Shares - - TALKING POINT -

We think the trans­for­ma­tion of Euromoney (ERM) from an old­fash­ioned me­dia busi­ness to a higher qual­ity data ser­vices out­fit will hit home with the mar­ket in 2019 and help drive the share price higher.

The com­pany is rapidly grow­ing its pric­ing and data side, di­ver­si­fy­ing away from a weaker as­set man­age­ment busi­ness made up of In­sti­tu­tional In­vestor mag­a­zine and off­shoots as well as the BCA in­vest­ment re­search arm.

The pric­ing, data and in­tel­li­gence divi­sion does smarter things like pro­vid­ing prices for opaque mar­kets us­ing tra­di­tional jour­nal­ism. This might mean find­ing out what par­ties are pay­ing for dif­fer­ent com­modi­ties, for ex­am­ple, and then mon­etis­ing this highly valu­able mar­ket in­tel­li­gence.

With much of the in­come from this part of the busi­ness linked to sub­scrip­tions, Euromoney en­joys a good level of earn­ings vis­i­bil­ity.

Even af­ter the com­pany splashed out $87.3m on the ac­qui­si­tion of two US busi­nesses – BoardEx and TheDeal – the com­pany should still be in a net cash po­si­tion thanks to a se­ries of pre­vi­ous dis­pos­als of non-core as­sets. This in­cludes the Ind­aba min­ing in­dus­try event.

Prior to the two re­cent ac­qui­si­tions, Nu­mis fore­cast net cash of £135m by the end of 2019, a to­tal which also re­flects in­her­ently strong cash gen­er­a­tion from op­er­a­tions.

This sit­u­a­tion pro­vides head­room for fur­ther M&A ac­tiv­ity to ac­cel­er­ate its shift to a higher qual­ity busi­ness pro­file and a buf­fer in case times get sig­nif­i­cantly tougher.

The shares still trade at a ma­te­rial dis­count to global fi­nan­cial data peers de­spite the head­way chief ex­ec­u­tive An­drew Rash­bass has made since join­ing in 2015.

Euromoney trades on a for­ward PE of less than 16-times com­pared to a peer group av­er­age of 25.6-times, ac­cord­ing to re­search house Edi­son.

Boardex and TheDeal are ex­pected to be im­me­di­ately earn­ings en­hanc­ing. Both are data-driven out­fits with sub­scrip­tion-based mod­els and there­fore a good fit with the cur­rent strat­egy. BoardEx pro­vides ex­ec­u­tive pro­fil­ing and re­la­tion­ship map­ping, while TheDeal is a data­base of M&A in­for­ma­tion.

There are some risks for in­vestors to weigh. The as­set man­age­ment arm, which still ac­counted for nearly 40% of rev­enue in the past fi­nan­cial year, is strug­gling thanks to in­dus­try cost-cut­ting, which was ex­ac­er­bated by the dis­rup­tive Mi­fid II reg­u­la­tions on fi­nan­cial sec­tor trans­parency.

We ac­cept Brexit could re­sult in fur­ther pain. Ad­di­tion­ally Daily Mail & Gen­eral Trust (DMGT) con­tin­ues to hold a 49% stake in the busi­ness and if it were to look to off­load its hold­ing this could de­press the share price.

How­ever, we still be­lieve the shares are in­cred­i­bly at­trac­tive given the tighter busi­ness fo­cus and rel­a­tively cheap val­u­a­tion.


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