Daily Mail & General Trust (LON: DMGT) plans to distribute its 49% stake in Euromoney Institutional Investor (LON: EMR) to its own shareholders and removing this major shareholder will make the financial publisher more attractive to investors. There will be potential for a re-rating.
Assuming Daily Mail shareholders agree to the distribution, it should be completed on 4 April – although there will be trading in a temporary line relating to the shares distributed from 1 April.
Euromoney is an international business focused on business-to-business information for the financial sector with only 13% of revenues coming from the UK. The US generates 47% of revenues with one-quarter coming from emerging markets.
Nearly two-thirds of profit is in US dollars. This means that Euromoney has additional attractions for anyone worried about a further decline in the sterling exchange rate. A one cent movement changes profit by £700,000.
The operations are also highly cash generative with little requirement for capital investment. Even after paying tax, Euromoney should be able to generate around £100m a year from its operations.
There was net cash of £78.3m at the end of September 2018, after paying £34.8m in dividends.
Dividends are set to grow steadily with 34.9p a share forecast for 2018-19 and 36.8p a share for 2019-20, which would be covered more than 2.2 times by forecast earnings.
The rest of the cash generated can be used to finance acquisitions. BoardEx and The Deal were acquired earlier this year for $87.3m. This means that net cash could be slightly lower at the end of September 2019.
Euromoney is seeking more acquisitions and it has up to £370m in debt facilities to provide additional finance. Money has also been raised from selling non-core titles.
Management wants to buy businesses with barriers to entry, proprietary data or IP, provide information that clients must have, provide integration benefits and high operational gearing that can help to increase margins.
Looking at the recent purchases, BoardEx is a platform that provides profiles for more than one million and The Deal provides news and data about acquisitions. These businesses share client groups with Euromoney, which can also provide additional information useful to the products sold by the businesses.
There are three divisions: asset management, data and market intelligence and banking and finance. The group generates turnover from providing information and holding conferences and exhibitions.
Asset management (39% of revenues) is predominantly a subscription revenue model. Progress has been held back by MiFID II as the customer base has been cautious about spending, but renewal rates are holding up.
Data and market intelligence (43% of revenues) is going to be the main source of profit growth. Subscriptions still make up the majority of revenues, but events are also a significant revenue generator.
Banking and finance (18% of revenues) includes the eponymous Euromoney and events contribute three-quarters of revenues. Regulatory changes hit customer confidence in recent years but the performance of the division is improving.
Short-term, there could be some selling by Daily Mail shareholders not wanting to hold the shares. That could provide buying opportunities.
However, Euromoney’s weighting in the FTSE 250 index will be increased and that could lead to additional demand. There will be investors that were not happy investing in a company with such a large shareholder and they could also seek to buy shares.
At 1234p, the shares are trading on less than 16 times prospective earnings, falling to less than 15 next year. The yield is nearly 3%.
Considering the strong brands owned by Euromoney and the cash that it throws off, the shares could warrant a much higher rating.