The prospect of real growth has been a remote one for Informa, the trade show giant. Cancelled conferences and events have pushed the FTSE 100 group into fire-fighting mode, selling a swathe of disparate businesses and raising roughly £3 billion to strengthen the coffers and pay down debt. But investors can now think more seriously about Informa outgrowing pre-pandemic earnings.
The group expects revenue to come in at more than £2.38 billion for last year, up from the £2.15 billion-£2.25 billion range expected, and adjusted operating profit north of £530 million, ahead of previous guidance of between £470 million and £490 million. That puts the group on a firmer track to return both metrics to 2019 levels by next year.
Investors have responded accordingly to better clarity on the recovery in earnings. The shares have risen more than 17 per cent over the past 12 months, representing 18 times forecast earnings. That multiple drops to 15, back in line with the long-running average. Over-confidence or well-placed faith?
There is some reason to think that Informa could emerge from the havoc of the past three years in more steely form. A series of disposals and the return of free cashflow pushed the group into a net cash position at the end of last year, a far cry from a leverage multiple of 2.5 at the end of 2019. Sales have also seen £500 million handed back to investors last year via share buybacks, with another £225 million to come.
A stronger balance sheet also gives Informa the financial chops to pursue bolt-on deals within its two core markets: trade shows and academic publishing, via Taylor & Francis. The latter has historically been a high-margin but low-growth business.The aim is to grow organic revenue by 4 per cent, which would be about double the rate of top-line expansion that business was racking-up in the five years preceding 2020.
Last year the publishing business moved closer towards that target, pushing its top line forward 3 per cent, helped by moving more into the faster-growing Open Access research publishing market.
Revenue from conferences and trade shows has the potential to be more fickle. And events are expected to remain the largest single source of revenue. Admittedly, between 50 and 60 per cent of events are forward sold a year in advance. Sales grew 70 per cent last year, representing more than 80 per cent of equivalent revenue in 2019. The US, Informa’s largest market, has charged the way.
Upselling around those events could provide another lucrative revenue source. The group is trying to capture more of businesses’ external marketing spend outside of trade shows, such as providing companies with data analytics around potential clients.
But looming recessions complicate the recovery story. So it would be churlish to think Informa is now on easy street as far as returning to its previous growth rates goes. Revenue from exhibitors remains the chief income stream for events, ahead of selling tickets to delegates and sponsorship. That leaves the business vulnerable to corporates tightening advertising and marketing budgets.
China has proven the biggest unknown. This year, it could prove a major catalyst. In 2019, the market accounted for roughly £350 million of Informa’s revenue, or about 10 per cent of the group total. Stephen Carter, Informa boss, isn’t counting on any real recovery in revenues from mainland China this year to hit a consensus revenue of £2.6 billion. If domestic and international travel sustainably improves, that could provide a good surprise.
True growth looks more grounded in reality than it has done for some time.
ADVICE Buy
WHY A stronger balance sheet and recovery in the events business could push up shares
Premier Foods
Premier Foods, which makes Bisto gravy granules and Mr Kipling cakes, might seem the perfect victim of the trade down by people short of cash. But while no-frills versions have increased share of the grocery market, so too has the FTSE 250 group.
Gaining an edge over branded rivals meant sales over Christmas rose 12 per cent — way ahead of the low-single-digit rates of sales growth that Premier clocked-up in the years preceding the pandemic. Yet the shares still trade at an inexpensive ten times forward earnings.
Premier is shifting its income stream towards higher-margin branded goods, rather than products manufactured for third parties.
The former account for about 85 per cent of revenue after a 6 per cent rise over the first nine months of the group’s financial year. That was even after its cakes division took a hit from unplanned maintenance at one of its facilities. Shutting its only unprofitable manufacturing site later this year, responsible for producing non-branded goods, will shift the revenue mix further towards more profitable sales.
Premier is launching variations of existing brands and pushing products into larger international markets. Overseas sales make up 6 per cent of the group total at present. Mergers and acquisitions are a more recent option for boosting the top line.
Leverage is higher than a target multiple of 1.5, at roughly two times earnings before tax and other charges at the start of October. That was because of the acquisition of the Indian meal kit brand, Spice Tailor, its first bolt-on in 16 years. But cash generated by the group in just one year is expected to outweigh the £44 million paid in the deal and bring leverage back towards that target. A refinancing of its debt in 2021 halved its annual finance costs compared with the pre-pandemic level. Management is not banking on cost inflation coming down much this year, but it has managed to pass through some price increases as well as stripping out some of the expenses from its own operations. The margin was held flat at the half-year point.
More of the same during the fourth quarter should convince investors that Premier deserves more credit.
ADVICE Buy
WHY Inexpensive considering the growth on offer
