Informa Plc

FTSE 100 listed Informa Plc (LON: INF) is the United Kingdom-based Media Company. It is engaged in events, exhibitions, scholarly publishing, and information services.

On 3 June 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Buy at GBX 563.20

• The Transition Year for physical B2B events, ahead of Revitalisation & Growth in 2022-2024.
• Positive cash flow in Q1 FY21, with more than £1 billion of available liquidity and no debt maturities until 2023.
• It is committed to delivering baseline revenues of £1.7 billion, even without broader recovery in physical events.
• In the last one year, the Company delivered a return of ~33% and delivered higher returns than the benchmark Index (FTSE 100 Index).
• From a technical standpoint, 200-day SMA (GBX 495.64) supports an upside potential.

Key Risks

• The Company’s performance is also subject to fluctuations and volatility arising from the prevailing COVID-19 pandemic.
• The business conditions have already jolted across the Board, and the Company is cutting and suspending expenses to maintain adequate liquidity.
• The Company’s book business has shown increased disruptions due to supply-chain and product availability issues.

Financial Highlights (for the 12 months ended 31 December 2020 (FY20), as on 22 April 2021)

(Source: Company Website)

• Adjusted operating profit was in line with guidance, with strong performances by the Subscriptions businesses.
• The Company generated positive operating cash flow, with a reduction in net debt (including IFRS 16).
• The Company has expanded its B2B digital services and delivered over £100 million of revenue in 2020 from virtual and hybrid events.
• As per the Board update, John Rishton confirmed as the next Chair of the Group, effective from June 2021, and Gill Whitehead also confirmed as Chair of Audit and Group Chief Operating Officer.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings (NTM) (Illustrative) 

Conclusion

Year 2021 will be the transition year for Informa, as B2B customer confidence rebuilds, and permissions progressively return. The Company continues a positive cash generation in Q1 FY21, supported by strong performances in the Subscriptions businesses. The current year saw growth in both the Subscriptions-led businesses and further expansion in B2B digital services due to a good return in the B2B physical events. INF also witnessed a strong demand in B2B Event, underpinned by the return of the business in Mainland China. The Board is confident in a period of Revitalisation and Growth through 2022-2024. Overall, the Company believed that customer confidence would recover over the medium term. The stock made a 52-week low and high of GBX 345.80 and GBX 659.00, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Informa Plc at the current price of GBX 563.20 (as on 6 May 2021 at 9:40 AM GMT) with a lower double-digit upside potential based on 33.23x Price/ Earnings (FY21E) (approx.) on FY21E earnings per share (approx.).

Velocys Plc

Velocys PLC (LON: VLS) is a FTSE AIM All-Share index listed company, which provides sustainable fuels technology.

In June 2021, the Company will hold its Annual General Meeting.

Investment Rationale – Avoid at GBX 5.75

• On a trailing 12 months, EV/EBITDA, Price/Earnings, and Price/Cash Flow are in the negative domain. Moreover, EV/Sales multiple is overvalued as compared to the industry median.
• All major profitability margins, including EBITDA margin, operating margin, and net margin, are in negative territory.
• The growth trajectory is dependent upon external funding and grants.
• From the technical standpoint, shares were trading below the short-term support level of 200-day (GBX 6.67) simple moving average price, which reflects a downtrend in the stock and can decline further.

Key Risks

• Macroeconomic uncertainties can put existing contracts and potential clients at risk.
• Covid-19 pandemic can create material operational challenges.
• VLS is still facing operating losses, and it can face a liquidity crunch since cash at the end of H1 FY20 fell from the level seen at the end of FY19.

Recent News

On 30 March 2021, the Company had agreed to extend the option agreement with British Airways for the Altalto project to 31st March 2022.

On 8 February 2021, the Company had signed a collaboration agreement with Toyo Engineering Corporation to start developing their commercial projects, which produce Sustainable Aviation Fuel and other renewable fuels in Japan.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 17 September 2020)

(Source: Company Website)

• During H1 FY20, revenue increased to £180,000 (H1 2019: £22,000), while operating loss reduced to £2.6 million (H1 FY19: £5.1 million loss before exceptional items of £0.5m).
• At the end of H1 FY20, cash stood at £816 thousand (31 December 2019: £4.8 million).
• Despite Covid-19 disruption, VLS has achieved the commercial delivery of two reference projects in Immingham, UK and Mississippi, USA, and serving technology to its client Red Rock Biofuels, in Oregon.
• In July 2020, the Company completed the fundraise of £21 million before expenses, which strengthened the balance sheet.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

During the Covid-19 crisis, the Company witnessed additional demand for its technology and engineering services since a positive environment for developers of third-party sustainable fuels projects has become apparent. However, the Covid-19 restrictions and disruption can still impact the financials in H2 FY20. The Group is still not able to report profit operationally and dependent upon external funding, which raises doubts over the upside potential amid macroeconomic uncertainties. Overall, it remains difficult to provide forward-looking guidance due to the ongoing uncertainty. The stock made a 52-week low and high of GBX 2.39 and GBX 16.64, respectively.

Given the level of uncertainties, we have given an “Avoid” recommendation on Velocys PLC at the current market price of GBX 5.75 (as on 6 May 2021 at 8:00 AM GMT), while we look forward to reviewing the upcoming catalysts.

*All forecasted figures and Peers/Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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