Euromoney Institutional Investor — Update 21 July 2016

Euromoney Institutional Investor — Update 21 July 2016

Euromoney Institutional Investor

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Euromoney Institutional Investor

Waiting for September

Trading update

Media

21 July 2016

Price

963.50p

Market cap

£1,236m

£1:US$1.31

Net cash (£m) at end June 2016

83

Shares in issue

128.3m

Free float

32.3%

Code

ERM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.0)

7.1

(16.3)

Rel (local)

(10.2)

3.0

(15.1)

52-week high/low

1,155.00p

852.50p

Business description

Euromoney Institutional Investor is an international business-to-business information and events group. Its portfolio of over 50 specialist businesses spans macroeconomic data, investment research, news and market analysis, industry forums and institutes, financial training and excellence awards.

Next events

Pre-close update

29 September 2016

Final results

24 November 2016

Trading update

26 January 2017

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

Euromoney Institutional Investor is a research client of Edison Investment Research Limited

Euromoney’s Q3 update indicates that year-to-date financial performance is in line with management expectations. As is usual, the full year outcome depends on September’s trading performance, which typically provides around 20% of annual profits. For 2016, September’s prospects are hard to call. While sterling weakness boosts reported results, uncertainty in client markets has been exacerbated by the Brexit vote and it is prudent to leave forecasts where they are for now. Cash conversion remains very strong and is a key attraction of the stock, with £83m of net cash on the balance sheet at 30 June. The share price is likely to mark time until the market picture becomes clearer.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/14

406.6

116.2

70.6

23.0

13.6

2.4

09/15

403.4

107.8

70.1

23.4

13.7

2.4

09/16e

390.0

101.0

64.5

23.4

14.9

2.4

09/17e

397.5

106.5

68.0

23.4

14.2

2.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Market uncertainties offset currency benefit

Euromoney sells to many countries, but invoices mainly in US dollars and sterling, with around two-thirds of its revenues (including 30% of UK revenues) and the same proportion of operating profits generated in US dollars. The accounts quantify the effect of a one cent movement against sterling as shifting revenue ± £1.4m and PBT ± £0.6m. This shift will be more noticeable from Q416 and into FY17 and, were the trading backdrop stable, we would be raising our forecasts mechanistically to reflect this move. However, given the degree of current uncertainty post the Brexit vote, particularly for participants in financial markets, the circumspect option of leaving numbers unchanged is our preferred course.

Underlying rate of decline reduced

Reported (and underlying) Q316 revenues were down 1% at £104.7m. The reduced underlying rate of decline (from 6% in H116) reflects easier comparatives and also the first positive impact from the implementation of the new strategic plan described in our notes of March and May. The earlier conclusion that subscriptions rates had bottomed out appears to be holding good, with these underlying revenues ticking up 1% y-o-y. Advertising revenues continue to retrench (-14%), in line with our modelling assumptions, while a meaningful uplift in sponsorship revenues (+9%) reflect a good performance from larger finance and telecoms events.

Valuation: Small discount to sector

ERM traditionally trades at a premium to other quoted B2B media stocks, reflecting its quality and consistency of earnings (itself a reflection of its well-known brands), strong balance sheet and cash conversion. The weakness of customers’ markets has undermined these advantages and the valuation currently sits at an 8% discount to sector average for calendar 2016e P/E, a 2% discount on EV/EBITDA.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

30-September

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

406.6

403.4

390.0

397.5

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

406.6

403.4

390.0

397.5

EBITDA

 

 

122.7

109.4

102.7

108.2

Adjusted Operating Profit (before amort. and except.)

119.8

106.7

98.7

103.9

Intangible Amortisation

(16.7)

(17.0)

(17.8)

(17.8)

Exceptionals

2.6

33.4

(12.9)

0.0

Capital Appreciation Plan

(2.4)

2.5

0.0

0.0

Operating Profit before ass's & fin. except'ls

103.3

123.1

68.0

86.1

Associates

0.3

2.4

2.4

2.4

Net Interest

(1.6)

(1.3)

(0.0)

0.3

Exceptional financials

(0.6)

(0.9)

0.0

0.0

Profit Before Tax (norm)

 

 

116.2

107.8

101.0

106.5

Profit Before Tax (FRS 3)

 

 

101.5

123.3

70.3

88.7

Tax

(25.6)

(17.6)

(19.2)

(20.2)

Profit After Tax (norm)

90.8

88.9

81.8

86.3

Profit After Tax (FRS 3)

75.9

108.2

51.1

68.5

Average Number of Shares Outstanding (m)

126.5

126.4

126.4

126.4

EPS - normalised fully diluted (p)

 

 

70.6

70.1

64.5

68.0

EPS - (IFRS) (p)

 

 

59.1

83.4

40.2

54.0

Dividend per share (p)

23.0

23.4

23.4

23.4

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

30.2

27.1

26.3

27.2

Operating Margin (before GW and except.) (%)

29.5

26.5

25.3

26.1

BALANCE SHEET

Fixed Assets

 

 

564.2

579.1

546.5

513.9

Intangible Assets

545.4

531.4

499.3

467.3

Tangible Assets

18.6

9.5

8.9

8.3

Investments

0.1

38.3

38.3

38.3

Current Assets

 

 

86.0

110.1

183.6

239.0

Stocks

0.0

0.0

0.0

0.0

Debtors

68.4

83.7

78.0

79.5

Cash

8.6

18.7

97.9

151.8

Other

9.1

7.7

7.7

7.7

Current Liabilities

 

 

(208.9)

(208.3)

(209.2)

(216.4)

Creditors

(208.4)

(207.3)

(208.7)

(215.9)

Short term borrowings

(0.5)

(1.0)

(0.5)

(0.5)

Long Term Liabilities

 

 

(84.7)

(33.2)

(45.2)

(43.4)

Long term borrowings

(45.7)

0.0

0.0

0.0

Other long term liabilities

(39.1)

(33.2)

(45.2)

(43.4)

Net Assets

 

 

356.5

447.7

475.7

493.1

CASH FLOW

Operating Cash Flow

 

 

110.2

109.5

102.8

104.1

Net Interest

(1.1)

(1.1)

0.1

0.4

Tax

(22.5)

(13.7)

(16.9)

(17.8)

Capex

(6.3)

9.4

(3.5)

(3.7)

Acquisitions/disposals

(58.9)

(15.6)

26.2

0.0

Equity Financing / Other

(21.5)

(4.4)

0.0

0.0

Dividends

(29.0)

(29.4)

(29.1)

(29.1)

Net Cash Flow

(29.3)

54.6

79.7

53.9

Opening net debt/(cash)

 

 

10.9

37.6

(17.7)

(97.4)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

2.6

0.7

0.0

(0.0)

Closing net debt/(cash)

 

 

37.6

(17.7)

(97.4)

(151.3)

Source: Company accounts, Edison Investment Research

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

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US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

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