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Informa (LSE:INF) is a FTSE 100 stock that doesn’t always get the attention it deserves. But the underlying business is extremely impressive.
Over the last 10 years, revenues have grown at almost 10% per year. More importantly, the firm has shown itself to be extremely durable even in an extremely difficult environment.
What does Informa do?
The majority of Informa’s revenues come from its business-to-business events. Whether it’s concrete, boats, or marketing, the company organises trade shows and conferences.
Its most valuable asset is the intellectual property associated with these. They’re the biggest events in their respective industries and that makes them difficult for rivals to compete with.
The pandemic could have been a negative turning point for the company. But it wasn’t – live events have made a full recovery and the shift to online meetings has proved temporary.
Whether it’s other businesses or extraneous shocks, Informa has shown itself to be resilient. And on top of this, it has some extremely attractive economics.
Cash generation
It doesn’t own the locations that host its events, meaning it doesn’t have the associated maintenance costs. And this means its capital requirements are relatively low.
Around 95% of the cash generated by the company’s operations becomes free cash available to shareholders. That’s impressive, but there are other reasons to be impressed as well.
Informa generally pays at least part of its venue hire fees after events have taken place. But in order to gain access to these, the firm’s customers have to pay in advance.
This means the company doesn’t need to hold on to its own cash to meet its working capital requirements. It can use the fees collected in advance of the event before paying them out later.
Growth
Its revenues have grown strongly since 2014, but earnings per share have been largely static. Investors might wonder why this is.
There are two main reasons. One is that the company’s long-term debt is higher than it was in 2014 and the second is the share count has grown significantly.
Both of these are ongoing risks for the business. A high debt load means more of the firm’s revenues get eaten up by interest payments and a rising share count offsets the effect of growth.
In both cases, the company has been working to rectify things since the end of the pandemic. But investors should note it might take some time for things to get back to where they were.
A stock to consider?
Informa is a business that has some terrific economic properties, with low capital requirements leading to strong cash generation. And it has shown itself to be extremely resilient.
The stock trades at a price-to-earnings (P/E) multiple of 37. That’s high, but the company’s strong prospects might be enough to offset this.
If the firm can reduce its debt and bring down its share count, I think profits can grow strongly. In my view, this is a stock investors should consider buying.
