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Experian - Revenue ticking over nicely across the board

Nicholas Hyett | 17 January 2019 | A A A
Experian - Revenue ticking over nicely across the board

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Experian Plc Ordinary USD0.10

Sell: 2,514.00 | Buy: 2,516.00 | Change -154.00 (-5.77%)
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Excluding the impact of exchange rates, total revenue in the three months to 31 December rose 9% year-on-year. With particularly strong results in North America and the Decisioning business.

Negative currency movements, particularly in Latin America, meant reported revenue rose just 5%.

The shares rose 1.7% 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 annualising that strategic shift now. US Consumer seems to have turned the corner while UK revenue should return to positive territory soon.

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.

We think Experian is a high quality business, and long-term winner. However, that potential means the group is on a comparatively high rating, with a price to earnings ratio of 22.2 times compared to a longer run average of 17.1. That adds a degree of short term risk and means the shares offer a prospective yield of 2%.

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Third Quarter Trading Update

North America revenues rose 12% in Q3. B2B revenues rose 12% thanks to strong growth in credit volumes, trended data and new product introductions. Experian's non-traditional credit data provider, Clarity Services, performed well, as did the newly launched Ascend analytics-on-demand platform.

North American Consumer Services also grew 12%, as adoption of Experian's new products increased. The new CreditMatch product (which matches consumers to relevant products) is reportedly gaining scale, while the free membership base reached 17m.

Organic revenue grew 4% in Latin America, although exchange rate movements meant there was an 11% decline in reported currency. Brazil delivered low single digit organic revenue growth, led by contracts with major institutions, with some modest improvements among small and medium sized businesses. Consumer revenues rose significantly, but from a small base.

In the UK & Ireland, revenues rose 3%, driven by 4% growth in the B2B business. The rate of decline moderated in Consumer Services - falling just 1%.

EMEA/Asia Pacific saw revenues rise 9%, with strong results form the core offering and newer activities, such as digital marketplaces.

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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.