Informa looks well placed to prosper from any economic recovery.
When he pinned the first issue of Lloyd's List on the wall of his City of London coffee house in 1734, Edward Lloyd effectively invented what is now the multi-billion pound business information industry. Less well-known, the first commercially published scientific journal, the Philosophical Magazine, was launched in 1798.
Both Lloyd's List and the Philosophical Magazine have remained in continuous publication to the present day and both are now available online. They typify, respectively, the Professional and Commercial Information Division and the Academic Information Division of their publisher Informa plc (LSE: INF). A third division, Events and Training, completes the make-up of its business.
Informa publishes over 2,100 subscription-based information services including academic journals, real-time news and databases of commercial intelligence. Its book business has more than 75,000 academic and business titles, whilst its conference business lays on around 7,500 events annually.
It is an international business with 150 offices in over 40 countries, with North America its biggest market. It brings together a number of well-known names including Datamonitor, IIR, Taylor & Francis, and Routledge.
Three dimensions
Events and publishing are linked by the nature of the underlying content. Informa's strategy is to build its business in a three-dimensional matrix of vertical (niche) markets on one axis, geographies on the second axis and distribution formats (books, journals, online, eBooks, events etc) on the third.
Subscriptions and copy sales are the main source of revenue in this kind of publishing, with advertising almost negligible. 67% of Informa's publishing revenues are subscription based, which provides a reliable and consistent income stream, and 75% is delivered digitally.
The publishing business is relatively stable, though Informa has seen the effect of cutbacks in the financial services sector in particular.
Unlike more mainstream publishing and news, content in specialised sectors is not easily replicated, and Informa seeks to produce "need-to-have" publications for its academic and business customers. Growth comes organically from developing new distribution channels and geographic markets, and by acquisition of smaller specialist publishers.
In contrast, event organisation is cyclical and highly operationally geared, so that changes in revenues can produce big swings in operating profitability. Informa acted early in 2008 and 2009 to address the downturn in this market by restructuring and cost-cutting, and now hopes to be well-placed to take advantage of economic upturn.
Latest numbers
Informa's interim results for the six months to 30 June 2010, released on Tuesday, show pre-tax profit doubled to £66.4m.
Adjusted profit, after stripping out reorganisation and rationalisation costs and the impairment and amortisation of intangibles, rose 13% to £133.4m.
Revenues were down a modest 2% at £624m but this was largely attributable to adverse exchange movements, and Informa gave a cautiously optimistic prognosis for the full year's outturn.
Based on the strength of its free cash flow, the company relaxed its dividend policy from three to two and a half times cover, and increased its interim dividend by 25%. The shares duly responded with a 1.8% rise to 394.7p.
Big Brother
Informa's larger rival Reed Elsevier (LSE: REL) is its closest comparator. Reed similarly combines academic and business specialist publishing with event organisation, with a particularly strong position in legal, tax and regulatory publishing (through LexisNexis) and health sciences.
Year to end
Dec 2009 | Informa
£m | Reed
Elsevier
£m |
|---|
| Revenues | 1,222 | 3,212 |
| Operating profit | 146 | 408 |
| | | |
| Net debt | 873 | 3,931 |
| Market capitalisation | 2,371 | 6,451 |
| | | |
| Prospective P/E | 11.7 | 12.7 |
Prospective
dividend yield | 3.0% | 3.8% |
Reed divides its activities into four divisions, Elsever (scientific, technical and medical publishing), LexisNexis, Reed Exhibitions and Reed Business Information.
By combining Reed Business Information with LexisNexis we can compare the two companies at divisional level.
Year to end
Dec 2009 | Informa
£m | Reed
Elsevier
£m |
|---|
| Share of revenues: | | |
| Academic publishing | 24.1% | 32.7% |
| Business publishing | 30.1% | 56.8% |
| Events and training | 45.8% | 10.5% |
| | | |
Adjusted
operating margin | | |
| Academic publishing | 35.4% | 34.9% |
| Business publishing | 32.2% | 21.9% |
| Events and training | 15.5% | 23.8% |
*operating profit adjusted for restructuring costs and amortisation and impairment of intangibles, divided by revenues
Both companies have sound, defensible positions in a sector with a 300-year history and which, in one form or another, is likely to enjoy a growing future.
Informa earns a much higher proportion of its revenues from the cyclical, lower-margin events and training business, and deserves its slightly lower rating. However at the half year, it had pushed adjusted operating margin in this activity up to 18.3% and as an inherently more cyclical company it is set to enjoy a bigger benefit from global economic recovery.
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