A couple of updates from stocks in the Media sector which could provide contrarian value opportunities. First we had an acquisition in the exhibitions sector from UBM. This takes them further into this area and makes them a larger player in the US. This is not a great surprise as they commented on the possibility of this a couple of weeks ago.
In brief they are paying £599 million for Advanstar and they have also announced that they will be having a rights issue in November to raise £563 million gross and they say the overall effect of this will be to reduce their debt to EBITDA. They also say the acquisition will be earnings accretive in 2015 and its ROI will exceed their WACC of 8.5% in the first full year post completion.
UBM has been having a transitional year and this acquisition should help to move them ahead next year. The share have been drifting lower as a result of the dull outlook this year and earnings downgrades as a result, they therefore have poor momentum and were oversold prior to this announcement. The rights issue is likely to weigh further on the price (which is down 4% this morning) and may therefore provide a decent medium term buying opportunity. I have found in the past that buying into stocks during a rights issues (if you like the prospects post the issue) can make for a good entry point. Prior to any changes on the back of this announcement the shares were trading on around 11x next years earnings with a near 5% yield.
Meanwhile in the same space there was a trading update from the £400 million market cap. emerging markets exhibitions group ITE. This surprisingly suggested that their full year figures would come in ahead of current consensus after a strong Q4 and good cost control. I say surprising as this one has been under pressure due to its exposure to Russia and Ukraine. They said this had not hit a recent Russian food conference, but they did caution about the economic and currency effects going forward. The sell of has left the shares on less than 10x P/E with a yield of around 4.5%.
Obviously potentially a more risky situation than UBM which is now big in the US, but if and that's a big if the Russian / Ukraine situation can be resolved in the near future then it could be a good recovery play - so perhaps a buy for a brave contrarian investor or trader?