Euromoney Institutional Investor PLC

Euromoney Institutional Investor PLC (ERM) is a London-headquartered multi-brand information group and is one of the largest business and financial information companies in Europe which assists financial services, commodities, telecoms and legal markets by providing critical data, price reporting, insight, analysis and must-attend events. The group is a constituent of the FTSE 250 share index. The operations of the group are differentiated in four segments, namely Asset Management, Pricing, Data & Market Intelligence, Banking & Finance, and Commodity Events.

Trading Update
As Banking & Finance segment revenues grew 1% in the quarter compared and the Pricing, Data & Market Intelligence segment were up by 6% in the quarter, reported revenues for the three months to 30 June 2019 increased to £110.9 million (2018: £107.9 million), while underlying revenues were flat year on year. This was impacted by current fundamental and cyclical issues faced within the Asset Management segment, with underlying revenues in the quarter down by 9%. Due to £8.7 million of final proceeds from the disposal of Mining Indaba and strong underlying cash conversion, net cash rose from £29.3 million at 31 March 2019 to £41.2 million at 30 June 2019.

Financial Highlights (H1 2019, in £m)
 
(Source: Company Filings)

Due to the end of the five-year contract to run the SFIG event and the sale of Mining Indaba, statutory and adjusted revenue decreased by 2% to £184.9 million in the first half of 2019, while underlying revenue grew by 1%. The fall in revenue also impacted the adjusted operating profit which decreased by 2% to £46.2 million, while statutory operating profit declined by 60% to £49.6 million due to the significant profit in the prior year on disposal resulting from the sale of Dealogic. Underlying operating profit margin rose by 1 percentage point to 25%, and the adjusted operating profit margin was flat at 25%. Statutory profit before tax was down by 59% to £49.3 million, while due to the reduction in net finance costs, adjusted profit before tax increased by 1% to £46.1 million. Statutory earnings per share declined by 68% 32.9 pence and adjusted diluted earnings per share rose by 2% to 34.3 pence.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


*Peers of the company are ITE Group PLC, Informa PLC, Moneysupermarket.Com Group PLC, Auto Trader Group PLC and Relx PLC

Share Price Commentary

Daily Chart as at 13-September-19, before the market closed (Source: Thomson Reuters)

On 13 September 2019, at the time of writing the report (at 11:26 am GMT, before the market closed), ERM stock was trading at GBX 1,428, up by 1.13 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,470.00/GBX 1,118.00. The company’s stock beta was 0.68, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £1.54 billion, with a dividend yield of 3.07 per cent.

Conclusion
Any downturn in a key geographic region or market sector can impact the financials of the group adversely, and as global economic and geopolitical risk has further increased in recent time, the risk to the business of the group has increased. Moreover, in the short and medium-term, options to mitigate the impact of a significant cyclical downturn are limited, and new technologies and the impact of MiFID II continue to impact the business. The paid subscription model is under threat from the free content available via the internet, as new disruptive players increase competition from existing competitors. The group is also trading near the 52-week high, suggesting limited upside potential.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 1,428 (as on 13 September 2019), while we look for any upcoming catalysts in the near term.

SThree PLC

SThree PLC (STHR) is a London-headquartered leading international staffing company which consists of a family of ten niche recruitment brands, each with expertise and focus on niche areas. The group is focused on STEM industries (Science, Technology, Engineering, and Mathematics), including Information and Communication Technology, Life Sciences, Engineering and Energy, and provides specialist Contract and Permanent recruitment services to its customers - both client companies and individual candidates. The operations of the group are differentiated in four geographical segments, namely Continental Europe, Asia Pacific & Middle East (APAC & ME), USA, and United Kingdom & Ireland (UK&I).

Trading Update
In the third quarter of the financial year 2019, covering the period from 1 June to 31 August 2019, group net fees was up by 4% over the year to £87.8 million , while net fees adjusted for working days was up by 6%, driven by focus on STEM disciplines, Contract and international market exposure. Though permanent net fees were down by 5% to £21.8 million, the company reported good net fee growth in Contract as it rose by 7% over the year to £66.0 million, which now accounts for 75% of Group net fees in Q3 (Q3 2018: 73%). Growth in net fees across all international markets was reported during the period and net debt at 31 August 2019 decreased to around £12 million from around £24 million in the last year.

Financial Highlights (H1 2019, in £m)     
 
(Source: Company Filings)

As net fees increased by 9% on a constant currency basis and by 10% on a reported basis to £163.0 million (H1 2018 £148.4 million), revenue during the period was up by 12% on a reported basis and by 10% on a constant currency basis to £653.3 million (H1 2018: reported £585.9 million). The group reported a modest decrease in the overall net fees margin to 24.9% (H1 2018: 25.3%) as the business continued to shift towards Contract, which also resulted in growth in revenue exceeding the growth in net fees. Reported operating profit rose by 29.4% over the year on reported basis to £23.3 millionand 21% on adjusted basis to £24.6 million. Operating profit conversion ratio rose by 2.2 percentage points to 14.3%on a reported basis and 1.4 percentage points to 15.1% on an adjusted basis (H1 2018: adjusted 13.7% and reported 12.1%), reflecting the benefits of operational efficiencies delivered by the restructuring of the support functions. Adjusted profit before tax was up by 18% to £24.0 million (H1 2018: £20.3 million) and reported profit before tax was up by 27% to £22.7 million (H1 2018: £17.8 million). Due to an improved trading performance and decline in restructuring costs, EPS increased to 12.7 pence, up by 2.6 pence on reported basis and on an adjusted basis, EPS was up by 1.9 pence at 13.5 pence, reflecting an increase in weighted average number of shares. Adjusted cash from operations was £12.0 million (H1 2018: £7.5 million) and net debt at the end of the period was £8.0 million (H1 2018: net debt £6.2 million).

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

Daily Chart as at 13-September-19, before the market closed (Source: Thomson Reuters)

On 13 September 2019, at the time of writing the report (at 9:32 am GMT, before the market closed), STHR stock was trading at GBX 300, up by 2.21 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 393.50/GBX 245.00. The company’s stock beta was 0.70, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £385.75 million, with a dividend yield of 5.08 per cent.

Conclusion
The performance of the company has a relationship with the performance of the economies of the countries in which it operates, and a change in the market conditions can adversely impact performance, thereby reducing profitability and liquidity, the risk of which has increased lately. However, the strategic focus towards revenue from Contracts has started to pay-off as the group reported good net fee growth in Contract in the latest quarter, with the proportion of revenue from Contract increasing to 75% (Q3 2018: 73%). A resilient and well-established platform is available to the group as it focuses on specialised STEM and Contract with international reach. The company continues to be highly cash generative, allowing it to invest in the areas of the business which present the greatest opportunity, including Permanent business in Japan and Energy in the US.

Based on the decent prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 293.50 (as on 12 September 2019) with single digit upside potential, based on 9.88x NTM Price/earnings (approx.) on FY19E earnings per share (approx.).
 
*Peers of the company are Mitie Group PLC, G4S PLC, Robert Walters Plc, Randstad NV and Pagegroup PLC
*The Speculative Buy recommendation is valid for the current price as covered in the report (as on 13-September-19)
*All forecasted figures and peers have been taken from Thomson Reuters

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