Broker snap: Informa a bargain after recent slide

10th May 2010 13:56

Panmure Gordon has been doing some stock screening on media stocks and the results have thrown up business publisher Informa as an interesting value opportunity.The key criteria on which Panmure Gordon screened were:1. Less than 5% of group revenue derived from Portugal, Ireland, Italy, Greece and Spain.2. High dollar exposure (40% or more of revenue/cost), as a proxy for risk aversion and a profit & loss translation benefit3. Share price underperforming the market by 10% or more in recent weeks4. Reasonable dividend, covered at least three times by earnings5. Negligible exposure to the UK public sector6. Cash generative with a net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of less than three, and no significant impending refinancing issues7. A price/earnings ratio of less than 11."According to the criteria above, INF [Informa] screens well and so does UBM. In the case of INF, we have the comfort of the recent IMS [interim management statement], which underlined margin progression in each division, and improving EBIT momentum in Events, which is the biggest delta on forecasts going forward," Panmure Gordon disclosed."At the margin, we believe it is also relevant to highlight the recent Pearson/IDC transaction," where the implied exit multiple is around 16 times earnings, Panmure analyst Alex DeGroote notes. "The acquiror is US private equity, and there is some similarity to aspects of INF's own businesses given the high EBIT margin, and subscriptions model (subscriptions = c.35% of INF revenue). If we back out the debt, and subscriptions-related EBIT on the same multiple as the IDC deal, the core of INF is on about 4x EBIT," DeGroote suggests, adding that Informa has been the subject of two private equity bids over the last few years at prices well above 400p per share.