UBM (UBM LN): Take profits

Valuation recovery running ahead of trading momentum

Stock: UBM Plc (UBM LN)
Price: 634p
Target: 595p
Upside: -6%
Recommendation: Trading Sell

Investment summary
UBM was or top pick in our “Telecom & Media Dividend Watch” review at the beginning of the year (4 Jan 2012) and after a +29% share price appreciation since then (+24% relative the FT Allshare), the shares have now met our key objectives. The group continues to deliver strong FCF generation and offer exposure to growing events and China, but these are now reflected by the recovery in the growth rating and have also been diluted by a mixed trading performance across the professional information activities. As the growth outlook for China deteriorates, the shares look ripe for profit taking, particularly as we approach the XD date for the 15p ps dividend next week (Wed 11 April).

We are downgrading our recommendation from BUY to Trading SELL. Since our 4 Jan 2012 recommendation, we have raised our FY13 EPS estimate from 64.3p to 65.0p (+1%) and our target price from 552p to 595p (+8%) vs a +4% rise in the FT Allshare over the same period.

Key Points
• Trading momentum slowing: FY11 results represented only a modest beat against expectations and with the continued drag from the underperforming professional information activities, our prospective EPS forecasts have barely changed (for FY13e, by only +1%). Events and emerging market exposure (particularly China) remain the key drivers to growth, albeit this is already well understood by markets. As the outlook for Chinese economic growth deteriorates we do not expect significant near term upside potential to forecasts.
• Events: 63% of group EBITA and with around a third of this from China. Organic growth and forward bookings remained strong into FY12 (+14.6% for annual shows in FY11 and with forward bookings up +13.7% for the top 20 shows at as 31 Jan 2012).
• China: Official data remains suspect and often at odds with private surveys (such as yesterday’s PMI data). Actual demand, such as for electricity however, often provides a more reliable metric for growth, as do domestic equities which reflect local market knowledge. These metrics though suggest further downside risk to GDP growth targets.


Valuation – growth rater analysis
Since 4 January, we estimate UBM’s FY13 operating FCF yield has dropped from 8.5% to 6.6% while the implied growth rating has increased from +3.2% CAGR to +4.7%; the upper end of its historic trading range and projected organic revenue growth. Risks -Upside: China soft landing. Downside: China hard landing


UBM_Valuation running ahead of trading momentum_April 2012