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Information (LSE:INF) is a FTSE 100 a stock that doesn’t always get the attention it deserves. But the underlying business is very impressive.
Over the past 10 years, revenue has grown at about 10% per year. More importantly, the company has proven itself to be very resilient even in the most difficult environment.
What does Informa do?
Most of Informa’s revenue comes from its business-to-business events. Whether concrete, boats, or marketing, the company organizes trade shows and conferences.
Its most valuable asset is the intellectual property associated with this. They are the biggest events in their industries and that makes it difficult for competitors to compete with them.
The pandemic could have been a turning point for the company. But it wasn’t to be – live events have fully recovered and the transition to online meetings has proven to be temporary.
Whether it’s other businesses or unusual shocks, Informa has proven itself to be resilient. And on top of this, it has a very attractive economy.
Making money
It does not have its own event venues, which means it has no associated maintenance costs. And this means that its capital requirements are very low.
About 95% of the cash generated by the company’s operations becomes free cash available to shareholders. That is impressive, but there are other reasons to be impressed.
Informa usually pays at least part of the rent for its premises after the events have taken place. But to get access to these, the company’s customers have to pay in advance.
This means that the company does not need to hold on to its cash to meet its working capital needs. It can use payments collected before the event before paying them later.
Growing up
Revenue has grown significantly since 2014, but earnings per share have been largely stagnant. Investors may 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 that the number of shares has increased significantly.
Both of these are ongoing business risks. High debt means that more of the firm’s income is eaten up by interest payments and a rising dividend yield reduces the growth effect.
In both cases, the company has been working to fix things since the end of the pandemic. But investors should be aware that it may take some time for things to return to where they were.
A stock to consider?
Informa is a business with a formidable economic structure, with low capital requirements leading to strong cash flow. And it has proven to be resilient.
The stock trades at a price-to-earnings (P/E) ratio of 37. That’s high, but the company’s strong prospects may be enough to offset this.
If the company can reduce its debt and reduce the value of its shares, I think the profit can increase significantly. In my opinion, this is a stock investors should consider buying.
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