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Experian - Mid-single digit growth continues

Nicholas Hyett | 18 May 2017 | A A A
Experian - Mid-single digit growth continues

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Experian Plc Ordinary USD0.10

Sell: 2,492.00 | Buy: 2,493.00 | Change -26.00 (-1.03%)
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Full year revenue of $4.3bn represents 5% organic growth at constant currency, in line with management's expectations. Underlying earnings grew 6% to $1.2bn at constant currency, benefitting from a slight improvement in margin.

Experian announced a second interim dividend of 28.5 US cents per share, up 4% on the previous year. The group also announced a $600m share repurchase scheme, to be completed in the 2018 financial year.

The shares fell 2% following the announcement.

Our View

Credit data remains Experian's core business. But with consumer credit checks an increasingly challenged part of the business it's now turning its valuable data mining expertise to marketing and analytics as well.

Experian is benefitting from the increased importance of big data to the modern world, and delivering consistent mid-single digit revenue growth as demand for its expertise grows. Doing so despite competitive pressure in the US and UK consumer businesses, and a prolonged recession in Brazil (which accounts for 89% of Latin American revenues), is testament to the central place it occupies in many customers' business.

The group is rolling out new services in Latin America, where more than 90% of current revenues come from providing credit services to institutions like banks. Initial performance has been strong, and with a consumer offering in the pipeline, the market looks to have plenty of potential.

If we had a complaint, it's that margins have in the past remained stubbornly flat. Experian should be a highly scalable operation, but increased regulatory costs, among other things, have held back progress.

The group does now seem to be making some headway here though. The sale of the email/cross-channel marketing operation leaves a business with more obvious synergies and has freed up cash to support share buybacks. With net debt at the bottom end of the target range, there's scope for more M&A to bulk up the remaining businesses.

Full year results:

Experian saw revenue growth across all geographies.

  • North America, which accounts for 57% of group revenues, saw revenue growth of 5%, with both Credit Services and Marketing Services up 8%.
  • Latin American and EMEA/Asia Pacific, both up 9%, were led by strong performance in the recently introduced Decision Analytics and Marketing Services divisions.
  • The UK & Ireland struggled, with revenues up just 1% overall, as the group shifted to a free score offer in its consumer division following increased competitive pressure of the kind already seen in North America.

Profits moved forwards across all divisions, with exception of the UK, where improved B2B performances were more than offset by lower consumer services revenue.

Cash flow conversion of 96% was behind the previous year (2016: 106%) reflecting a significant increase in investment with the acquisition of CSIdentity. Net debt of $3.2bn at the year end was 2.1 times benchmark EBITDA (earnings before interest, tax, depreciation and amortisation), well within the group's 2.1-2.5x range.

CEO Brian Cassin commented:

"As we look ahead, we expect to sustain good momentum in our financial performance and we anticipate another year of good growth, within our target mid single-digit organic revenue growth range, with stable margins and further progress in Benchmark earnings per share."

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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