Informa
Revenues £1.2bn Dividends 20.1p
Several analysts were tipping Informa as among their top shares for 2016 at the start of this year. This is despite the 30 per cent rise during 2015, as Lord Carter of Barnes got to grips with the media and exhibitions business.
The results were on display with the full-year figures. The highlights were revenues up 6.6 per cent, adjusted operating profits up by 9.5 per cent to £365.6 million and free cashflow ahead by 30 per cent.
The annual dividend was increased by 4 per cent to 20.1p, which is at least a measure of confidence, even if the yield, at 3.3 per cent, is not a lot to write home about. The company has been reshaped, with areas where it lacks critical mass sold — most recently the Russian exhibitions side, not an area one would wish to be in.
Instead, in exhibitions in particular, investment has gone into the US, especially with the £237 million purchase of Hanley Wood in late 2014. North America now accounts for 42 per cent of revenues across the group.
Informa remains convinced there are further buying opportunities out there, even if exhibitions looks like a seller’s market. There are other industries, such as fashion, where it is not yet represented.
The Business Intelligence side, which supplies data and has been a weakness in the past, returned to organic growth in the fourth quarter and looks set to continue to grow this year, even if the need to invest means this is the only division where margins are off. Further progress can come from cross-selling across the conferences, exhibitions and business intelligence sides.
This year will be one of “disciplined delivery” — Lord Carter is fond of business buzzwords. There is not going to be a lot of help from the markets, given the macro-economic and geopolitical risks, but there is more self-help to come.
Informa shares actually managed to rise in all yesterday’s market mayhem and ended up 22½p at 612½p, which means they are about where they started the year — no mean achievement — and they trade on 14.5 times earnings. They present investors with a bit of a quandary. Given the state of the markets, one might be tempted to take some profits. Optimists, of whom I am one, might stick around for the long term.
My advice Buy long term
Why Tempting to take some profits after the shares’ strong run, but there are further self-help measures that will raise earnings again this year
Enterprise Inns
800 managed houses planned
Enterprise Inns has a pretty good idea where it is going, but it could be a hard journey. The heavily indebted pub operator wants to sell 1,000 of its 5,000-strong estate over the next five years to raise £300 million, which will fund most of the investment going into the rest of the chain. It wants to convert 800 to more profitable managed houses. It needs to refinance the remaining £350 million of its bonds in 2018.
This may require a more benign bond market than is the case at present, though two years is a long time. Enterprise needs to find an awful lot of good managers to run that managed estate. It needs to find buyers for pubs that may not be in the best locations.
These are the imponderables. Trading over the Christmas period was good, with income up by 1.6 per cent in the 19 weeks to February 6. Enterprise has some promising new formats, for a business that has tended to be anonymous in the past, including the upmarket Craft Union. The shares, up 1p at 73¾p, have come back from above £1 at the end of last year, which some might see as a buying opportunity. The company is likely to trail other better-financed pub operators in the near term, though.
My advice Avoid for now
Why Company has a daunting task ahead
Halma
Raised in US placement $250m
One analyst refers to Halma as “a shining beacon in an uncertain landscape”. If you can supply a range of industries, grow revenues organically by well-chosen acquisitions and increase the dividend for 37 years, at the last count, you are something out of the ordinary.
Halma does this by focusing on areas that are either growing because of increased regulation, such as water or safety, or where the growth is inevitable despite the macroeconomic trends, such as medical devices. It is widely diversified, with approaching 50 companies within the group. Some, inevitably, move in different directions. Its environmental and analysis division was hit by a slackening off of investment in UK water at the end of the last industry regulatory round but will do well as that investment picks up again. Safety equipment for the oil and gas industry has been affected more recently.
The last three acquisitions have been in fire suppression, ophthalmic measuring and monitoring of healthcare facilities, which gives an idea of the spread of activities. A $250 million private placement last month gives scope for further deals.
The latest trading update confirmed that market expectations for this year would be met. Organic growth will have slowed a bit from the 7 per cent in the first half but should be about 5 per cent in the second. There is nothing quite like Halma on the market. The shares, off 32p at 773½p, have come back from approaching £9 late last year but sell on 23 times earnings. Still worth backing in the long run.
My advice Buy long term
Why Strategy protects Halma from worst of downturn
And finally . . .
Hargreaves Lansdown has highlighted the dividend policy at Pennon Group, the owner of South West Water. Its Viridor waste treatment business has always been the weak spot because of the low prices of the recycled materials it produces, but the building of more energy-producing plants will strengthen this. Pennon offers much the same yield as United Utilities and Severn Trent, but has pledged to grow dividends at more, RPI plus 4 per cent, which is attractive in these income-driven markets.
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