Organic revenue growth accelerated to +4% in the second quarter (Q1:+3%), in line with the group's expectations. This was driven by a good performance in Credit Services and improvement in North America Consumer Services. On the negative side, foreign exchange headwinds continue to weigh. At actual exchange rates total revenue fell by 6% and operating profit margins declined by 60 basis points. The shares rose by 3% in early trading.
- Benchmark earnings per share (EPS) of 42.0 US cents, up 5% at constant exchange rates and down 7% at actual exchange rates.
- Interim dividend rises by 2% and share repurchase programme extended by US$200m to return the proceeds from recent divestments.
- Operating cash flow conversion was 95%. Net debt increased by c. 4% to US$3,355m. Net debt to EBITDA now at 2.1 times.
Geographic highlights (organic, constant currency):
North America (c. half of sales): Experian returned to growth in North America, with revenue up 1% in the first half. Credit Services enjoyed another strong quarter. The rate of decline in North America Consumer Services further moderated, from -10% in Q1 to -5% in Q2, reflecting strong growth in the premium service, Experian.com.
Latin America: revenue was up 6% in the first half (7% growth in Q1 and 6% in Q2). Experian are outperfoming a very weak economy in Brazil although they remain cautious given the general backdrop. The group have benefited from expansion into new verticals and from demand for counter-cyclical products as banks cope with higher levels of debt default in Brazil.
UK and Ireland: revenue was up 5% in the first half, driven by good growth in Credit Services and Decision Analytics in particular.
EMEA/Asia Pacific: revenue grew by 6%. A focus on key markets and products is leading to a steadily improving and more consistent revenue performance, according to the group.
Brian Cassin, Chief Executive Officer, commented:
"We are making substantial progress on our five strategic priorities. We've taken steps to focus the portfolio, the trend in organic revenue growth has improved and we are returning more capital to shareholders. "As we look ahead for the full year, while foreign exchange will continue to be a headwind, at constant currency we expect organic revenue growth to be in the mid-single digit range, to deliver stable margins and to see further progress in Benchmark earnings per share."
We view Experian's second quarter performance as solid, given the economic weakness in some of its end-markets, most notably Brazil, and headwinds in the US consumer services division.
There is little to suggest an economic recovery in Brazil is imminent, but self-help initiatives, such as a focus on new verticals, are helping the group to offset the economic challenges for now. In North American Consumer Services, Experian has seen increasing competition from websites offering free credit reports. To differentiate itself, it has been trying to encourage more customers to use its premium, paid-for website - Experian.com. The group appears to be making good progress here, with the rate of decline in this division halving in the second quarter.
Experian recently changed its capital allocation policy following the appointment of Brian Cassin as CEO. Acquisitions will still be considered, but are now less of a priority. Non-core assets are being sold off and cash is being returned to shareholders. The group announced a $200m extension of its $600m share buyback programme alongside its interim results.
Experian trades on a price to earnings ratio (P/E) of 18.8x, which is around a 20% premium to its long run average, and offers a yield for the current year of 2.2% ( variable and not guaranteed). The economic backdrop in Brazil could still curtail the group's performance in the near term. But we think Experian's dominant market positions, strong cash flows, and shareholder-friendly capital allocation policy should stand investors in good stead over the long term.
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