Our next fan­tasy stock: a ‘qual­ity’ firm whose shares have been un­fairly pun­ished

Euromoney’s events busi­nesses have made in­vestors ner­vous but the com­pany has other strings to its bow

The Daily Telegraph - Business - - Business - RICHARD EVANS

OUR £20,000 stock-pick­ing com­pe­ti­tion, Fan­tasy Fund Man­ager, is up and run­ning and to­day we choose our next share for Questor’s en­try in the con­test.

In a break from our nor­mal longer-term ap­proach we seek quick gains with the stock be­cause the game runs only for three months. How­ever, to­day’s se­lec­tion will work equally well as a “buy and hold” share.

It is a “qual­ity” com­pany of the type we like but its ex­po­sure to the events sec­tor has put its shares un­der a cloud – un­fairly so, ac­cord­ing to one fund man­ager.

The com­pany is Euromoney and it has more strings to its bow than events. But, said Louise Ker­nohan, co-man­ager of the Dunedin In­come Growth in­vest­ment trust, which has a stake in the firm, “the shares have been very weak

dur­ing the epi­demic and it’s mainly be­cause of events”. She added: “The mar­ket has been very ner­vous about the events side. The shares were at about £13 in Jan­uary but fell to about 700p af­ter the virus cri­sis be­gan. They are now at about 850p – they haven’t re­cov­ered as much as some and seem to have been un­fairly hit.”

The firm makes about 30pc of sales from events; the rest comes from more re­silient busi­nesses such as sell­ing fi­nan­cial data by sub­scrip­tion. This model gen­er­ates what Ms Ker­nohan called the kind of “sticky, vis­i­ble” in­come that is so fash­ion­able – rightly so, in Questor’s view – among soft­ware stocks. The buy­ers of Euromoney’s data typ­i­cally have no choice about it and “as its ser­vices are in­creas­ingly dig­i­tal they are be­com­ing em­bed­ded even fur­ther into its cus­tomers’ work­flow”, she said. This makes clients even less likely to switch sup­plier. Some of the data Euromoney sells con­cerns merg­ers and ac­qui­si­tions and the like, while some is com­mod­ity prices. The lat­ter gen­er­ate about 30pc of over­all pro­fits and Ms Ker­nohan de­scribed it as “the most at­trac­tive part of the busi­ness”.

“Its brands in­clude Metal Bul­letin and Risi Pulp & Pa­per,” she added. “They are sold on sub­scrip­tion and in cer­tain busi­nesses you just have to have this data. This is an area where you get the ‘net­work ef­fect’ [cus­tomers and sup­pli­ers com­ing to­gether in a self-re­in­forc­ing way], so any ri­val would strug­gle to get go­ing.”

Even the trou­bled events busi­nesses are fight­ing back against the ef­fects of the pan­demic. “The firm has been or­gan­is­ing vir­tual events and get­ting cus­tomers to sign up to be part of vir­tual com­mu­ni­ties,” Ms Ker­nohan said.

“You make a whole on­line world and it hooks peo­ple in. It’s a way to make the re­la­tion­ship more long-term and more con­tin­u­ous through­out the year. It could be a good thing.”

The fi­nal piece of the jig­saw is the as­set man­age­ment arm, which, in ad­di­tion to events of its own, sells in­vest­ment re­search. This has come un­der pres­sure be­cause reg­u­la­tors have forced re­search houses to change their pric­ing model. Again, Euromoney is meet­ing the prob­lem head on.

“Man­age­ment is aware that this busi­ness is struc­turally chal­lenged,” Ms Ker­nohan said. “There is no de­nial and the busi­ness is be­ing man­aged ac­cord­ingly. There was some in­ter­est when it was put up for sale, but the board de­cided they could get more value from it by run­ning it them­selves.”

She de­scribed An­drew Rash­bass, the chief ex­ec­u­tive, as “ex­tremely prag­matic, very self-aware, de­void of hubris and ego – I can’t speak highly enough of him”.

“Over­all I think the firm is in a much better po­si­tion than the mar­ket is giv­ing it credit for,” she said. “Mar­kets are very clever but there are in­ef­fi­cien­cies – now more than usual. In a nor­mal world you would have more idea of what was go­ing to hap­pen but un­cer­tainty brings op­por­tu­nity.

“This busi­ness is less un­cer­tain than it might seem and with the kind of strong balance sheet Euromoney has, you don’t need to worry about its sur­vival.”

Questor says: buy

Ticker: ERM

Share price at close: 853p

Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­graph.co.uk/go/ questor­rules; twit­ter.com/DTquestor

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.