Euromoney has established a strong base from which to grow, particularly in the Pricing, data and market intelligence segment where its tools and products are increasingly built into client workflows. Continued challenging trading in Asset management is factored into our numbers, which have been lifted to reflect the completion of the BoardEx acquisition (PBT, EPS +7% FY19, +8% FY20). The group has plenty of firepower to fund further acquisitions. The proposed distribution of the DMGT shareholding removes the constraint on liquidity and should allow the rating to reflect the attractive cash flow characteristics and high quality of earnings.
We have now included the acquisitions completed in February in our numbers. As anticipated, the transactions should be earnings enhancing, lifting EBITDA, PBT and EPS by 7–8% in both FY19 and FY20. We also publish our first thoughts on financial prospects for FY21. The more active portfolio management is now coming through clearly in growing EPS, from the plateau of the first half of the decade, flowing through to a progressive dividend. The group still has considerable cash resource (forecast at £74m for end FY19), as well as up to £370m in debt facilities, giving plenty of scope to look at further transactions. Management’s preference is for businesses that operate in semi-opaque markets, have proprietary data or unique IP, provide “must-have” information or services to their clients, clearly create value when integrated with ERM’s existing business and have high operating leverage, with the potential to achieve net margins in excess of 30%.
Having reduced its ERM holding to 49% in December 2016, speculation over DMGT’s intentions regarding the balance continued. Rather than place it in the market, DMGT has announced its intention to distribute the stake to its existing shareholders (bar the Rothermere family). This should greatly improve the liquidity in the stock and remove a barrier to investment from some potential investors.
Euromoney’s shares continue to trade at a notable discount to global financial data peers, currently valued at a current year EV/sales of 3.8x, EV/EBITDA of 14.3x and P/E of 21.4x. Parity on average of FY1 EV/EBITDA and P/E would imply a share price of 1,587p, 31% ahead of the current price. Given the resilience of the earnings, high level of subscription income and attractive cash conversion, this valuation disparity appears excessive, even before the lifting of the perceived overhang.