Investment Column: Reed is on the right track with Accuity

Flying Brands; Tribal

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Our view: buy

Share price: 497.3p (+10.7p)

The publisher and information provider Reed Elsevier yesterday announced that it had agreed a deal to buy Accuity Holdings from the investment firm Investcorp. The acquisition is a pretty chunky one, coming in at £343m in cash, and the largest deal carried out by group chief executive Erik Engstrom, who was appointed almost two years ago.

It is not hard to see why Reed was keen on snapping up US-based Accuity, as it specialises in subscription-based data for the financial services industry, boosting the group's so-called banking intelligence and online banking data operation. This also continues the group's strategy of adding small bolt-ons for the past few months.

Accuity allows customers to "maximise the accuracy of their banking and payment transactions, and to minimise the risk of non-compliance with government regulation".

As Reed pointed out, it would sit well next to its Bankers Almanac and the financial services arm of LexisNexis Risk Solutions. Bankers Almanac mainly operates outside of the US, while Accuity operates largely within its home market.

Morgan Stanley analysts labelled it a "good deal" for Reed, adding it would inject "both growth and high-quality subscription-based revenues into Reed Business Information in a business complementary to both Risk Solutions and Bankers Almanac. It also suggests a renewed sense of purpose and direction from management."

The new addition has a 95 per cent customer retention rate as well as double-digit growth, and has more than 14,000 clients around the world.

The companies said the deal would be earnings-accretive immediately. Bank of America Merrill Lynch has done the maths and said the deal implied revenue of about £120m in 2012 with earnings before interest, taxation and amortisation of £36m.

In the publishing industry, Reed is among the top investment picks. Management has been quietly strengthening the business and the future looks solid. We'd move in.

Flying Brands

Our view: hold

Share price: 13.5p (+2p)

The consumer outlook is far from inspiring and bodes ill for retailers, something that has been more than evident in the recent news from the high street. But it's also proving tough for Flying Brands, the home shopping firm that courts customers directly via catalogue promotions, press adverts and the internet.

In a trading statement last week, it said that it was nearing its autumn selling season in its Gardening Direct arm "and the performance of the business has been significantly below management expectations". Trading elsewhere had also been less than cheery.

Complicating the picture was the company's admission that "it is already clear that in the absence of any further action, we would breach our banking covenants when these come to be tested in the second half" of next month. The bad news was followed up by signs of progress yesterday, with Flying Brands saying it had agreed terms to offload certain non-core-property assets.

The deal, which is subject to shareholder approval, is positive, and would significantly enhance the balance sheet. And although the tough trading conditions make us cautious, we think it might be worth holding on to this one, as the markets revisit the stock and take a second look at the company in light of the deal.


Our view: buy

Share price: 47.25p (+1.75p)

The last time we looked at Tribal, we decided to buy, reasoning that while the company was exposed to the public sector, the shares more than reflected the risks. Since then, the stock has seen some good gains, which prompts questions about whether the market has become too optimistic.

On the face of it, recent half-yearly results did not look great, with pre-tax profits easing and the company slashing its dividend. However, profits are expected to be weighted towards the second half, as cost savings feed through. Moreover, the business has been through quite a change, selling its health, government and resourcing businesses. This means that Tribal is now focused on the education, learning and training markets, which bodes well and reduces the risks.

The market, then, is not being over-optimistic. It is simply giving credit where credit is due.