Tuesday, December 18, 2007

Living in 2 worlds

The UK Press Gazette reports on EMAPs failure to sell its B2B division for GBP1.3 bn. "Why was no one willing to pay EMAP's fair price?" they ask. The article goes on "One anonymous source told The Times that Emap’s asking price was “much higher” than it expected".

EMAP's B2B division, it says, "routinely generates 30 per cent operating margins [and] isn’t a visibly troubled business". The valuation basis? "Emap valued its B2B arm at 11 times its forecast earnings for the year to next March. That’s not so different from the valuations attached by investors to its rivals".

If that's considered high, what then are we to make of a market which currently values Alibaba at 207 times its 2007 forecast earnings? Yes, the China market is growing faster than EMAPs home market and Alibaba is not burdened with the legacy of advertising-dependent magazines. But surely, Global Sources' valuation which today sits at a p.e. of 37.95 (US$1.17bn) reflects that more reasonably?

I'm sure my friends at Alibaba feel that we're being unfair to them. Our posts have focused on this issue for a while. If the market's willing to value their shares at this price, so what? Fair point perhaps. But, unless a vast array of other B2C Internet businesses are injected into the Alibaba listed company or some suprising acquisitions are made elsewhere in the world (they can afford it), it's hard to see anything other than under-performance down the road for those investors who have bet big on the giant of China B2B.

No comments: