The UK is home to a myriad of trade publications. From the glamorous world of Drapers to the less glamorous world of Practical Pigs, there is a magazine out there for virtually every profession. It has been a punishing decade for the media sector, however, and many publications have been forced to consolidate or scrap their print editions in order to survive. Many of their former owners moved on years ago.
Where these owners ended up is worth investigating however. At its peak, Relx (REL) published over 300 titles, including New Scientist and Variety. Now, it is primarily a data company, selling information and analytics tools to different industries. Euromoney Institutional Investor (ERM) and Informa (INF) – who used to own the 300-year-old shipping publication Lloyd’s List – have followed a similar trajectory.
The enormous archives of content and data owned by these companies – together with their attractive subscription models and loyal customers – now command a high price. Relx currently has a forward price/earnings ratio of almost 30, while Euromoney has recently been bought by two private equity firms for £1.6bn – about 21.5 times its Ebitda for the year to September 2021.
But what if there’s a cheaper alternative? Fidelity fund manager Jonathan Winton thinks he has found one.
Niche but knowledgeable
Wilmington (WIL) has roots in the trade press, but is now a business of two halves. Its education arm generates about 50 per cent of group sales, and delivers compliance training and technical support to professionals in a range of sectors, including financial services, accountancy and healthcare. Meanwhile, its intelligence arm provides risk and compliance data for insurance, healthcare and pensions businesses.
“They’re both strong in their own sense,” said Winton. “The information and data business has some very attractive assets in it. For example, the Axco business is one of the leading suppliers of insurance information to the insurance industry. And they have a business called Pendragon which provides information to the pensions industry. These are businesses that are really strong in their niches.”
It hasn’t all been plain sailing, though. Before the pandemic hit, sales and profits had started to stagnate, and there were particular problems in the healthcare division. This came to a head in the summer of 2018, when debt rose, new GDPR rules bred confusion, underlying growth dried up, and the shares fell by a quarter.
Spotting a bargain, Fidelity UK Smaller Companies (GB00B7VNMB18) fund started to build a position, and the group now forms around 2 per cent of its portfolio. “Wilmington saw very significant share price weakness... but we felt that the core of the business was pretty strong,” Winton said.
New management was brought in in 2019 and – under the supervision of chief executive Mark Milner – the group has been streamlined, and a complicated web of businesses has been simplified into two core segments.
Another of the criticisms often made about Wilmington was that its different divisions rarely spoke to each other. “A lot of what management is now doing is looking to cross sell data and training across all their different end markets,” said Winton. “So probably over time they will become more interdependent if management is successful.”
One way they are doing this is through technology. The group has created easy-to-use digital platforms, allowing it to sell data and training to companies more effectively. “It’s taken a lot of heavy lifting and investment on the technology side over the past few years, but they’re just now coming through that. Before there were just silos of data,” said Winton.
The group is also debt free with a nice pile of cash after selling off a financial training business, meaning it is well placed to invest in further technology or new businesses to add to its repertoire.
Steady prospects
Investors looking for explosive growth will not be impressed by Wilmington. If you take out the rebound in face-to-face events, organic revenues grew by about 5 per cent last year. “It’s not a very fast grower but it’s steady,” said Winton.
“Some of its markets like pensions and insurance are fairly mature, but there are other areas such as compliance that are growing. A lot of the growth will be driven by what they are doing internally, rather than by the external environment.” Winton predicted that growth would sit in the mid-single digits in the medium term.
In a time of extreme volatility, however, there’s nothing wrong with a Steady Eddy. Wilmington’s intelligence arm is particularly strong, and recurring revenues have risen to 37 per cent of group sales. This lags behind Relx, where subscriptions generate 58 per cent of revenue, but it’s not a bad start at all. Renewal rates are also very high at 92 per cent, providing good visibility.
The education business is more volatile. During Covid, for example, face-to-face training went out the window. However, it did usher in more digital courses, and the group said it has maintained a much higher proportion of digital training compared with the pre-pandemic period, “resulting in higher margins”.
The training division - much like the intelligence arm – also has the benefit of being defensive. “A lot of it isn’t absolutely essential to do, but there’s a pretty high barrier to not doing it, because a lot of it will be geared to regulatory drivers, or healthcare drivers,” said Winton.
“I wouldn’t expect this business to be immune in a downturn, but it should be more resilient than most businesses. And it benefits as well from a very strong balance sheet – it has about £20mn of net cash, and that will help it weather a difficult period.”
Walking with giants
There is a question that remains unanswered, however. Why would corporations use Wilmington’s data, when there are a host of bigger companies – such as Relx or Ascential (ASCL) – which they could turn to instead?
It comes back to the multitude of trade magazines. “The other businesses tend to have data in other areas,” said Winton. “Companies like Euromoney, for example, or Informa, normally specialise in a particular niche. Euromoney for example has a specialisation in commodities like metals, agriculture. Over time you become the authority. Other than its size, Wilmington is not too dissimilar. It just has a more chequered history as a smaller company, which is not surprising.”
Wilmington looks like an attractive takeover target for one of its bigger rivals, which could make good use of its assets and easily absorb its costs. “The valuations of these kinds of businesses tend to be very high, in terms of what private and public companies are willing to pay because they get such synergies from them,” Winton said.
For retail investors, however, Wilmington’s forward PE ratio of 14 looks very reasonable – if not as cheap as when Fidelity first took a punt.
What do you look for in a small cap?
I look for companies where the valuation is very attractive, and where there’s potential positive change happening within the company or in that industry. We typically build a position when a company has been through a period of difficulty.
A lot of the companies I invest in will have seen fairly significant share price falls before I invest in them. If we believe the valuation is low enough, and we can see the company improving over the medium term, that’s when we’re willing to start a position.
What sort of time-scale are we talking about?
I usually take a three- to five-year view when I look at a company and consider what the potential is. I think that’s an advantage as it’s beyond the horizon that a lot of people look towards, and that’s where you can start capturing the opportunities for change. We’re not buy and hold investors. Once we think a business has recovered and is performing well – and we think that the valuation reflects what it’s worth – that’s when we look to recycle into a new idea.
What first drew you to Wilmington?
When you look at the company, it’s quite complicated on the face of it because it has lots of different niches. But it has very good market positions, and importantly for us the valuation was very attractive.
It was trading on nine or 10 times PE and was generating high returns, and we felt it had good growth potential. And then in 2019 new management came in, and arrived with a plan. We think the work they’ve done and will do in the future can substantially improve the business.
