Academic journal

Mr. Market is too emotional about Informa


The use of GuruFocus List of Gurus is ideal for generating ideas. One guru that I admire is David Herro (Trades, Portfolio). I recently wrote about a stock he owns in his Oakmark Intl Small Cap fund. While exploring another of his portfolios, the Oakmark International Fund, I noticed that he had recently added a new stake in a company that I know well through the use of his products and services, which is Informa PLC (LSE : INF).

The company is a British multinational publishing and events company which operates several different publishing brands across the world. The company has five operating divisions: Informa Markets, Informa Connect, Informa Tech, Informa Intelligence and Taylor & Francis.

I happen to know Informa Connect because I have been involved in some of the events he has organized. The employees I dealt with were professional and knowledgeable and the events were a great success. I discovered that Informa is one of the world’s leading event planners with access to a large portfolio of expert speakers from around the world. I also know Taylor & Francis, editor of the Financial Analysts Journal for the CFA Institute, of which I am a subscriber. The quality of the journal is good and I will never give up my subscription. In short, Informa is closely linked with many trade events and publications which are the backbone of their respective industries. This, to me, is a source of competitive advantage, a high switching cost to use Michael Porters terminology.

So, staying true to Peter Lynch’s idea of ​​buying stocks where you know the product, I thought I would dig a little deeper into the business.

Capital Markets Day

Informa recently hosted a Capital Markets Day titled “Growth Acceleration Plan II”. Here, the company announced the divestiture of its data and advisory business Informa Intelligence, which owns the fund flow data business EPFR which is used by many macro investors and quantitative analysts, and Lloyds List, which is a famous brand in the maritime industry. Informa intends to distribute £ 1 billion ($ 1.3 billion) of intrinsic value to shareholders through the combination of a share buyback program and a special dividend following the completion of the sale of this division.

Informa has not set a valuation target for its intelligence business, but Citi analysts believe it will sell for £ 2 billion, giving Informa £ 1 billion to reinvest.

Informa plans to use the remaining proceeds to buy back debt and invest in its two main areas: college publishing (Taylor & Francis) and its trade show / event business. In fact, I like this focus on two growing companies where Informa has leadership positions and scale.

Citi predicts that this will make Informa virtually debt-free by the end of 2023. This is absolutely necessary because, currently, Informa is in a weak financial position with an Altman Z-Score of only 1.1, which puts it in difficulty. but obviously this number does not. take into account the effects of future divestment. Net debt of £ 1.9 billion at the end of June stood at 6.2 times adjusted profit, so it’s clear that deleveraging is in order, especially with the uncertainty surrounding the events and conferences in person in the short term, which becomes a more important part of its activity. following the sale of the intelligence unit.

Informa has been a Covid-19 loser. The collapse in event-related revenue, which accounted for 65% of the group’s sales before the pandemic, along with a write-down of nearly £ 600million to account for all associated disruptions, saw the group post a loss of 880 million pounds last year.

Fortunately, Informas’ event business is global in nature, so it is not overly exposed to a single region. For example, event revenues from China, which reopened first, rebounded faster than events revenues from North America.

As the pandemic has not yet subsided, Informa is still trading below 2019 levels. Last month, sales generated by its three event-related businesses hit half of 2019 levels. Management said. that it could go back to 65% to 80% next year. At the group level, revenue and adjusted operating income are expected to climb to 1.8 billion pounds and 375 million pounds this year.

Management believes it will be 2024 before exchanges beat 2019 (excluding intelligence division).

The stock has a Piotroski F-Score of 4, which isn’t too bad considering the effects of the pandemic on the business.

Herro in October said of Informa:

“We believe that the trade show activity is underestimated and likely to create value for the company.”

I’ve already noticed that some conferences that I love to attend are announced in person for 2022, and people will want to socialize once Covid-19 is extinguished.

The group aims to capture more of its clients’ external marketing spend outside of trade shows by providing clients with data analytics around their potential clients and by identifying companies that could be buyers of a product or service. customer service.

On the Taylor & Francis side, Informa aims to double the underlying revenue growth rate to at least 4% for the academic publishing sector, driven by the open access research publishing market in full growth.

Considering the disruption of the pandemic and the upcoming divestment, it is very difficult to use a multiples approach for valuation using the 2021 financial statements or even the 2022 forecast. The Citis 2024 forecast values ​​l company at 7.7 times the enterprise value / Ebitda, which seems cheap enough for a leading media company in its field.

The title is down 7% since the start of the year. It seems Mr Markets’ emotions don’t watch the pandemic and don’t appreciate the refocusing of the business. With the purchase of Herro and ongoing portfolio optimization in the business, I am putting this action firmly on my watchlist. Awaiting more information when Informa publishes its annual results on April 22, 2022.

This article first appeared on GuruFocus.