Investors Broadly Supportive of B2B Publishers

Is the ever digitising face of publishing an opportunity or a threat to Business to Business (B2B) publishing firms? B2B publishers are reportedly still suffering from weak subscription renewal rates, whilst other core revenue streams such as advertising, promotions and events continue to stabilise. Although publishers Informa and Reed Elsevier state that 2011 indicators are encouraging, the future of B2B publishing models is exercising their minds greatly. We will look at Reed Elsevier Plc (LON:REL), Informa (LON:IN), John Wiley and Sons (NYSE:JW.A) and Wolters Kluwer (AMS:WKL).

Recent rumours of a takeover bid have led to a recovery in the share price of Reed Elsevier following a dip on last week’s announcement of weak core subscription revenues. Reed Elsevier is not a widely traded stock in securities lending with no more that 10% of the lendable supply out on loan at any one time. However, recent growing positive investor sentiment can be observed from the gradual increase of institutional ownership of large, long term investors from 320 million to 330 million shares, which we derive from holdings of funds who lend their shares. Short interest is currently at an annual low of 0.33% of total shares outstanding.

Informa also report that subscriptions in their professional/trade (P/T) publishing unit, which accounts for 34% of turnover, have been impacted by “late cycle pressure”. Looking at securities lending activity in the stock over the past year, we see a classic chart of improving positive investor sentiment. Short interest has been decreasing over the year as the price has trended upwards. Short interest is now at an annual low of 1% of total shares outstanding. Adding a further dimension in the form of institutional ownership, we observe that funds who lend have increased their holdings from 125 million to 156 million over the year.

P/T publishing accounts for a quarter of John Wiley and Sons revenue. A recurring theme emerging from their latest investor’s presentation is the big “e”, from e-learning to e-books to e-advertising, with images of ipads and tablets littering the P/T slides. The next quarter earnings release is not due till December 9, 2010 but first-quarter FY2011 updates reported revenue growth of 12% in P/T, driven by strong e-sales. Short interest is low following a decline over the past year. There has been a slight uptick since mid-September as with short interest now at 1.3% of total shares outstanding on loan. However, there has been a gradual decline in institutional ownership over the past year, albeit with a slight recovery since mid-September, to stand at 14.6 million shares.

Wolters Kluwer’s is incredibly focused on improving subscription retention rates as this represents 72% of total revenue. Short interest jumped from 1.8% to 3.3% ot toal shares outstanding over August. This has now stabilised at 3%, with the recent acquisition of LexisNexis Deutschland appearing to have no bearing on short interest. Interestingly institutional investors take a equally negative view as institutional holding have seen a gradual decline from 86 million shares to 82 million shares over the past month. Of all names covered, WKL is the most interesting for short sellers.

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