UBS downgraded its stance on business intelligence and exhibitions group Informa on Wednesday to ‘sell’ from ‘neutral’, saying the travel recovery is likely to be slower than the market expects and that it expects material short-term earnings downgrades.
The bank said its revised FY22 EBIT estimate is 16% below consensus yet the shares are now trading at 16x estimated 2023 price-to-earnings, which is a premium of around 20% to the historical average.
UBS noted that around 33% of Informa’s event revenue was from international corporate travel in 2019. It said consensus expectations imply a recovery in international revenues to approximately 60% of 2019 levels in 2022.
However, based on a variety of data points, the bank reckons this is too optimistic and sees the level at around 47%. In addition, UBS said consensus group margin expectations for 2022 do not fully reflect around £100m of fixed costs that it expects Informa to add in 2022 versus 2021 as it scales hiring to run a full schedule of events and starts to pay bonuses.
UBS pointed out that Informa is due to release a 10-month trading statement in mid-November. It expects the company to provide year-to-date organic growth for its two subscription-based business divisions and maintain its guidance for FY21 revenue and EBIT.
“We believe this trading statement could be a catalyst for downgrades if Informa guides on the drop through rate for incremental event revenues in 2022, which we believe will be only circa 40% versus consensus 57%,” it said.
The bank lifted its price target on Informa to 540p from 535p.
At 1250 BST, the shares are down 2.9% at 556.20p.