Euromoney’s H119 results show the positive impact of management’s strategy, particularly in Pricing, Data and Management Intelligence (PDMI), where underlying subscription revenues grew 8%. Challenges remain in Asset Management and we have lowered our group revenue and earnings FY19e and FY20e forecasts by 6% and 5% respectively. The DMGT share distribution has ‘normalised’ the register and ERM now trades as a fully independent FTSE 250 company. With the liquidity constraint lifted, the rating better reflects ERM’s attractive cash flow and high quality earnings.
Our revised forecasts reflect the slower-than-hoped top line recovery, due partly to the challenge in driving new business in Asset Management (AM). Investment is being targeted at this aspect of sales and marketing, but takes time to show through in the numbers. Underlying H119 group revenue growth of 1% comprises PDMI +3%, Banking & Finance +4% and AM -3% (FY18: -4%). PDMI operating margins were stable at 36%, benefiting from good subscription revenue growth, countered by challenges in event delegate marketing. FY18’s restructuring showed through In AM, where operating margins ticked up from 38% in H118 to 41%, while Banking & Finance operating margins were down from 20% to 15% with a change in revenue mix and increased headcount. H119’s adjusted net finance cost was just £70k (H118: £2.3m), with underlying adjusted PBT up 13% y-o-y to £46.1m.
Net cash at end March was £29.3m after net acquisition spend of £46.5m (BoardEx and The Deal in, Mining Indaba out) and capex of £3.9m. H119 underlying cash conversion was 98%, slightly diluted by timing of some Fastmarkets business transitioning to data licensing from subscription, in line with management’s push towards B2B Information 3.0 (see our outlook note). Our model suggests an end FY19 net cash figure of £77.1m, giving plenty of firepower for further M&A.
ERM’s shares are up 18% since the start of 2019; +5% since the DMGT placing announcement, significantly narrowing the discount to global financial data peers, currently valued at a current year EV/EBITDA of 16.8x and 15.1x the year after. Parity on the average of FY1 and FY2 EV/EBITDA and P/E would imply a 1,550p share price, 13% ahead of the current level. Given the earnings’ resilience, subscription base and attractive cash conversion, this disparity still appears excessive.