Buy Expomedia* at 63p
Says James Faulkner of WatsHot.com - 09/05/08

I've been following this one for some time, and after chatting to boss Mark Shashoua and watching the company post an excellent set of results for 2007 (which went totally unnoticed by the market), I now feel the time is right to recommend the shares as a buy.

The Business

Expomedia is a rapidly growing exhibitions, conferences and events management business which has recently moved into profits, yet whose share price is approaching an all-time low. It is well positioned internationally, with businesses in both Western and Eastern Europe along with an increasingly important Indian operation. Founded in 1999 and achieving its AIM listing in December 2001, Expomedia is led by the Shashoua family who have over 30 years in the international exhibitions industry. In particular, CEO Mark Shashoua is a man worth backing - he was responsible for driving sales at conferences and exhibitions firm ITE Group from £8 million in 1994 to £36 million in 1998, for which he was awarded the “European Dynamic Entrepreneur of the Year Award” in 1998 by “Europe’s 500, the Association for Dynamic Entrepreneurs.”

The exhibitions and events management industry enables businesses to reach their target markets, share information, build relationships with other industry operators and generate new business in a manner that can be much more cost effective and efficient than advertising. Expomedia is fast becoming a leader in this field, through establishing local exhibition and conference teams that develop and clone events, sometimes working closely with well known brands and leading global media groups. Whereas the company is relatively well established in its UK and Polish markets, the real excitement lies with its relatively young Russian and Indian businesses - in both of which it as been investing heavily. It also recently took the decision to streamline the group by ditching its Moroccan and Hungarian interests, along with most of its German activities, thereby enabling the company to focus on these more attractive long-term growth opportunities.

The UK and Polish businesses are the group's most established markets, and together they accounted for €19.7 million of turnover for 2007 (€36.3 million). In the UK the group's operations were ramped up considerably through two acquisitions: Home Buyer Events and World Food Market. Obviously, conditions in the UK will be harder going forward - especially for the property events - but the we can expect the company's continued growth to be underpinned by its other markets, where conditions are more favourable. Homebuyer will be looking to take advantage of the downturn in the UK property market by growing its market share at the expense of its rivals; it is already very well placed in the UK as it organises the largest residential investment property exhibition in the country, The Property Investor Show. The other UK acquisition, World Food Market, is the leading UK event for ethnic and world foods - a market that is currently worth £1.8 billion in the UK and is forecast to rise to £2.4 billion by 2009.

In Poland, the company's largest market, Expomedia is now the main conference organiser both in terms of size and number of events in the market. Although the Polish venue continues to trade well (it achieved revenue growth of 65% in 2007), its capacity is currently restrained pending the opening of the new adjacent facilities, expected in mid-2009, which will add 40% to the available venue space. Growth should therefore slow somewhat in 2008 before it picks up again in 2009.

For me, however, the main attraction of Expomedia is its Russian and - in particular - its Indian operations. In Russia, as in the UK, growth has been driven through acquisitions. In December 2006, the company announced the acquisition of an 80% interest in BBPG, a conference and forum events business, which operates primarily in the food and other retailing sectors. Subsequently, in June 2007, Expomedia acquired a 90% interest in Exposystems, which organises the leading branded IT and telecoms conferences in Moscow. Following these acquisitions, the company now believes it is the leading events organiser in the country, with over 110 conferences organised annually; however, the infancy of the Russian market is highlighted by the fact that in more mature markets the industry can easily sustain more than ten times that number of events. The company also benefits from the absence of any major international competitors in the Russian market.

In India, Expomedia is operating from a relatively low base, but its investments there are beginning to pay off, with turnover rising by 58% to €2.9 million and the number of exhibition events accelerating from two during the first half to five held in the second half of the year. The Indian market is positively embryonic, lagging well behind those of the country's economic peers (for example, China has eight times the amount of exhibition space as India and hosts three times the number of exhibitions), and Expomedia aims to establish itself as a leading player, striking while the iron is hot. As multinationals become more and more aware of the growing purchasing power of the Indian economy - especially its 300 million strong middle class - the Indian exhibitions market should undergo a huge expansionary phase. Expomedia is positioning itself to secure a hefty slice of this growth.

The Numbers

During the year ended 31 December 2007, Expomedia made its first pre-tax profit of €1.9 million, compared with losses of €3.4 million in 2006, on revenues from continuing activities, excluding the company's share of joint ventures, up by 52% at €35 million. Earnings came in at 1 euro cent per share, versus losses of 34 cents per share in 2006. Total net debt was relatively high at €25.8 million, but this includes finance lease balances of €19.8 million, arising as the result of two sale and lease back transactions over the Warsaw venue. Also included in this figure is €2.5 million of non-bank items which don't carry interest. Cash balances stood at €5.9 million. The net debt we are interested in, therefore, only amounts to around €3.5 million, which can be easily looked after.

In 2008 we can expect continued strength from the group's emerging market operations - Poland, Russia and India - alongside a more sluggish performance in the UK (but as I said earlier, it's not the UK business that we're interested in). However, expect continued high levels of investment in expanding sales teams etc.to grab market share in the emerging regions. This will be felt through of rising costs during the current year, but is absolutely necessary in terms of retaining a head start.

For the current year the company should do earnings pushing 3p on pre-tax profits of €2.5 million euros. In 2009 these figures should increase significantly, to 6.75p and €5.7 million, as the company reaps the benefits of its investments. That means we're looking at a prospective earnings multiple of 9.3 for next year. For a company that has just made the pivotal move into profitability, is well positioned in a number of emerging markets and is looking to commence dividend payments to boot, this looks good value. If Expomedia carries on delivering, the shares could easily command twice that rating by 2009. Buy, at 63p.

* The company is a corporate client of Rivington Street Holdings, the ultimate owner of this website.

Key Data

EPIC: EXP
Market: AIM
Spread: 62p - 64p (3.125%)

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