UBM The board reckons UBM is still a work in progress, but it is looking like the finished article. Last year was significant, bracketed at each end by big acquisitions in the exhibitions industry, Advantstar in the US and the Asian-focused Allworld Exhibitions announced in December.
In between was the long-awaited disposal of PR Newswire, bringing in £490 million and allowing a 58p special dividend. There was plenty taking place around the fringes. Various publishing and data operations were sold, along with one exhibition, Ecobuild in Earls Court, that went to management for a song.
Four events were bought, the two that took place in 2016 achieving a near-10 per cent rate of return — the biennial nature of some exhibitions makes unpicking the numbers a little tricky, and last year was a less favourable one, given how some fell. UBM will therefore get the benefit in 2017.
As the business stands, about 92 per cent of the group is in exhibitions, with a few ancillary activities in marketing and publications. The idea is that those that do not directly support the core events business will gradually be sold and the remainder will probably be absorbed into events rather than being reported separately.
Another big deal along the lines of the past two, which both ran into the hundreds of millions, is probably off the cards given the level of debt since the previous one, but there will be other infills. All this corporate activity makes the 2016 figures tricky to read. The underlying operating profit figure, which does not include £7 million of additional operating costs but has a £5 million pensions uplift, is ahead by 19 per cent to £234.8 million. More to the point, margins at events are running at 32 to 33 per cent.
There are concerns that exhibitions is a leading indicator, one of the first industries to turn down when the global economy goes south. UBM says Allworld will mean 45 per cent of its revenues will come from China, India and Asia, which should provide some protection. The shares were terrific performers last year but have idled since, though they added 32½p to 759p yesterday. On 16 times earnings they look good long-term value except for the economically pessimistic.
MY ADVICE Buy
WHY The shares are not obviously cheap but the hard work is done and they should make progress in the absence of a global economic slowdown
Weir Group There were signs, in the last quarter of last year, that Weir Group was beginning to see some benefit from the upturn in oil and gas and commodities’ prices and better business from the customers in those industries that buy its pumps. Order input across the group was down 10 per cent over the year but up by 8 per cent that quarter.
Oil and gas experienced their nadir in the third quarter and slipped into a small loss for the year but returned to break even in the fourth quarter. Oil at $55 a barrel will bring more rigs fracking in the US in coming months. Weir managed to avoid a feared rights issue at the start of the year and has not had to cut its dividend. Pre-tax profits were down by 31 per cent in at £170 million but, with about the same amount of costs taken out of the business since the start of the downturn, £60 million of it last year, the bounce back in profits will be significant when it comes.
The problem is that while the price, which doubled last year tracking those miners, lost 180p to £18.42 yesterday, the shares sell on 24 times earnings, which would seem to anticipate most of that immediate progress.
MY ADVICE Avoid
WHY The high multiple seems to reflect any recovery soon
Barratt Developments If the long housing boom is indeed coming to an end, no one has yet again told the housebuilders. Barratt’s decision to extend its special dividend programme by another year to the 2017-18 financial year and reduce the cover on its ordinary payments to 2.5 times earnings, from three, is as clear an indication there could be that the company sees no sign of a slowdown.
There are no warning signs in the halfway figures either. There was a reduction in the number of homes completed, but this was entirely down to the phasing of its London developments where it tends to sell large blocks that have to go on the market only when finished. This will pick up again in the second half to the end of June, with the outcome for the group likely to be little changed on the 17,300 built last financial year.
This is hardly the stellar growth seen in previous years in the sector but other metrics are still moving in the right direction: average prices up 5 per cent and operating margins having already reached their 20 per cent target for this year. Barratt has a relatively short land bank, about three and a half years of production, but land is still available, and falling in price in the regions.
The dividend enhancement means the shares, up 2½p at 517p, yield nearly 8 per cent. This column has suggested before that investors have two choices in the sector, companies such as Redrow focused on growth and high-yielding stocks such as Barratt. That yield is also attractive if you have any lingering doubts about the housing market.
MY ADVICE Buy
WHY That dividend yield is among the best in sector
And finally . . . Unite Group, the student accommodation specialist, continues to shuffle its portfolio towards universities with the strongest growth. Over the past fortnight it has bought a site at Aston, Birmingham, for £227 million, completed £295 million of disposals and announced a £41 million purchase in Manchester. It says with its 2016 figures that there are another 7,000 beds being developed that should add 15-20p to earnings. Student reservations for the next academic year, at 75 per cent of the portfolio, are at record levels, while the lack of beds can only continue.
