Broker snap: Earnings upgrades seen at Euromoney

The third quarter update from Euromoney will probably lead to consensus pre-tax profit forecasts edging up to £80m, predicts Singer Capital Markets, despite the business publisher and events organiser sounding a note of caution on the prospects for the fourth quarter.

"The company has flagged up caution on Q4 [fourth quarter] as it will be driven too a large degree by advertising in September, which faces a tough comp [comparative figure]. The recent weaker profitability of large banks is also a reason for caution and we maintain our view that investors should focus on the September update," suggests Singer analyst Johnathan Barrett.

Despite the cautious management comments Barrett thinks the broad picture is encouraging and the return to growth in subscriptions will bolster confidence for the next fiscal year and underpin faith in the business.

Based on Singer's expectation that consensus earnings per share forecasts for fiscal 2010 and 2011 will rise to around 49p and 53.5p respectively, the shares trade on price/earnings ratios of 12 for the current year and 11 for next year. "This is too low given the quality of the business," the broker argues.

Singer has a "buy" recommendation on the shares with a 12-month target price of 708p.

KBC Peel Hunt is also a buyer, and expects earnings forecasts for the current year will edge up as a result of the trading statement.

"If we pencil in 8% growth in Q4 (down from our original 11%, and half the rate of Q3 [third quarter]), in line with company comments, this suggests a revenue upgrade of £5m, and (with 40% drop-through) a PBT [profit before tax] increase of £2m. This would give PBT of £80m and EPS [earnings per share] of 50p," KBC analyst Malcolm Morgan said.

"We do not anticipate changing our FY2011 numbers, given the economic uncertainty," Morgan added.