Share of the week

Informa’s main activity is to provide specialist information to the academic and scientific, professional and commercial communities. It does this through publishing, events and what it dubs “performance improvement” – the provision of performance analysis, diagnostic and customised training for corporate and government organizations and the finance and insurance industries. Informa’s commercial division provides print, electronic and consultancy services and events to the telecoms and media markets and the maritime and commodities industries. Its academic and scientific division supplies a portfolio of publications, events and data services for academic and commercial users.

Informa suffered during the financial crisis. Some parts of the business proved cyclical, with demand for their output sharply reduced. Informa was also not helped by the high level of debt on its balance sheet.

But, following a rights issue in 2009, debt has now been reduced to more manageable levels, giving the company some flexibility in choosing its strategic direction. And it will eventually start to benefit from economic recovery. We think that there may be further revenue declines in early 2010 in Informa’s cyclical operations, such as events and professional improvements. But this trend is likely to reverse in the second half of this year, and we would look to buy into the stock before this.

There are some more industry-specific reasons to like the shares. Before the recession, the professional publishing sector was in the process of consolidating, as publishers shifted output from paper to digital/on line, and as markets became more competitive. But the economic downturn has sidelined mergers and acquisitions over the last 18 months, due partly to lack of funding. As the world gets back to normal, merger and acquisition activity may increase again, and Informa looks in a good position to benefit from this.

Of course, the cyclical nature of much of Informa’s business means that a slower than expected economic recovery would affect forecasts. Its global nature means that there is exchange rate risk. And renewed merger and acquisition activity could create problems as well as opportunities. But Informa’s business model is flexible at this should allow them quickly to respond to events as the year progresses.

This article was based on research produced by Barclays Wealth and represents the view held on 08-02-2010.