There’s nothing particularly untoward about UBM’s latest acquisition. The exhibitions group is forking out $485 million for Allworld Exhibitions, an Asia-focused trade shows business.
Allworld has plenty to recommend it. It’s focused on some of the most exciting markets in Asia, from Singapore and Malaysia to Thailand and Indonesia. It has some solid footholds in food and hotels, easily its biggest sector, as well as in plastics and packaging, and it gives UBM its first trade shows in oil and gas, perhaps at a favourable point in the energy cycle.
It is skewed towards bigger, splashier shows that customers regard as essential to exhibit at and visitors to visit. These should produce reliable profit streams.
Revenues have grown by an average of 7.3 per cent a year over the past ten years. It looks like a reasonably good new foray for UBM, which has sworn to stay focused purely on trade shows and exhibitions after selling its PR Newswire business late last year.
It will be immediately earnings accretive, UBM says. But shareholders should not get over-excited. First, this is not an acquisition like Advanstar two years ago, where there was plenty of overlap and scope for relatively easy cost savings.
Allworld is all about growth. There may be some revenue benefit from combining the two operations. Tim Cobbold, UBM chief executive, is confident there will be cross-selling opportunities from the two customer databases and opportunity to co-locate some shows.
But takeovers reliant on boosts to sales are much harder to pull off than those based on cost savings.
Second, it pushes up gearing. UBM may have banked $810 million in cash from the sale of PR Newswire but it is still having to take out a $365 million bridging loan. The idea is that its strong cash generation quickly brings leverage back down to a more satisfactory level.
Third, there’s little known about this privately owned company. The seller is believed to be Brendan Kelly, whose father Leo led a management buyout of Allworld. EY has done line by line due diligence with a fine toothcomb, we are told. Fourth, the price is pretty full — at 12.9 times trailing Ebitda profits.
With a Trump victory raising a question mark over the favourable trade winds that have buoyed exhibition companies for so long, investors need to approach UBM with a bit of caution.
My advice Sell
Why A tricky acquisition with no easy synergies
Bellway
The housebuilder has been ticking along nicely in recent months. Reservations, or commitments to buy, are up by 7 per cent since the start of August at a healthy 176 a week. Customer interest is strong with website hits and visits to sites ahead of last year.
Britain’s fourth largest housebuilder has also restarted land buying after a pause after the Brexit vote and has bought 40 new sites for £263 million this autumn, up from £235 million last year.
Management is evidently feeling positive about the outlook for the housing market. It confirmed a final dividend yesterday of 74p, making a record total of 108p, 40 per cent higher than a year ago. The company reckons it is on track for volume growth of 5 per cent this year.
The favourable tailwinds for housebuilders are still in place, but investor sentiment has soured a notch. Like every housebuilder, Bellway fell about 40 per cent in the week after the Brexit vote, though it has since clawed back most of the losses. Investors will flee the sector at the nearest hint of economic panic, whatever the fundamentals.
With 2017 likely to throw up more choppy moments as Brexit worries wax and wane, there will be better opportunities to buy.
My advice Hold
Why Post-Brexit dive revealed the shares’ vulnerability
Balfour Beatty
Back in the day a trading update from Balfour Beatty, scheduled or unscheduled, usually left analysts with only one calculation to make: how far the shares would fall. That however was before the arrival of Leo Quinn.
The former QinetiQ chief executive, now nearly two years in the job at Britain’s biggest construction company, is specialising in the sort of update that came out yesterday — uninformative yet soothingly bland. This is good compared to the extraordinary cock-ups overseen by former chairman Steve Marshall who will be happy if history treats him kindly and his epitaph at least identifies him as the man who headhunted Mr Quinn.
Mr Quinn’s stewardship shows how much good management can change a business and the perception of it. We can forgive him calling his multiyear transformation project Build to Last. The plan is a result of problems he identified quickly: too many vain acquisitions and not enough post-deal integration; ropey judgment on bad contracts; poor process and IT investment.
His solution has been to overhaul and upgrade management throughout the company. Recovery is now in sight, but the share price has raced well ahead of performance.
According to Numis, the house broker, the shares, up 4p at 278p, are trading about 27 times this year’s forecast earnings. That’s toppy for a small-margin construction company easily hobbled by a duff contract or two. If the profits really flow in 2017, as Numis thinks, that multiple falls to 15 — still a bit on the heroic side.
My advice Hold
Why A quality company again but shares are up with events
And finally ...
Crispin Odey continues to build a stake in Plus500, the AIM-listed spread betting company. Odey Asset Management bought another 360,000 shares, taking its direct holding to 8.68 per cent. Add in contracts-for-difference positions and he controls 23 per cent of the voting rights. He is also long of rival CMC and short of IG Index. Spread betting shares have been in turmoil since the authorities in Britain and Cyprus announced a crackdown last week. Plus500 shares dropped 8 per cent to 331p, little more than half their level of a fortnight ago.
