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Buy Tarsus as growth quickens

The global events business has a sensible strategy for growth which allows it to continue to generate enough cash to support a generous dividend
August 2, 2018

Every other year events group Tarsus (TRS) produces frightening financial results, as the absence of its biggest shows hamper period-on-period growth. That’s why it is best to compare recent half-year numbers with those achieved in 2016 – and, on that basis, the group posted a 32 per cent increase in first-half revenues and a 45 per cent leap in adjusted pre-tax profits.

IC TIP: Buy at 315p
Tip style
Income
Risk rating
Medium
Timescale
Medium Term
Bull points

Attractive, well-covered dividend
Event launches
Exposure to emerging markets
Good visibility

Bear points

Risks from volatile markets
Rising debt

Tarsus is in growth mode thanks largely to its expansion in Asia. In May, the group replicated its global Labelexpo event in Southeast Asia where it welcomed 8,000 attendees from 62 countries, making it one of the group’s most successful launches ever. This helped nearly double Asian revenues, compared with the first half of 2016, and even boosted Asian adjusted pre-tax profits 30 per cent compared with 2017. This expansion is all part of the recently initiated second phase of the group’s “quickening the pace” investment strategy. Phase one saw the number of events increase by 65 to 153 between 2013 and 2017 through a combination of acquisition and new launches.

Replicating its most popular events in new locations around the world has provided a “lower risk, lower cost approach to driving organic growth”, according to chief executive Douglas Emslie. In the US – which was the largest contributor to revenue in 2017 – this includes replication of several events in the medical portfolio. Meanwhile, sensible acquisitions have helped bring in new events which can subsequently be replicated. In the first half, the group entered a joint venture to buy 60 per cent of Mexico’s leading restaurant show – Expo Restaurantes. It also bought another 25 per cent of Chinese industrials exhibition specialist, SIUF, taking its total holding up to 75 per cent.

Acquisitions and a further nine new launches should help boost numbers further in the second half when most of the group’s 2018 events will take place. Bookings for the full year are already 10 per cent ahead of 2017 on a like-for-like basis, and broker Numis expects annual revenues to be up by a third compared with 2016.

The reliability of revenue based on the nature of forward bookings is one of the reasons this company continues to be a popular income stock. The forward visibility means the group can rely on strong cash flows over each two-year period – during 2017, cash generated from operations was £36.5m or 109 per cent of operating profits. This more than covered the group’s financial and dividend obligations. Group dividends have risen at a compound annual rate of 8 per cent over the past seven years and currently yield 3.4 per cent.

It’s worth noting that Tarsus’ exposure to emerging markets makes it liable to volatility. For example, political uncertainty in Turkey has hampered growth in its small Europe, Middle East and Africa divisions.

TARSUS (TRS)   
ORD PRICE:315pMARKET VALUE:£358m
TOUCH:308-315p12-MONTH HIGH:336p270p
FORWARD DIVIDEND YIELD:3.6%FORWARD PE RATIO:11
NET ASSET VALUE:56p*NET DEBT:137%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201582.026.321.38.4
201668.419.215.19.1
201711840.227.710.0
2018**93.227.217.510.7
2019**13145.329.511.4
% change+40+67+69+7
NMS:1,000   
BETA:0.21   
*Includes intangible assets of £191m, or 168p a share
**Numis forecasts, adjusted PTP and EPS