Liberum raised its rating on Informa to ‘buy’ from ‘hold’ and raised its target price to 855p from 675p.
Conversely, it downgraded UBM to ‘hold’ from ‘buy’ and cut its target price to 760p from 840p.
“In the past, our position was UBM was the best way to play Events as a pure play business, especially as we had doubts over Informa’s asset quality and its ability to execute a turnaround,” Liberum said.
“Now, while Informa is very much on track driven by an impressive performance in its events, there are more questions over why UBM’s performance has not been better. In our view, these doubts have reached a point to recommend INF as the preferred way to play events from a mid-to-large cap perspective.”
Liberum said it wonders why UBM struggles to outperform the industry given the quality of its assets, strong growth in its events business and its geographical exposure.
UBM expects to reach full year underlying revenue growth in events of at least the industry average of 4.5%. But Liberum “feels uncomfortable” with its calculation as it fails to adjust for the effect of product rationalisation and acquisitions.
It “feels like an attempt to ensure that UBM can state its underlying revenue growth is in line with the industry”, Liberum said.
“The risk is this means an ‘apple vs pears’ comparison effect as the c. 4.5%-5% global industry growth in Events should include the impacts of product rationalisation and new shows.”
Broker says UBM executives do not have events experience
The broker added that neither the chief executive or chief financial officer have events experience and it “seems strange” the latest top line appointment had no industry background either. The latest appointed was Lucy Dimes as head of the EMEA division in October.
In 2008, UBM called off talks for a £3bn merger with Informa. Now Liberum think the chances of UBM being acquired are “probably fading” as it struggles to see who would buy the business.
Informa, on the other hand, is delivering on its promises, the broker said.
“Events showing strong growth, Academic still showing (just about) positive growth and Knowledge & Networking trends improving.”
Informa’s Events business is doing well
Liberum said it recognises that Informa bolsters its events organic revenue growth by stripping out the more challenged parts of the overall industry, including conferences and smaller shows, and putting it in the K&N division. The 9.2% underlying like-or-like revenue growth it reported for the first 10 months of the year would be 5.2% if events and K&N were combined, it said.
“Yet there is no doubt that, even on a combined metric, with K&N improving and with the larger Events doing well, Informa’s Events business is doing well.”