Description

Euromoney is a UK based diversified media company that owns an array of prime assets, and which I believe will be a good long term investment. The company has been written up once on VIC, so while I will still go over the core business segments as it is today, I will also focus on what are some of the more recent developments/challenges of the company.

1. Background

Euromoney was founded in 1969 by Patrick Sargeant, originally as a publication launched with seed money from DMGT (which still holds ~ 80% of Euromoney today). DMGT got a 2/3 stake of the equity of Euromoney at the time.

Euromoney was a publication catering just to the finance sector and based on a paper subscription.  It was IPO’d then in 1986.

In the following decades, the business began not just growing organically, but also making acquisitions. Some of the core acquisitions was the acquisition of Institutional Investor in 1997, the acquisition of Metal Bulleting in 2006, and the acquisition of Ned Davis Research only few years ago.

2. The Business

Euromoney is has essentially four different businesses:

Business Division                                                       % Sales                 Opearting Margin   

a)      Publications (Financial, Business)                                        37%                        35%

b)      Research & Data                                                               28%                        40%

c)       Conferences & Seminars                                                   25%                        30%

d)      Training                                                                           10%                        25%

Total                                                                               100%                     30%

Note that the Operating Margins don’t include headquarter costs, so the EBIT margin for the group is about 5% lower than the operating margin.

Geographically, the business is roughly 40% US, 40% UK, and 20% rest of the world. In this sense, it is still heavily exposed to the financial centers of the world in London and NY.

A bit about the various businesses:

Publications: Publications describes the major publications of Euromoney, which include Euromoney, Euroweek, Instutional Investor Research, Metal Bulletin.

What are the big changes over the last years?

Primarily, two things have been changing the business: First, the business model has increasingly moved away from the traditional magazine published based advertising revenue source, and become even more dependent on subscription fees. More than ~60% of all revenues here are based on subscription fees.  Moreover, this business has been making the transition to a digital business that has changed the nature of the business for the better.

Whereas before a customer/reader would order a subscription of a magazine, today, more than 50% of the revenue comes from subscriptions that are not just one price, but more differentiated based on amount of use and being able to dice the content in numbers ways to maximize the selling potential of the content. This has translated to generally higher prices and higher value subscriptions and therewith better margins. It also means that return on capital has increased both from the higher margins and the fact that printing presses and some other equipment is less and less needed.

Research & Data: This division is essentially extremely expensive high end macroeconomic research publications that some of us certainly know as investment managers as well as banks are the key customers: They include BCA Research and Net Davis, both of which have subscriptions costing thousands to tens of thousands of dollars a year.

This business has had a similar digital transition as the publication business where today, the revenue is based on a subscription and additional product offerings that cost more money i.e. use of data/charts costs extra etc.

Importantly, I would argue, while what Euromoney sells here has always been high value for high prices: the business has become more sticky as the offerings become more digitally integrated with the research processes of their customers.

Conferences & Seminars: This business is what the name sounds like: a conference business and also running seminars. The focus area is finance and commodities. As you may know from other similar conferences/seminar businesses like in the UK: UBM, ITE, Reed Elsevier, these are high quality very sticky businesses if run properly, which I certainly believe Euromoney’s conference business is.  

Sponsorship and attendance fees roughly split the revenue in this division.

Training: Training is more an educational business..

3. Business Quality

Because of the dynamics described above, I will show why Euromoney is a good compounder with strong long term prospects:

Because of the conversion to digital, the return on tangible has increased over the years from an already good 20 something % to now closer to 35%.

This figure is based on NOPAT divided by tangible capital base (including software but excluding PPA).

Moreover, as the prime assets are publications that still benefit from some continuing conversion to digital and improving ARPU, the business has had a consistent growth ~ 10% p.a. for the last 10 years. While I believe some of this to moderate, I think high single digit growth will continue for quite some time.

I believe in media, you generally have more global publications, and the best in class, whether Wallstreet Journal, FT, or some of the businesses like Euromoney’s BCA/Ned Davis, will have long term growth.

As such, with growth and a fantastic ROTCE, we are looking at a compounder.

Here I have not discussed the other major source of growth, which is that the business has had a great track record of acquisitions. The management team which has been in place for many years, which I will not cover, but I think are excellent based on my meetings with them, and has been able to generate significant value through M&A.

Catalyst

Continuing digital transformation of publications.