as well as cash conversion of over 100%), with net debt of £49m at end December from £155m at the September year-end. In the absence of M&A (which is a very unlikely scenario), our model indicates this coming down to £28.5m by the year-end and moving to net cash during FY19.
Valuation: Overshadowed by asset management
The group continues to trade at a modest discount to peers (we estimate this at around 7% based on a mixture of multiples), reflecting concerns over the outlook for the asset management sector and the tougher y-o-y comparatives as of Q218. However, the group has strong cash flow characteristics and capacity for earnings-enhancing M&A, with a reverse DCF showing 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 |
429.4 |
442.5 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
403.1 |
428.4 |
429.4 |
442.5 |
||
EBITDA |
|
|
104.3 |
110.3 |
110.8 |
112.8 |
Operating Profit (before amort. and except.) |
101.5 |
107.1 |
106.9 |
108.6 |
||
Intangible Amortisation |
(16.8) |
(20.8) |
(20.6) |
(12.3) |
||
Exceptionals |
(37.3) |
(31.3) |
0.0 |
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 |
86.3 |
96.3 |
||
Associates |
2.2 |
3.3 |
0.0 |
0.0 |
||
Net Interest |
(1.1) |
(4.0) |
(3.9) |
(0.6) |
||
Exceptional financials |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
102.5 |
106.5 |
103.0 |
108.0 |
Profit Before Tax (FRS 3) |
|
|
48.4 |
54.4 |
82.4 |
95.6 |
Tax |
(18.1) |
(19.8) |
(21.1) |
(21.6) |
||
Profit After Tax (norm) |
84.5 |
86.6 |
81.9 |
86.4 |
||
Profit After Tax (FRS 3) |
30.4 |
34.6 |
61.3 |
74.0 |
||
Average Number of Shares Outstanding (m) |
126.5 |
112.5 |
107.3 |
107.3 |
||
EPS - normalised (p) |
|
|
66.6 |
76.4 |
75.8 |
79.9 |
EPS - (IFRS) (p) |
|
|
23.8 |
30.3 |
56.7 |
68.6 |
Dividend per share (p) |
23.4 |
30.6 |
30.6 |
31.5 |
||
EBITDA Margin (%) |
25.9 |
25.8 |
25.8 |
25.5 |
||
Operating Margin (before GW and except.) (%) |
25.2 |
25.0 |
24.9 |
24.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
601.9 |
648.8 |
352.5 |
340.0 |
Intangible Assets |
551.1 |
594.0 |
317.1 |
303.9 |
||
Tangible Assets |
14.9 |
24.4 |
5.1 |
5.7 |
||
Investments |
35.9 |
30.4 |
30.4 |
30.4 |
||
Current Assets |
|
|
170.3 |
127.8 |
131.8 |
180.2 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
78.6 |
64.5 |
68.7 |
70.8 |
||
Cash |
84.2 |
4.4 |
4.6 |
50.9 |
||
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) |
(89.9) |
(89.9) |
Long term borrowings |
0.0 |
(168.9) |
(33.1) |
(33.0) |
||
Other long term liabilities |
(45.3) |
(43.4) |
(56.8) |
(56.8) |
||
Net Assets |
|
|
477.5 |
296.8 |
155.1 |
182.3 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
103.8 |
118.2 |
99.0 |
108.7 |
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) |
88.4 |
(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) |
126.1 |
46.4 |
||
Opening net debt/(cash) |
|
|
(17.7) |
(83.8) |
154.6 |
28.5 |
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 |
28.5 |
(17.9) |
Source: Company accounts, Edison Investment Research
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Research: TMT
FY17 was a transformational year for Keywords, both operationally and financially. Acquisitions have bolstered the company’s capability set and geographical reach, while driving strong double-digit earnings growth. Organic growth remains strong and we see potential for market share gains to accelerate, driven by a strengthened platform for cross-selling. It is not unreasonable to expect a similar scenario into FY18/19. Execution of this should drive further share price upside, despite the premium rating.