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Experian - On track despite a weak consumer services

Nicholas Hyett | 18 July 2017 | A A A
Experian - On track despite a weak consumer services

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Experian's business-to-business operations delivered steady growth in the first quarter. However, weakness in the UK and US consumer businesses have tarnished overall performance, with revenues up just 4% at constant exchange rates.

Experian shares fell 2.1% in early trading.

Our View

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

Experian is benefiting 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 businesses.

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.

The strategy to deal with rivals offering free credit checks to consumers in the US and UK is a sensible one. The group has jumped in with its own product, and plans to use the large audience it's gathered to cross sell advanced credit products and price comparison services. However, in the short term the collapse in subscription revenues is hurting.

If we had a longer-term complaint, it's that margins have in the past remained stubbornly flat. Experian should be a highly scalable operation, but increased regulatory cost, among other things, has held back progress. The group does now seem to be making some headway here though.

The recent 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.

Experian offers a prospective yield of 2.1% .

First Quarter Trading Update

Although Experian's free credit score offer continues to attract new members, now at 2.2m in the UK and 10m in the US, the loss of credit monitoring subscriptions has hammered consumer services revenue. First quarter revenues are down 5% in the US and 19% in the UK & Ireland, pulling the UK & Ireland to a 3% revenue decline overall.

However, things look brighter elsewhere in the business. The key Credit Services business, which provides credit services to lenders, saw revenue grow 5% across all regions, while the smaller Decision Analytics and Marketing Services saw revenue growth of 13% and 12% respectively.

The group's performance in Latin America is particularly notable given the political turmoil in the major Brazilian market during the period. Overall growth of 8% was the strongest of any region, with Decision Analytics and Marketing Services seeing revenue growth of 44% - admittedly from a low base.

Commenting on results CEO Brian Cassan said that he continues to "expect growth for the year to be within our target mid single-digit organic revenue 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.