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Questor: Mixed fortunes for Informa divisions puts question mark over next move
Why do companies get sliced up? Usually when investors press the case. There can geographic reasons, such as National Australia Bank’s long overdue jettisoning of the Clydesdale and Yorkshire networks, or legal reasons; for example when tobacco giant Philip Morris spun off its overseas arm to protect it from the threat of US smoking litigation.
Sometimes assets no longer fit together. It is strange to think that trendy fashion house Burberry was ever in the same corporate family as kettles-to-clothing rails-seller Argos, for example. Or it could be when the largest division of a self-styled growth company is barely growing anymore.
Exhibitions and publishing outfit Informa has had a great run with Lord (Stephen) Carter at the helm. For a company that for a long time bobbed around just outside the FTSE 100, it has become a paid-up member of the blue-chip club.
What illustrates its appreciation strikingly is an enterprise value almost identical to that of Pearson. Only a few years back the former Financial Times owner would have looked down on the organiser of events such as World of Concrete and the Anti-Aging World Congress as a tiddler.
It has been a case of mind the GAP. Informa investors got very excited by Carter’s Growth Acceleration Plan which put the fans under performance and invested in new products.
Some of predecessor Peter Rigby’s labyrinthine reporting lines were stripped out too.
Together with the dollar kicker, the shares got ahead of themselves. Some of the froth has been blown off since January but they still trade on 14 times this year’s forecast earnings.
The exhibitions operation, where revenues rose 8.7pc last year, continues to power ahead of the economy and there is plenty of scope to keep acquiring assets.
Future deals are more likely to resemble the recent £106m buy of Yachting Promotions – which was the product of three years of negotiations – rather than the transformational Penton, which cost £1.2bn. By contrast, the academic division, up 0.3pc in 2016, has suffered because textbook sales weaken when the economy rallies. Digital learning has some experts questioning whether they will ever strengthen again.
Analyst Gareth Davies at Numis thought the group’s underlying 1.6pc growth rate last year was a little light of hopes and has taken a more cautious view of the academic arm. Expect a brief trading update on Friday alongside the annual general meeting.
The question is: what next? Johnathan Barrett at N+1 Singer is a long-term follower of Informa. He thinks a spin-off of the academic division is rising up shareholders’ agenda, although none are aggressively calling for it.
What comprises the old Taylor & Francis business, which accounted for 37pc of group revenues and 46pc of adjusted operating profit last year, could be better off as a free-standing income stock or a consolidation play as the sector restructures.
For a long time Springer Science was viewed as the partner of choice for Informa. But Springer’s owner, BC Partners, chose to roll it together with the Nature Publishing Group two years ago. The rest of the business barely moves the dial.
The City will get a closer look at Informa’s business intelligence unit at an investor day on June 15.
Meanwhile, its knowledge and networking division looks like the runt of the litter. Revenues and operating profit have fallen for three years running; its operating margin is also at a three-year low.
It is the only one of the four divisions that failed to achieve the ambition of delivering a positive organic growth run rate by the end of 2016. Another strategic review of events assets is underway.
It might not be Carter’s call to tidy the Informa portfolio further. Anyone who has followed his career – including J Walter Thompson, NTL, Ofcom, Downing Street and Brunswick PR – knows he rarely hangs around for long.
For him, the three-and-a-half years served at Informa might be the same as anyone else’s seven-year itch. Patrick Martell, one of his divisional chiefs, is the obvious successor.
Whoever is in charge, Informa has some prime assets and bulking up in the US right now is opportune.
Expect more corporate activity. However, the impetus that will push the shares higher in the short term is not clear.
Questor says: hold
Ticker: INF
Share price at close: 646½p