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Experian - Strong final quarter boosts full year

Nicholas Hyett | 17 May 2018 | A A A
Experian - Strong final quarter boosts full year

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Experian saw revenue rise 8% in the full year, boosted by acquisitions and 12% growth in the final quarter. Underlying operating profits also rose 8%.

The second interim dividend rose 10% to 31.25 US cents a share, taking the full year payment to 44.75 cents, an increase of 8%. Experian has also announced a new $400m share buyback.

Experian shares rose 3.1% in morning trading.

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Our View

Credit data is still Experian's bread and butter. But with big data playing an increasingly important role in all walks of life, it's turning its data mining expertise to marketing and analytics as well.

Business to business sales are growing at steady mid-single digit percentages, helped by expansion into new geographies. Latin America has been a particular success and now accounts for around 20% of profits despite a prolonged recession in Brazil, the region's biggest market.

However, it's not been all plain sailing.

A few years ago rivals began offering free consumer credit checks in the US and UK, undermining Experian's subscription service. Experian has responded with its own product, and plans to use its large audience to cross-sell advanced credit products and price comparison services.

The collapse in subscription revenues is hurting nonetheless, but we're lapping that strategic shift now. US Consumer is turning a corner while UK revenue falls should ease from here.

Cybercrime is a potential concern given the large quantities of personal data Experian hold. Rival Equifax has already been caught out. While there's no suggestion Experian has faced similar problems, higher regulatory costs would be far from ideal. That's especially true given that our longer-term gripe with Experian is that margins have remained stubbornly flat.

Nonetheless, we continue to believe Experian has a bright future. Big data is an increasingly important part of an ever-growing number of industries, and Experian's steady growth is testament to its willingness to innovate and enter new markets.

That potential does mean the group is on a comparatively high rating, with a price to earnings ratio of 21.8 times. The shares offer a prospective yield of 2%.

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Growth in full year revenues, which now stands at $4.7bn, was driven by organic growth from the group's business-to-business units while declines in the Consumer Services business began to slow.

All regions delivered positive revenue growth, led by 11% growth in the small EMEA/Asia Pacific unit, with the UK bringing up the rear at 1% following Consumer Services headwinds. The important North American business, which accounts for 57% of revenue, saw 8% growth.

Operating costs rose 7.6%, with margins broadly flat as a result at 27.7%.

Underlying operating profit of $1.3bn was driven largely by strong performances in the US and Latin America - which combined account for around 80% of operating profits. Experian continues to convert a significant proportion of that profit to cash, with cash flow of $1.2bn representing a cash flow conversion of 93%.

The group completed $305m of acquisitions and investments in the period. That includes the purchase of Clarity Services - a provider of non-traditional credit data in the US - and UK credit comparison business ClearScore in the UK.

The group finished the year with net debt of $3.4bn, equivalent to 2.1 times EBITDA (earnings before interest, tax depreciation and amortisation), at the lower end of its 2-2.5 times target range.

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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 disclosure for more information.