Some industries may be struggling to convince the market of their relevance after the pandemic, but Informa is making its case successfully. The events juggernaut has upgraded its annual guidance for a second time on the heels of a faster recovery from the global lockdowns that caused its profits to more than halve in 2020.
Revenue this year is expected to be north of £3.15 billion, 3 per cent better than the £3.05 billion previously anticipated. An upgrade of much higher magnitude was issued for adjusted operating profit, which is now expected to be upwards of £840 million, from £790 million. That should leave revenue and profits ahead of 2019 levels, even after the sale of its Pharma Intelligence business last year.
Progress has been reflected in the FTSE 100 constituent’s valuation. The shares trade at more than 15 times forward earnings, in line with those before the pandemic.
The £1.9 billion disposal of Intelligence has left Informa better-capitalised and more focused. Trade events account for almost 80 per cent of revenue. Maintaining a dominant market position is key if events are to avoid being seen as dispensable to trade attendees.
The upgrade to sales forecasts is reassuring as companies have tightened their budgets. A shaky wider economic picture remains a risk, but Informa does have a degree of visibility over future revenue. Between 50 per cent and 60 per cent of its events are sold a year in advance. About £1 billion of revenues for next year are in the bag, which would equate to almost 30 per cent of the consensus prediction. And the indicators are promising. Its core events business has rebounded by 65 per cent in the first ten months of the year, a consequence of the reopening of economies worldwide. With the pandemic skew removed next year, analysts expect a rise in revenue of more than 9 per cent.
The timing of the Intelligence sale proved fortuitous. The transaction price translated to 29 times earnings. It is now buying businesses at an average earnings multiple nine.
Informa is capable of bulking out its business through bolt-on deals. Leverage is expected to be 1.3 times earnings before interest, taxes and other deductions at the end of the year, compared with a range of between 2 and 2.5 times before the pandemic. Free cashflow is expected to be upwards of £575 million this year, another reason that the share buyback programme was extended by £150 million, taking total returns to £1.15 billion by March.
Taylor & Francis, its academic publishing business, operates in an inherently low-growth market. The target is to improve annual revenue growth by 4 per cent organically. In the first ten months it edged closer towards that, at 3.2 per cent.
Technology groups are still circumspect over spending, which means that revenue for events within the sector is growing in the low single digits. That is weaker than guidance for a mid-to-high-single-digit increase at the half-year.
Group margins are still behind the levels before Covid, due to come in at 26.7 per cent on base guidance this year, versus 32.3 per cent in 2019. The sale of the higher-margin Intelligence division is one reason, but so is the expansion to new countries, which is a drag on profits in the early stages. Informa also has been prioritising attendee volumes over raising prices, while cost inflation has risen rapidly.
There is scope for margins to fatten as newer areas mature and inflation eases. The consensus for margins has been pegged to 28 per cent next year and 30 per cent by 2025. There is also a fair degree of operating leverage, which means that growth in revenue should have a bigger impact on profits.
ADVICE Buy
WHY An improvement in margins could help to push the shares higher
Land Securities
The boss of Land Securities thinks the bottom could be in sight for prime offices. Investors, however, do not agree. The steep discount embedded into the shares remains at 28 per cent of the commercial landlord’s net asset value at the end of last month.
The net asset value fell another 5 per cent in the latest six-month period to 899p a share. Analysts think the trough will come in March, at 876p a share.
Both its office and retail portfolios continue to decline in value, but Land Securities has helped itself by tilting its office estate in a more favourable direction. Offices in the City in London account for about a quarter of its office portfolio, down from half at the onset of pandemic lockdowns in March 2020.
Occupancy rates have held up better in the west of the capital compared with the City. The underlying value of Land Securities’ West End offices fell by 3.1 per cent in the first half of the year, compared with a 9.3 per cent fall in the Square Mile portfolio.
Big retail assets, such as shopping centres, fell by 1.3 per cent. However, for the first time in six years, new leases were agreed ahead of passing rents.
Liquidity is not a problem. The company has £2.1 billion in cash and undrawn debt facilities, with no need to refinance until 2026. Issuing a green bond and tapping more of its variable borrowings meant its average cost of debt rose from 2.7 per cent to 3.3 per cent, which is still a respectable rate. Refinancing debt, issued at ultra-low rates before last year, will eventually weigh on earnings, though.
Land Securities has sold £2.5 billion of a planned £4 billion in disposals being targeted. Over the next six months to a year the business will focus on selling its hotels and leisure assets, which have been slower to recover in value since the pandemic.
There is progress, but fundamental questions around the future need for office space have not gone away. The discount attached to Land Securities versus its forward asset value long preceded the pandemic and persisted for eight years. It will take signs of real growth to substantially close that.
ADVICE Hold
WHY The net asset value continues to fall, justifying caution
