Ascential struggles with digital commerce arm

Events and retail analytics group Ascential (ASCL) has been bolstered by the return of set-piece conferences such as fintech event Money 20/20 and the Lions International Festival of Creativity. Revenue jumped by 50 per cent in 2022 – fuelled by organic growth of 30 per cent – and adjusted Ebitda increased by 36 per cent to £121mn. 

Beyond the headline figures, however, things are looking less rosy. A host of impairments, share-based payments, redundancy costs and expenses linked to a strategic review contributed to a statutory operating loss of £94.2mn, up from a £26.7mn loss in 2021. The £25.6mn impairment relating to ecommerce optimisation specialist ASR is particularly worrying, given that Ascential took a majority stake in the business less than two years ago. 

But it is somewhat artificial to analyse Ascential in its current form. In January, the group announced a major break-up plan, which involves listing its digital commerce operation in New York and selling off its fashion forecasting business, WGSN. This will leave just the events division listed in London.   

Management is poised to start the process of selling WGSN next month, having noted “positive reactions” from potential buyers. However, spinning off the digital commerce arm could prove trickier. For starters, it will be expensive, and the division's margins are already under serious pressure. In 2022, the business saw adjusted Ebitda fall by roughly a third, despite rising sales. 

The group blamed the division’s slim margins, which withered from 21 per cent in 2021 to just 9 per cent in 2022, on the “softer spending environment” and clients prioritising bricks-and-mortar stores over e-commerce. Going forward, it only expects to deliver annual margins in high-single or low-double digits, and this does not account for the cost of listing in the US. 

Ultimately, Ascential is going through a period of major change, and management will be hoping for a higher valuation across the Atlantic. (Management said it could achieve a US listing by conducting a public offering of shares and/or a spin-off distributing shares on a pro-rata basis to shareholders). 

The sale of WGSN could also prove lucrative, with management promising to return a “significant proportion” of the sale proceeds to shareholders. All this could be achieved at a reasonable price: Ascential is trading on a forward price/earnings ratio of 15.5, compared with a five-year average of 23.3.

However, there’s too much uncertainty for us at the moment, made worse by the prolonged struggles of the group’s digital commerce division. Hold.

Last IC View: Hold, 246p, 1 Aug 2022