Informa reinstates dividend but problems remain

Informa (INF) shareholders have a lot to celebrate right now. Its results for the six months to 30 June reveal that the business is back in black after a tough two years, its dividend has been reinstated, its turnover has almost doubled and it is in a net cash position after years of being in debt.

The net cash is particularly welcome. The last two years have shown Informa just how vulnerable its business can be to wider economic disruption. In 2020, the company made an eye-watering £1.14bn loss as event bookings collapsed. Having a rainy day fund after going through such a tough trading period is wise.

Beneath the surface, though, problems remain. While life may have more or less returned to normal in the UK and much of Europe, lockdowns are still common in China with its zero-tolerance approach to Covid-19. Just last week, 1mn people in Wuhan were told to self-isolate after an outbreak of just four cases. This presents a big challenge for Informa which does a lot of its business in China – or at least used to before the pandemic.

Informa is also a more expensive business to operate than it was pre-pandemic. In its 2017, 2018 and 2019 half-year results, profit represented between 12.5 and 16.5 per cent of revenue. That figure is now a mere 5 per cent.

With these issues in mind, the sky-high price/earnings ratio and modest dividend yield make it hard to recommend buying this stock even with a recovery looking likely. As for those who already own the shares, a wait-and-see approach is recommended. Hold.

Last IC View: Hold, 560p, 15 March 2022