Investment: Informa shares rise 60% on merger

INFORMA IS proof of the maxim that, in today's stock markets, pursuing size pays off. The publishing and exhibitions group that was created last November through the merger of IBC and LLP - publisher of Lloyd's List - has seen its shares rise by over 60 per cent since the deal was announced.

Although this rise is partly down to the benefits of combining the two companies, the re-rating is largely due to the fact that the combined group is large enough to merit inclusion in the FTSE 250 index.

This brings it to the attention of fund managers who ruled out investing in the two component companies because they were too small.

Informa yesterday presented its first set of results since the merger, trumpeting a 10 per cent increase in underlying operating profits for the year to last December.

However, the figures, which are just the results of IBC and LLP combined, gave investors few clues about the prospects for the new company.

One thing is certain: the merger has not been a signal for massive cost- cutting.

Total exceptional charges of pounds 15m - including a whopping pounds 5m in advisers' fees relating to the merger - will yield annual cost savings of just pounds 2m as the two companies combine offices and both pull out of South Africa.

Instead, chairman Peter Rigby and chief executive David Gilbertson believe Informa will be able to boost revenue growth by exploiting the benefits of combining exhibitions and business publishing.

"The whole thrust of the business is to grow the revenue side rather than attack the cost side," Mr Rigby said.

So Informa is planning to set up a series of conferences based around Lloyd's List. "We are planning to create constituencies under major brands," Mr Gilbertson said.

Meanwhile, Informa is also expanding the revenues it derives from electronic publishing. Most of the group's publications are now available online, and electronic revenues accounted for 15 per cent of profits in 1998 - an increase of 39 per cent over the previous year.

With net debt of pounds 36m, the company is well placed to make acquisitions. Informa is looking to strengthen its pharmaceuticals division by buying or launching a publication, while it is also keen to bolster its presence in the United States.

According to Mr Rigby a company with pre-tax profits of up to pounds 10m - implying an acquisition worth around pounds 150m - would be well within the company's abilities.

Analysts yesterday left their full-year profit forecasts unchanged at pounds 31.5m. Although the shares - which fell 7p to 341.5p yesterday - are on an undemanding forward multiple of 18.

Informa will probably have to demonstrate that the merger is boosting its top line before they rise much further.