Does Hyve merit ‘cautious optimism’?

England moved one step closer to its full transition out of lockdown this week, reopening cinemas, indoor dining and gym classes. It is not quite back to normal, with gatherings of over 30 people still illegal. But the government has started to allow larger performances and sporting events in indoor venues. Just last weekend, Leicester City won the FA Cup final in front of an audience of 21,000, in the biggest football crowd since the pandemic began. 

There is reason to be hopeful for a recovery, then, especially if you are an events business like Hyve (HYVE). The group managed to post an adjusted operating profit of £31.3m at its half-year mark, despite the industry-wide impact of pandemic lockdowns. Ascential (ASCL), for example, the business-to-business exhibitions group, suffered a £167m operating loss in its 2020 financial year. 

But Wembley stadium did not just play host to the football tournament last weekend – it also acted as a petri-dish, in what sports minister Nigel Huddleston described as a scientific experiment. "We're looking at everything in terms of ventilation, flow of people, compliance with wearing masks and making sure people were tested beforehand, and we'll be testing after as well to see if there's any impact on transmission,” he told the BBC. 

So, a reopening with a bit of an edge. Although even this underlying current of “cautious optimism” could be derailed by the Covid variant first detected in India, B.1.617, which a paper from a government meeting suggested could be 50 per cent more transmissible. But more than 36m people have now received their first dose of the vaccine in the UK, offering some protection from the virus. 

Unsurprisingly, Hyve has focused on the latter point, emphasising that it is encouraged by the “pace of vaccine rollouts in countries such as the United Kingdom and United States”. Indeed, the group is already looking ahead to the gradual return of international travel, which it thinks will help to stimulate participation in its events. It has already hosted events in Russia, China, India and Turkey in the first half, with hopes for more activity in western economies in the second. Combine that with £62.9m in insurance proceeds from cancellation and postponement claims so far this year, and Hyve should be able to recover some of its top line by the end of the period. 

Much of the company’s half-year report focused on the return of in-person events. But Hyve is also positioning itself for potential growth in virtual set-ups, too. It has hosted more than 80 online events, and acquired digital peer Retail Meetup for £18.5m towards the end of last year as part of its “omnichannel strategy”. The division that it now sits under, global communities, posted revenues of £2.1m in the first half, around 10 per cent ahead of expectations. 

This could explain why analysts at Peel Hunt have been infected with the “cautious optimism” bug, too, upgrading the company from a ‘hold’ to an ‘add’ rating. Their forecasts suggest that adjusted pre-tax profits will rise to a modest £4.1m in the 2021 full year, then up to £19.8m in 2022. Hyve says that it is currently trading somewhere between its ‘recovery’ and split-speed ‘East/West’ model scenarios, although its presence in India might skew that picture going forward. 

The group looks slimmer now that it has disposed of its business in Kazakhstan, and well supported by its insurance claims, on top of the £126.6m it raised this time last year. Debt covenants were renegotiated then too, so that its leverage and interest cover ratios were replaced with a £30m-£40m liquidity covenant that lasts until the end of March 2022. For now, the balance sheet seems stable enough, and Hyve does appear to deserve the cautious optimist approach. Hold.

Last IC View: Sell, 19.8p, 7 May 2020