Trade show and newswire business UBM has fallen back in a rising market after a broker report calling on the company's chief executive to take drastic action.
Panmure Gordon analyst Jonathan Helliwell cut his recommendation from buy to sell, on the basis that any revamp of the business could hurt it in the short term, as the same time as it suffers adverse currency pressures.
Helliwell said new chief executive Tim Cobbold, who started in May, should cut the company's dividend and sell PRNewswire to leave the company as a high growth, pure global events business. He said:
However, this could hurt the stock in the near term. We also argue that consensus estimates look around 11% too high reflecting foreign exchange pressures and near term constraints in events. We move our price target from 940p to 590p and our rating from buy to sell.
He added:
We believe that over time UBM could reinvest proceeds from a sale of PRNewswire (£480m estimated) at a return on investment equal to or better than the return achieved on a PRN sale (6.2% post tax estimated).
Meantime a dividend cut would repair cover and generate a free cash flow of up to £100m per annum to invest in the global events sector, where M&A opportunities remain significant. However, either course of action could be negative for the stock at least in the near term. A dividend cut would take away any yield support. A sale of PRN could be significantly earnings per share-dilutive in the near term (up to 33% on our estimates, depending on tax) and introduces significant execution risk both on the sale and reinvestment.
UBM's shares are currently 6.5p lower at 648p.
