ii view: here's why Informa shares are in demand

With China events to begin in July and in the US in September, is a 40% share price fall in 2020 justified?  

AGM trading update

• Forecasting 2020 revenue of £2 billion, down from £2.9 billion in 2019
• Targeting cost savings of £400 million

Chief executive Stephen Carter said:

"At Informa, our Subscriptions businesses continue to perform resiliently against a tough market backdrop, whilst our Events businesses - in the absence of physical exhibitions, events and conferences - are working closely with customers to provide alternative digital services, with a focus on long-term relationships ahead of short-term revenue.

"The prospect of a return for some of our major Events brands in Mainland China from July is now real. Elsewhere, we are deploying AllSecure biosafety measures as permission emerges to operate events, although we expect the pace and shape of recovery to be gradual and phased by market. Despite continued near-term unpredictability, our strengthened balance sheet, continuing cost controls and strong liquidity is enabling us to focus on the other side of Covid-19. This includes how to get the most out of Return and Recovery in 2021, and identifying and evaluating future strategic opportunities."

ii round-up:

Media company Informa (LSE:INF) today reported a pick-up in activity for its exhibitions business in China, along with ongoing resilient trading for its subscription publishing businesses. 

Informa shares rose by more than 8% in early UK stock market trading, having fallen by more than 40% year-to-date. Fellow exhibitions organiser Euromoney Institutional Investor (LSE:ERM) and media group WPP (LSE:WPP) have seen their shares drop by a similar amount. 

No exhibitions, or event conferences, have taken place anywhere in the world over the last two months due to the Covid pandemic. However, a number of major events in China are now being worked on for early July, with the Beauty Expo in Shanghai the first major event planned since the virus outbreak. 

Enhanced measures to increase hygiene and bio-safety at events are helping to gain permission with authorities and encourage delegates to attend. In the US, Informa’s biggest market, no physical events are currently anticipated until September at the earliest. 

Events account for 65% of group sales. A postponement programme is largely complete. Around 160 events have now been cancelled or rephased from 2020 to 2021, representing £300 million of sales. A further 300 events have committed to a digital rather than physical events in 2020. Positively, customer demand for rebates following event moves to 2021 has been low. 

Although still highly uncertain, management is now estimating revenues for the current year of £2 billion, down from £2.9 billion last year. Cost savings in the region of £400 million are now being targeted. Broker UBS believes that the £2 billion revenue forecast is dependant on US events running from September.

In April, Informa suspended both its dividend and raised £1 billion via an institutional share sale under measures to strengthen its finances and battle Covid-19.

Although a date is yet to be confirmed, half-year results are being delayed until September, allowing more time for clarity at the events business. 

ii view:

Informa’s diversity of business and solid track record have helped underpin investor confidence. The previous completion of its integration programme for UBM marked another positive milestone. But Covid-19 and social distance has knocked its events related businesses for six. Revenues for the current year are now expected to fall by around a third.

An equity sale previously raised £1 billion to help bolster the group’s balance sheet while cost savings in the region of £400 million are now in management’s sights.  

For investors, the previous removal of the dividend payment was disappointing, although arguably sensible in a Covid-19 world. A prior record of six consecutive years of growth in underlying revenue, profit, adjusted earnings and cashflow is not to be forgotten. The near term opening of events in China offers hope. But with more than half of group sales dependent on large numbers of people congregating, a good degree of caution still seems wise.   

Positives: 

• Around one-third of sales are subscription based
• A strengthened balance sheet

Negatives:

• The dividend payment had previously been increased for 11 consecutive years
• Facing material disruption in its events-related businesses

The average rating of stock market analysts:

Strong buy