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
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
Share price at close: 853p
Read Questor’s rules of investment before you follow our tips: telegraph.co.uk/go/ questorrules; twitter.com/DTquestor