The company has the balance sheet to transform its business profile with M&A

A strong balance sheet offers business-to-business publisher Euromoney Institutional Investor (ERM) the opportunity to continue its shift towards fast growing data services and away from its traditional asset management base.

In the six months to 31 March the £1.45bn company enjoyed 10% revenue growth in its pricing, data and market intelligence arm and 15% revenue growth for its events. However, its asset management business, split evenly between Institutional Investor magazine and its various offshoots and its BCA investment research outfit, saw revenue slip by 5%.

BCA, in particular, has been affected by cost cutting in the asset management industry and finance director Colin Jones tells Shares the new Mifid II rules aimed at increasing transparency in the financial sector have merely accelerated this process.

Through a series of acquisitions and disposals, the company has reduced debt to just £37m and the sale of its Global Markets Intelligence unit, which completed in April, is expected to push the company to a net cash position of £103m.

This cash strength provides the firepower to continue remodelling the company including a desire to grow on the pricing and data side. Euromoney provides prices for opaque markets using traditional journalism to find out what parties are paying for different commodities, for example.

Jones says: ‘In a portfolio business you will always have assets which overperform and underperform. While with asset management we are waiting on a recovery, the growth on the pricing side is something we can control.’

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There are a couple of issues which cloud the investment case. Firstly, Daily Mail & General Trust (DMGT) still has a 49% stake and has previously sold shares. This overhang could weigh on the shares until it is resolved one way or another.

The recent first half results guided for an increased tax rate. This relates to the recent US tax reforms which as well as cutting the headline rate of corporation tax also reduced the deductions available on the cost of acquisitions, something from which Euromoney has historically benefited.

At £13.22 the shares trade on 17.7 times consensus September 2019 earnings per share. Analyst Fiona Orford-Williams from research group Edison says Euromoney trades on an approximate 5% discount to peers, reflecting concerns over the outlook for the asset management sector.

‘However, the group has strong cash flow characteristics and capacity for earnings-enhancing M&A,’ she adds. (TS)

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