Berenberg upgrades UBM, says Informa paying near industry-record multiple

Berenberg upgraded business-to-business event organiser UBM from 'sell' to 'hold' on Thursday and upped its target price from 675p to 930p as risks to the fashion industry, the firm's largest sector, seemed "less relevant" following Informa's bid for the company.

Instead, Informa was now taking on the risk to UBM's revenues and margins, the German broker said.

"Our current DCF valuation is c670p – if we took the £60m of synergies Informa is targeting by 2020, and applied its 14x 2019 P/E to the after-tax contribution from them this would add another c170p to our DCF – still below the Informa offer, which is c930p," Berenberg said.

"We therefore firmly believe that UBM shareholders should and will approve the bid," they said.

As a backdrop, Berenberg explained that investors had spent much of 2017 focusing on the underlying risks to UBM's business, particularly in fashion sector, but shares had rebounded in late 2017 as revenue trends in areas like jewellery improved, delivering headline results for the year ended 31 December "modestly above the original consensus".

Berenberg also noted UBM management's comments about "unusually high" levels of event launch activity, that helped boost its growth throughout 2017, but were not likely to recur in the current trading period, and that "some pruning is likely to continue", and that in terms of margins, the recent upward trajectory seen on that front "may not be easy to continue or even maintain" as management flagged the benefits from FX tailwinds and shifting costs to biennials throughout the year as major leg-ups, both of which were set reverse in 2018.

As of 1420 GMT, shares had inched forward 0.32% to 931.00p.