Description

HYVE Group PLC (“Hyve”) is a small-cap, UK-listed company that owns and organizes leading exhibitions and conferences.  The business enjoyed significant momentum before the pandemic: the shares were added to the FTSE-250 Index in January 2020 after doubling over the prior year. 

Few businesses were hit harder by Covid-19 than the exhibition industry.  When Covid-19 hit, the business stopped, and the share price was decimated, declining ~90% to its current 67p.  During a profoundly challenging few years that required a rights issue (6/20, £126.6M), a share placement (11/21, £28.1M), business interruption insurance collection (received £106M), and recent refinancing (10/22), the company has been repositioned by management. More recently, Hyve’s business is inflecting strongly toward pre-pandemic levels (1H22 was > 90%) given healthy, pent-up demand for its face-to-face events, and its streamlined focus on market-leading shows in developed countries.  In early October, the Company announced its two most significant events, Autumn Fair and Groceryshop, significantly outperformed prior editions, with Groceryshop reporting revenues 40% higher than its largest pre-Covid edition.  The company also announced strong forward bookings into FY23.

At current levels, Hyve offers an interesting prospective risk-reward. Our thesis does not rely on M&A, but we would not be surprised to see a takeover of the Company at a substantial premium.  The UK is an attractive hunting ground for acquisitions as there are high-quality companies that have significantly de-rated: UK small-cap equities (MCX Index) are down >25% in USD terms this year, with Hyve down 37% in USD terms.  While a UK-listed equity, the US accounts for approximately half of pro-forma sales. In early October 2022, three insiders (Chairman, CEO, and CFO) purchased shares at 54p.  The Company reports results next week on 12/13.

Background & Description:

Hyve was founded by the Shashuoa family as “International Trade Exhibitions” (ITE) in 1991 and listed on the London Stock Exchange in 1998.  The Company initially focused on the new market economies of Russia and Commonwealth of Independent States. In May 2018, Hyve acquired the events business of Ascential PLC for £300M.  Mark Shashoua, Hyve’s current CEO, returned to the business in September 2016 after serving from 2011-16 as the CEO of Ascential Events, where he doubled revenues and profits during his tenure.

Back in mid-2017, when CEO Mark Shashoua rejoined the business, Hyve embarked on a 3-year transformation and growth program, wherein management (i) pruned the portfolio to focus on higher-quality, market-leading shows, (ii) invested in creating a more unified, scalable platform to drive organic growth and (iii) began to pivot its geographical footprint from emerging markets to developed market geographies.  More recently, Hyve acquired 121 Group and Fintech Meetup to bolster its omnichannel capabilities, allowing for digital vertical community platforms that complement and reinforce the annual physical trade shows.

Today, Hyve operates 50 in-person events focused on developed economies: currently, ~88% of revenues are in developed markets vs. May 2017, when emerging economies represented 88%.  Management has intentionally pivoted toward developed economies in recent years via strategic acquisitions of both market-leading shows and complementary digital assets as well as divestitures, most recently exiting Russia and Central Asia and ABEC.  The business today is geographically de-risked and operationally straightforward.  Hyve contracts for venues and then charges exhibitors for floor space and visitors for attending. Hyve owns market-leading shows across several sectors, including: Shop Talk (www.shoptalk.com), Grocery Shop (www.groceryshop), Springfair (www.springfair) and Bett (www.bettshow.com).

Thesis:

Hyve has reshaped its portfolio to become a high-quality exhibition business with growing, market-leading events in principally developed markets. We believe the current valuation at ~7x a ‘recovered’ EBIT is an attractive entry point to benefit from the company compounding out of COVID or receive an M&A premium.

Underpinning our view of quality are the following considerations about Hyve:

• ‘Must attend,’ market-leading events with high barriers to entry
• Strong ROI delivered to exhibitors (e.g., lead generation) and attendees.
• Visibility and recurring revenue, as attendees book well in advance and generate repeat business.
• High operating margins (25% pre-covid) and should be able to achieve such margins again by FY’25.
• Strong FCF conversion and in normal environments, benefits from negative working capital dynamics, given significant pre-payments. 
• Capital required limited to acquired assets, leading to high returns on capital over the cycle

It is difficult to predict M&A but we would note that, given quality and free cash-flow characteristics of the business, there were numerous transactions pre-pandemic led both by strategic purchasers (e.g. Informa, RELX Group) and financial sponsors (e.g., Clarion/Blackstone, Charterhouse, Providence, Veronis Suhler, HG Capital, etc.). There has been M&A post pandemic as well with activity from Clarion / Blackstone, Emerald Expositions / Onyx, and Tarsus / Charterhouse.

Peer Commentary Supports Event Recovery:

11/14/2022 - Informa on Exhibitions: “This performance, excluding China, is tracking to c.85%± of equivalent full-year revenue in 2019, outpacing our own expectations at the start of the year. Growth has been consistent across all specialist markets and all geographic regions where COVID restrictions have been removed and are fully open. In the US, customer demand has been particularly strong as B2B activity has returned at pace, playing to the strength of our brands, leadership positions within key specialist markets and the scale of our overall business in the region.”

11/3/2022 – Emerald Expositions: “We expect almost one quarter of our shows this year will meet or exceed pre-pandemic revenues and while certain brands have a way to go, others are already well ahead. This is consistent with what we expected as with what others in our sector are experiencing. These positive trends continue to validate the substantial value of our in-person shows. In contrast to business meetings many of which have shifted permanently to virtual formats, in-person B2B trade shows remain an essential part of customers' marketing and travel budgets. They provide a high return on investment and often are the single biggest-selling events of the year.”

11/03/2022 - GES on Exhibitions: “GES posted strong third quarter results as live event activity continued to improve and we realized the benefits of an improved cost structure. Same-show revenues for events produced by our U.S. exhibitions team grew to 91% of 2019 pre-pandemic levels, up from 46% in the 2021 third quarter.”

Valuation:

While we believe it will take a while for the impact of COVID to leave investor’s minds, we believe there is room for Hyve’s valuation multiple to re-rate as it proves its recovery, which we expect in the next 1-2 years. Larger cap peer, Informa has already increased its rating to some extent and now trades at 14x EBIT. Given the attractive business model, Hyve may make more sense within a larger group that has diversified revenues, making the company’s financial profile attractive to an acquirer.

Risks:

1. Macro headwinds
   1. During the GFC the exhibitions industry suffered from declining revenues as corporates rapidly pulled budgets. We believe the current recession will have a more muted impact because events have proven to a high ROI channel, Hyve owns market leading events which are more insulated vs 2^nd / 3^rd tier shows, corporates have prepared for the recession, and there are less sharp liquidity concerns.
2. Share register is concentrated
   1. Some of these are long-term holders (RWC Partners 23%).  Others (Strategic Value Partners 16%) are more recent.
3. Poorly received PIPE-deal with P/E
   1. Hyve has bolstered their balance sheet and is unlikely to need capital unless it were to make an acquisition.  In May 2021 it was reported in the press that the company was in talks with Carlyle about a £250 PIPE.  Any deal of this scale would require shareholder approval, which would be unlikely, given the register concentration, unless it was value enhancing.

Balance sheet:

As of 10/23/22, Hyve has net debt of £66.4M (cash of £34.7), putting the company on track to be at lower end of previously stated FY22 guidance of £70-90M. Hyve recently refinanced its debt at 7.75% over SONIA, which is a high rate, but the company believes incremental trading momentum will cover this debt service cost. Terms include a minimum liquidity covenant of £21M through 8/23 and then a 3x leverage ratio.

Catalyst

Earnings on 12/13