Challenging markets persist
The backdrop for the asset management industry has been brightening, but, after a brief Q3 respite, the fixed interest and commodity sectors have continued to experience difficult trading and we have made further small forecast adjustments. Euromoney Institutional Investor (LONDON:ERM) has a clear strategy building its digital assets and subscription revenues, to transform its longer-term outlook and improve the quality of its earnings. The benefits from the Delphi digital platform investment in 2014 should flow more strongly from FY16, with any banking market recovery a potential uplift to current forecasts. The share price reflects neither the quality of the proposition nor the management.
Subscription income carries on building
The trading update for 1 October to 28 January 2015 shows a clear contrast between subscription and non-subscription revenues. The former carried on growing at 2% (constant currency), as in FY14, with encouraging renewal rates. Although at first sight event revenues were distinctly softer, stripping out the effects of timing differences, they were also up by 2% in the period. The softening in advertising revenues is as expected, given the ongoing structural decline in the print market, which is addressed by the group’s investment made in digital delivery and the Delphi digital platform. Across the group, broadly maintained underlying revenues amount to a resilient performance given the trading circumstances.
Recent currency moves partial offset
The recent strengthening of the US dollar against sterling will have a beneficial effect on translation of overseas profits, with management indicating a one cent move being equivalent to a £0.6m shift in annualised operating profit. At the time of the finals, we adjusted our forecasts to reflect higher property costs and the impact of the Dealogic transaction. We have now made further small adjustments to reflect the continuing travails of the fixed income and commodity sectors, which had looked to be showing small signs of improvement when the last figures were struck.
Valuation: Waiting on better markets
Euromoney Institutional Investor remains valued around mid-range of B2B peers on annualised EV/EBITDA and P/E multiples, while delivering one of the higher margins. Managements handling of the group’s transition to digital delivery has been impressive – delivering as promised and at very low cost. It also has a strong track record in transaction negotiation and implementation. The current rating pays more heed to the market backdrop than the good progress made in improving the quality of earnings, together with the strong balance sheet and cash conversion.
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