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Experian - revenue and profits still ticking over

Nicholas Hyett, Equity Analyst | 19 May 2021 | A A A
Experian - revenue and profits still ticking over

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Experian Plc Ordinary USD0.10

Sell: 2,498.00 | Buy: 2,501.00 | Change -13.00 (-0.52%)
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Experian reported full year revenues of $5.4bn, up 7% at constant exchange rates with organic growth of 4%. That reflects strong growth in North and South America, more than offsetting declines in the UK & Ireland and EMEA/Asia Pacific.

Underlying operating profits of $1.4bn rose 3% year-on-year.

The group announced a final dividend of 32.5 cents per share, taking the full year total to 47.0 cents, unchanged year-on-year.

The shares fell 2.6% in early trading.

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Our View

Experian's recovery since the first months of the pandemic has been remarkable - especially outside the UK. Mortgage volumes have held up well in the US, and products servicing the US healthcare market have delivered the steady growth expected throughout the cycle.

The recently revamped Consumer business has been a big winner too, after a long period in the doldrums. Credit matching has become more attractive as banks become less willing to lend and consumers have a more pressing need for the best possible deal.

In North America Consumer's been helped by the introduction of Experian Boost. Boost allows consumers to add new data sets, such as utilities bills and Netflix subscriptions, to their credit reports. That's likely doing a lot to improve awareness and engagement, while also helping Experian's customers deliver more tailored credit decisions.

It remains to be seen whether Experian can repeat the trick in the UK & Ireland - where Consumer remains something of a dog - but progress in Latin America is stellar with revenues more than doubling.

Longer term, we think the current crisis will accelerate many existing trends, from online shopping to working from home. Most of them generate a huge volume of data, or require significant data analysis to function effectively. That can only be good news for Experian.

Historically Experian has been good at exploiting new markets. Newer healthcare and automotive businesses were boosting business-to-business (B2B) sales before the pandemic. While Automotive sales will always struggle in an economic downturn, the new sectors should provide long term growth opportunities. Latin America has also been a particular success, accounting for around 12% of profits last year despite economic and political turmoil in Brazil, the region's biggest market.

Given the large quantities of sensitive personal data Experian holds, perhaps our biggest concern (aside from a short-term economic slowdown) is the group's exposure to cybercrime. Rival Equifax was caught out a couple of years ago, and Experian was recently rapped on the knuckles by UK regulators for breaching GDPR rules in its UK marketing business. It's a not insignificant risk and increases in regulatory costs can't be ruled out either.

We also worry about the lack of progress on margins - especially given the company's PE ratio is now some 50% ahead of its long run average. This year's third quarter results encapsulate the problem nicely. Sales were ahead of expectations but profit guidance is unchanged - suggesting margins have actually deteriorated. That can perhaps be forgiven in the middle of a crisis, but ultimately the group needs to deliver steady and ideally growing margins to justify its valuation.

Experian key facts

  • Price/Earnings ratio: 32.1
  • Ten year average Price/Earnings ratio: 21.4
  • Prospective dividend yield (next 12 months): 1.4%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Full Year Results

North America reported revenues of $3.5bn, with organic growth of 7% year-on-year. That was driven by a 16% increase Consumer Services revenue, thanks to the continued expansion of Experian Boost, and positive performance across B2B as well. The recently launched Health business delivered a strong result, while automotive proved "resilient" despite volatility during the year. Operating profit rose 10% to $1.2bn.

Organic revenues rose 9% in Latin America to $625m. B2B sales rose 1%, with good results in Automotive and Decisioning offsetting weakness in traditional credit bureau in Brazil and across the region. Consumer revenues rose 144%, with new lenders attracted to the group's platforms by growth in the free membership base, now at 59m. Operating profits in the region came in at $172m, up 4% year-on-year.

The UK & Ireland reported revenues of $737m, a 6% fall year-on-year, with both B2B and Consumer revenues down 6%. That reflected tight credit conditions early in the year and the effects of the pandemic on Experian's marketing business. Experian Boost launched in the UK during g the year. Operating profits in the region came in at $122m, down 34% year-on-year, reflecting lower revenue but also lower margins as the group incurred significant technology transformation costs.

EMEA/Asia Pacific reported revenues of $465m, with a 14% decline in organic sales offset by recent acquisitions. The region struggled with lower credit volumes and reduced client investment in new software. Operating profits fell from $12m a year ago to a $20m loss.

As a whole Experian reported an operating profits margin of 25.9%, down one percentage point from last year. This reflects "deliberate action to support . . . people through the crisis, increased marketing investment and investment to support new product innovation and technology transformation."

Underlying free cash flow in the year came in at $1.1bn, up 45.2%. That reflects lower capital expenditure, improved working capital, and lower interest and tax bills.

Net debt at the end of the year stood at $3.8bn, down from $3.9bn, with net debt to cash profits (EBITDA) of 2.2 times.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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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