What better way to buy time with investors than promising to hand back a straight £1 billion? Announcing plans to sell its data and consultancy business Informa Intelligence did the trick for the FTSE 100 corporate exhibitions specialist Informa, lifting the shares out of the 12-month low at which they were languishing.
The sale of the division provides a short-term salve for investors. Analysts at Citigroup reckon the assets will fetch £2 billion, half to be returned to shareholders next year via share buybacks and a special dividend. The aforementioned investment bank forecasts the latter at around 33p, which alone would attach a potential dividend yield of around 6.6 per cent to the shares at their current battered price.
Remaining proceeds will be used to pay down debt and invest a net £150 million in two remaining divisions: academic publishing, via Taylor and Francis, and its trade show operations. That will leave the group virtually debt-free by the end of 2023, analysts forecast. That’s just as well. The group might have no financial covenants on its group level debt facilities, but net debt of £1.89 billion at the end of June was at 6.2 times adjusted earnings.
But the sale of intelligence — faster growing than academic publishing and more predictable than trade shows — will leave the group at the mercy of an uncertain recovery around in-person events. That’s at a time when the Omicron variant has cast a fresh pall over the return to a restriction-free trading environment. A collapse in events-related revenue, which accounted for 65 per cent of group sales before the pandemic, and an impairment of almost £600 million to account for disruption, pushed the group into a £880 million loss last year.
Progress has not been even. Events-related revenue from China, which was quicker in reopening, has returned more swiftly than North America. Last month, revenue from its three events-related businesses was only half of 2019 levels and management reckons that could recover to between 65 per cent and 80 per cent next year. At a group level, revenue and adjusted operating profit are expected to rise to £1.8 billion and £375 million this year. But both metrics aren’t expected to recover to pre-pandemic levels until 2024, at which point trading is expected to exceed 2019 once the Intelligence division is excluded.
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Analysts at Citi downgraded earnings forecasts for next year and 2023 by 15-16 per cent.
Backing Informa requires investors to play the long game. Based upon forecasts for 2024, an enterprise value of 7.7 times earnings before taxes and other charges leaves the group valued below its market cap just after the Brexit referendum.
Its aim is to capture more of businesses’ external marketing spend outside of trade shows. That includes providing companies with data analytics around potential clients and identifying businesses that could be buyers of a client’s product or services. It has also set a target to double the underlying revenue growth rate to at least 4 per cent for the academic publishing business, driven by the faster growing Open Access research publishing market.
The group had available cash and undrawn debt totalling £1.5 billion at the end of June and free cashflow is improving, expected to hit at least £325 million this year. Ordinary dividends are set to resume next year, with UBS analysts forecasting a payment of 6.66p a share.
Brighter prospects for the full return of mass gatherings will be the main catalyst for the shares re-rating. The new virus variant looks to have pushed that further out.
Advice Hold
Why The discount attached to the shares is justified by heightened uncertainty over the return of mass events
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India Capital Growth
India became the new darling of emerging markets this year, displacing China to deliver the best stock market returns. The question for investors is whether they have missed the boat and should look elsewhere for growth at a decent price.
The answer? Not necessarily, because there are investment trusts that offer exposure to the broader themes of rising consumer demand and growing wealth without being priced at a premium. Take India Capital Growth, whose shares trade at a 6 per cent discount to the trust’s net asset value. The trust invests in 32 small and mid-cap companies operating in India. The idea is that smaller companies are a better way to capitalise on the country’s economic growth than larger names that make a substantial proportion of their earnings overseas.
As the name suggests, the trust is focused on trying to find companies that deliver capital growth over several years and so it doesn’t pay a dividend. There are no hard thresholds for the proportion of assets that can be invested in a single company or sector, but as a rule of thumb no holding would account for more than 10 per cent of assets. The trust is well diversified by sector, with materials accounting for just over 20 per cent of assets, and financial services and consumer discretionary the second and third largest industry weightings.
Performance has been relatively steady, with an average annual NAV return of 14.8 per cent over the past decade, while the shares have risen more than threefold. But relative to the benchmark, the S&P BSE MidCap Index, India Capital’s performance has been more volatile and over a three and five-year period has underperformed. The reason? Trying to invest in too broad a stable of companies. An overhaul of the investment process completed at the start of last year has stripped back potential targets to 140 companies that are screened for their merits.
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That seems to be paying off. Since April last year the trust has achieved an NAV return of 111 per cent, versus 94 per cent by the benchmark. A further recovery in corporate earnings out of the pandemic could help to close the gap between the trust’s share price and NAV.
Advice Buy
Why Attractively priced way to hold Indian equities
