In the dynamic world of the FTSE 100 index, unearthing a hidden gem that’s both a market leader and potentially undervalued is akin to finding a needle in a haystack. Yet, Informa (LSE: INF), a colossus of international events and academic publishing, might just be that elusive treasure. Let’s take a closer look.
Unlocking hidden value
My favourite quick metric for value investing, a discounted cash flow (DCF) calculation, suggests that the firm could be trading at a staggering 50% below its estimated fair value. Such a claim naturally raises eyebrows – could this FTSE 100 stalwart really be the bargain of the decade, or is it simply too good to be true?
Before we get carried away, it’s crucial to scrutinise the cold, hard facts. The company’s fundamentals paint an intriguing picture. With analysts projecting annual earnings growth of 22% for the next five years, the company stands out in today’s uncertain economic landscape. This growth trajectory becomes even more impressive when juxtaposed against market performance – a robust 14% return over the past year, outpacing both the competition and the broader UK market.
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But as we know, value investing can be as much an art as a science. Diving deeper into the financials, many of the company’s valuation metrics initially appear unremarkable. A price-to-earnings (P/E) ratio of 35.2 times and a price-to-sales (P/S) ratio of 3.3 times don’t exactly scream ‘bargain’ at first glance.
Furthermore, the current dividend yield of 2.18% might not set pulses racing among income investors, even though the 81% payout ratio suggests there’s a decent amount of room for future dividend growth.
Making strategic moves
However, management doesn’t appear content to rest on its laurels. The company recently unveiled a bold move – a recommended cash offer to acquire business-to-business media company Ascential, with the deal slated for completion in Q4 2024. This strategic manoeuvre could potentially cement the firm’s market position and unlock additional shareholder value. It’s a clear signal that management is proactively shaping its future in an ever-evolving business landscape.
Of course, such an investment, and the sector is general, isn’t short of risks. The success of the Ascential acquisition hinges on smooth integration and the realisation of synergies – a challenge that has stumped many a corporate giant. Moreover, the events industry, a key pillar of the business, continues to grapple with disruption from digital alternatives. And while current analysis points to significant undervaluation, we must consider that the market may have valid, if not immediately apparent, reasons for the current pricing.
The bottom line
To me, the company presents a compelling enigma – a FTSE 100 titan that appears significantly undervalued despite its solid fundamentals and promising growth prospects. The potential 50% undervaluation, coupled with the company’s market-leading position and strategic acquisitions, makes it a company that may interest value-conscious investors.
However, as with any investment decision, the devil is in the detail. Might Informa be a real bargain, or is there too much uncertainty to make that conclusion? The jury’s still out, but it certainly warrants a closer look. I’ll be adding it to my watchlist.
