Euromoney’s Q3 trading update indicated overall trading performance in line with management expectations and we have not changed our FY19 estimates. The recent capital markets day took a deeper dive into the Investment Research and Fastmarkets operations and how management is working on transforming them into ‘3.0’ B2B information service businesses, built into clients’ workflows. Given the group’s earnings resilience, subscription base and attractive cash conversion, the rating disparity with peers still appears excessive.
Q319 revenue trends followed the recent pattern with Asset Management soft (-9%) and Pricing, Data and Market Intelligence (PDMI) strong, ahead by 6%, up from +3% in H119. The quarterly progression by segment and revenue type is shown below. Asset Management (which comprises both Investment Research and the Institutional Investor brand) remains a challenged market, but the pace of decline is reportedly slowing. Moves to cut costs here have allowed margins to hold up, as well as giving some scope to reinvest in the sales function and upgrading the product set. Having had an exceptionally strong Events performance in H119, Banking & Finance reverted to a more usual trading pattern, up 1%.
Group strategy is predicated on recycling capital to improve the quality of the assets and drive higher revenue growth. Some of this is self-help; some is M&Adriven. Cash on the balance sheet was £41.2m as at end June (up from £29.3m at end March), with the improvement partly stemming from further Mining Indaba proceeds of £8.7m. The group has an undrawn committed revolving credit facility of £240m, with an uncommitted £130m accordion, giving plenty of firepower for potential acquisitions, as well as resource for organic investment. Price reporting agencies that could fit into the developing Fastmarkets brand umbrella would obviously be an attractive option.
ERM’s shares are up 8% since the start of 2019, having peaked at 1,414p at the time of the interim results in May and since drifting back. They remain valued at a significant discount to global financial data peers, which currently trade at a FY1 EV/EBITDA of 16.7x and 14.6x FY2. Parity on the average of FY1 and FY2 EV/EBITDA would imply a 1,455p share price, 13% ahead of the current level. Given the earnings resilience, subscription base and attractive cash conversion, this disparity still appears excessive.