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Can events groups still draw a crowd?

Exhibition companies have largely weathered volatile global markets and currency movements
February 25, 2016

There's no business like show business - except when tumbling energy prices, regional conflicts and volatile world markets drive away visitors and exhibitors. Events groups have battled these challenges by targeting niche industries, focusing on 'must attend' shows, transplanting popular events into new territories - a process known as 'geocloning' - and hedging their bets by striking deals in both established and emerging nations. Some have been more successful than others; the challenge for investors is to browse the companies' stalls and check out the wares on offer.

Despite the current problems, the events industry offers rich growth potential. Market researcher AMR predicts that the global exhibitions market - which it valued at about $29bn (£20.5bn) in 2014 - will grow at a compounded average rate of 4.5 per cent annually between 2014 and 2019. It pegged the value of the US market - the largest in the industry - at around $12.3bn in 2014. The UK - where about 1,750 exhibitions are held each year - was ranked fourth. Moreover, events groups tend to focus on dominating niche markets, which creates a highly fragmented market ripe for consolidation. The 'winner takes all' nature of the industry is underpinned by the marketplace effect: a wide range of products attracts more buyers, who attract more exhibitors and so on.

 

Media titan UBM (UBM) has made scale a top priority. For instance, it expanded its events business by acquiring US peer Advanstar for £600m in 2014, while its recent £498m disposal of PR Newswire has also helped sharpen its focus. The group, which organises more than 400 events, including Black Hat and Hong Kong Jewellery and Gem Fair, has pruned its portfolio to focus on large, lucrative events. It sold two shows and discontinued 37 others in the first half of 2015. It also bolstered its exposure to fast-growing emerging markets by acquiring a digital textile printing show in Shanghai and a Latin American healthcare trade show. This strategy helped widen the adjusted operating margin of its annual events to 30.2 per cent and boosted forward bookings for the 20 biggest shows of 2014 by 9 per cent.

Competition continues to heat up in the industry, too. Ascential (ASCL), which organises major exhibitions and festivals, recently listed in London with a valuation of £800m. Its largest shows include the Cannes Lions festival for the communications industry and Money20/20, which celebrates innovation in payments and financial services. The group's events business earns nearly half of its revenue from selling floor space to exhibitors, about a fifth from charging fees to delegates and the balance from sponsorship fees, award entries and other services. It focuses on a handful of marquee events as well: the four largest festivals accounted for 44 per cent of revenue and 59 per cent of adjusted cash profits in 2014. The business continues to grow quickly, reflecting acquisitions, disposals of underperforming businesses and geocloning. Money20/20 will also have its European debut in Copenhagen in April.

Industry stalwarts continue to perform well. Anglo-Dutch media giant RELX (REL) - formerly known as Reed Elsevier - grew underlying sales in its exhibitions business by 5 per cent in the nine months to December, primarily due to good trading in the US and Japan. It launched 20 new events in the first half of 2015 and completed several acquisitions in fast-growing markets, including C-Touch, a trade show in China for the touchscreen industry. That led management to forecast further growth this financial year, despite economic slowdowns in China and Brazil.

It's a similar story at rival Informa (INF). Underlying sales leapt 11 per cent in the media giant's events segment in 2015 as it gained traction in the huge US market. Indeed, it added three US shows - including Dwell on Design and pop culture convention MegaCon - to its stable of around 170 exhibitions. Management also bolstered its digital and data capabilities, which have become increasingly important to exhibitors. But potential investors should be aware of the big picture. Informa is just over half-way through a four-year, £90m growth programme intended to turn around the struggling business intelligence and knowledge, and networking divisions.

The challenges for ITE (ITE) are even greater. The organiser of London's Scoop fashion show and the World of Metal exhibition in Mumbai earns the bulk of its revenues in Russia and oil-dependent Central Asian nations. Unsuprisingly, it's been battered by slumping energy prices, currency movements, regional tensions and political sanctions. Compounded by stiff competition and economic weakness, volumes crashed nearly 40 per cent at the key Mosbuild construction show in April 2015.

A better option might be Tarsus (TRS). The organiser of biennial events such as the Dubai Airshow is growing quickly by making acquisitions in growth markets such as Turkey, China, Mexico and Myanmar. It's also taken over health conferences in Boston and Miami, deepening its foothold in the lucrative US preventative healthcare market. And it continues to capitalise on its existing shows: it recently rolled out education services show GESS in Mexico and Indonesia.

Centaur Media (CAU) is hungry for that kind of success. The organiser of Business Travel Show and The Meetings Show has made events a key element of its growth strategy. Its focus on large, high-quality events in niches such as regional homebuilding helped to drive forward event bookings for 2016 up 29 per cent. Daily Mail & General Trust (DMGT) has also looked to events to offset shortcomings in its publishing businesses. Management has focused on crafting a portfolio of high-quality events: it rolled out its Big 5 Construct show in Indonesia, spun off Middle East Coverings from its Index interior design exhibition and sold off its digital marketing exhibitions in 2015. The upshot was a surge in underlying events profits last financial year as visitors flocked to Big 5 Dubai, ADIPEC and its other tentpole shows. Moreover, underlying sales rose fastest in the events business in the first quarter to December as major events performed well. 

Favourites:

UBM has gained scale and expects significant revenue and cost savings from its Advanstar acquisition, while the PR Newswire sale has made it a pure-play events company. It plans to return £245m from the deal to shareholders and use the balance to finance bolt-on acquisitions, which should fuel further growth. Similarly, Tarsus continues to fire on all fronts: comparable forward bookings were up 12 per cent in January.

Outsiders:

ITE has secured joint ventures in India and China and shelled out £56m on acquisitions, but it still looks vulnerable. Indeed, comparable trading volumes and revenues were tracking a tenth lower in late January. Similarly, Euromoney Institutional Investor (ERM) has been hit by weakening energy markets and volatile world markets, which have sapped interest in its metal and coal shows. Tepid trading in the quarter to December pushed headline sales down 6 per cent.

 

IC VIEW:

Events groups have chased growth by venturing into emerging markets. But their international ambitions have exposed them to downturns in developing nations that have been hit hard by the falling price of energy and commodities. Still, as those pressures dissipate, we expect their footholds in fast-growing countries to pay dividends. Investors should favour companies that have built up scale, focus on large, high-quality events, but have portfolios that are diversified across sectors and geographies.