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Experian - North America drives double digit growth

Nicholas Hyett | 13 November 2018 | A A A
Experian - North America drives double digit growth

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Experian Plc Ordinary USD0.10

Sell: 2,464.00 | Buy: 2,465.00 | Change -54.00 (-2.14%)
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Revenues in the first half rose 9% at constant exchange rates, to $2.4bn, with growth across all regions. Operating profits rose 10% to $649m, with earnings per share up 12% thanks to Experian's share buyback programme.

The group announced an interim dividend of $0.14 per share, up 4% on last year.

The shares rose 4.4% in early 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 (B2B) sales are growing nicely, helped by expansion into new geographies. Latin America has been a particular success and now accounts for approaching 20% of profits despite economic turmoil 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 seems to have turned the corner while UK revenue is expected to start growing again in the second half of this year.

Cybercrime is a potential concern given the large quantities of personal data Experian holds. 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 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 means the group is on a comparatively high rating, with a price to earnings ratio of 21.4 times compared to a longer run average of 19.5. The shares offer a prospective yield of 2%.

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Half Year Results - Constant Exchange rates

Revenues were driven by 10% growth in North America, while EMEA/Asia Pacific also grew quickly, although remains a small component of the wider group. The UK & Ireland delivered 3% growth in total revenues despite consumer continuing to slip, down 6% in the half, while the North American Consumer business delivered a robust 8% growth in revenues.

North American remains by far the largest contributor to group profits, and at $492m were 20% ahead of the year before. Operating profits in Latin American ($98m) and the UK & Ireland ($103m) fell 2% and 14% respectively. Losses in EMEA/Asia Pacific were steady at $9m, while central corporate costs totalled $35m.

Free cash flow rose 17.3% to $339m, although $107m of share repurchases and the dividend meant net debt increased $100m to $3.5bn.

Management now expects full-year organic revenue growth to be in line with the first half and at the top end of previous guidance. Operating profits are expected to grow at least as strongly as revenues.

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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 for more information.

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