UBM exhibits its growth potential

Recent results from media companies have revealed two things: unsurprisingly, advertising markets are taking longer than expected to recover; and, surprisingly, events and exhibitions are back in vogue. So United Business Media (UBM), which has spent the past few years reducing its dependence on print revenues while beefing up its events operations, looks set to return to growth.

This view was enhanced by a recent trading statement, which demonstrated that the events business - which includes events such as Jewellery and Gem Fair in Hong Kong and the Healthcare IT Summit - was still on the front foot. UBM derives 35 per cent of revenues from its events business and fat profit margins mean that the division accounts for 62 per cent of operating profits. So revenues from events in the first quarter of 2011 surged by 34 per cent to £84.1m, and operating profits almost doubled to £27.7m - and this in what is typically the unit's quietest quarter, too. Moreover, forward bookings for events are also 21 per cent up on the year.

The main difference between UBM's events operation and those of rival business-to-business exhibition operators is UBM's firm focus on emerging markets, which have been a key driver of growth. UBM runs more than 300 events in 21 different countries, and management plans to continue to increase the presence in emerging markets. After making eight acquisitions to bolster the division in 2010, management has indicated that the spending spree will continue in these regions to ensure that UBM capitalises on their potential.

So UBM has already made three events-related acquisitions in emerging markets this year. These are SATTE, India's largest travel and tourism exhibition; a stake in Famdent, India's largest dental exhibition and conference business; and Malaysia-based AMB Exhibitions. Alongside further purchases, UBM also aims to buttress its presence in these upcoming regions through so-called "geo-cloning" (copying the exact format of existing events and exhibitions and running them in other countries). Sales from emerging markets currently account for about 39 per cent of events revenues and as much as 29 per cent of group profits.

Meanwhile, the print division has been progressively wound down to just a small number of sustainable, profitable titles. The unit, which published 182 different titles back in 2006, was producing only 97 titles by the end of 2010. This should continue to fall, with UBM selling its French medical newspaper and magazine business earlier in the year. By the end of the first quarter, the print business contributed to just 4 per cent of operating profits.

But, despite being the fourth-largest exhibitions operator in the world, with a successful and growing presence in emerging markets, UBM's shares still trade at just 10 times estimates for 2011's EPS estimates, against an average for all London-listed media companies of 13 times. True, the lower rating could be linked to concerns about UBM's debt, which has been rising as the business rides the acquisition trail. UBM made 22 acquisitions last year, and its net debt now stands at £459m. But, following $350m (£215.6m) of recent bond issues, the maturity profile of the debt looks far more acceptable, with the bulk of repayments due in 2016 and 2020. Management says the group remains comfortably within its borrowing covenants, with its debt-to-earnings ratio currently standing at 2.3 times, with interest cover (profits relative to interest payments on the debt pile) of more than 10 times.