Questor: ‘This stock trades at a triple discount. We think the share price should be 40pc higher’

Richard Evans 12 December 2018 • 5:56am

People at event in large arena — London Tech Week is among Informa's events

Questor share tip: Informa’s profits are growing at a decent clip but an aversion to British media stocks and worries about China have depressed its valuation

Every investor wants to find shares they believe to be trading at a discount to their true value but one fund manager claims to own a stock that trades at a “triple discount”.

The business is Informa, the exhibitions group; and Lucy Macdonald, who manages the Brunner investment trust, a Questor favourite, said its shares were discounted “because it’s British, because it’s a media stock and because of fears over the economy in China”, where Informa has significant operations.

Readers will need no introduction to the pessimism that now hangs over British stocks. Media firms cause particular anxiety because of fears over the structural changes that have put pressure on newspaper groups, for example, but Macdonald said there were no signs that Informa was being affected so far.

“We think this business will hold its own in a media environment where many firms are being deprived of their traditional sources of income,” she said. “Trade shows deliver the human contact that is still valued in business.

“We think technology will change the business but in a positive way, such as enabling exhibition attendees and exhibitors to remain in contact between shows. New technology should also enable Informa to improve the way it prices exhibition stands. Technology is not a threat in the way it is to other media companies.”

Meanwhile, China’s economy may be slowing overall but “it doesn’t seem to be affecting individual exhibitions”, the fund manager said – and “this is an industry that has more visibility of future orders than some”.

Another of the firm’s strengths is that it is very diversified in terms of the regions and sectors in which it operates. While any given sector has its cycle, it is unlikely to be synchronised with the cycles in other industries, so overall revenues should be smoothed.

The fact that Informa is the market leader for events in many sectors is also a source of resilience. In a downturn a potential exhibitor may be prepared to abandon the third or fourth most important exhibition in its area but the number-one event is likely to be too important to its business to be dropped.

“As an exhibitor you want to be at the one that everyone goes to,” Macdonald said. “Attendees often see exhibitions, along with the internet, as their main store front.”

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Many of Informa’s events are long-established and have become brands in their own right. “The good shows get rebooked almost immediately for the next year and often have limited space, so the organisers have pricing power and can make good margins,” she added. “They tend to get paid upfront, so these businesses have attractive cash-flow characteristics.”

There are opportunities for both organic growth and acquisitions. Informa recently bought UBM, which increased its event count, and the industry remains fragmented. However, UBM’s integration makes further large deals unlikely for a couple of years. Organic growth can come from adding space at existing events, taking existing formats to new regions or introducing entirely new exhibitions. “Informa has the expertise needed to pursue these avenues,” Macdonald said.

Growth in the firm’s exhibitions arm is about 6pc to 6.5pc a year. Exhibitions currently account for about half of profits; its other businesses include academic publishing and business intelligence. These parts are growing more slowly, so exhibitions will naturally become a more significant part of the whole; in time the others could be sold, although they are “not being undermanaged”, she added.

Growth in exhibitions and benefits from the UBM merger should lead to earnings growth almost in double digits over the next couple of years, according to Macdonald. These prospects and a price-to-earnings ratio of 12.9 for 2019 have led the fund manager to put a price target of 935p on the stock – about 43pc more than the current price.

Questor says: buy

Ticker: INF

Share price at close: 655.6p

Update: Capita

We have stuck with Capita, the oursourcer, despite its many troubles. Now Neil Woodford, whose loyalty to the stock underlay our stance, has sold it from his main equity income funds. However, he retains Capita in other portfolios managed directly for large clients. We will hold on.

Questor says: hold

Ticker: CPI

Share price at close: 109.2p