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Experian - growth in all regions and segments

William Ryder, Equity Analyst | 15 July 2021 | A A A
Experian - growth in all regions and segments

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Experian Plc Ordinary USD0.10

Sell: 2,498.00 | Buy: 2,501.00 | Change -13.00 (-0.52%)
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Experian's total revenue was up 31% for the first quarter and organic revenue growth, which ignores the impact of acquisitions and exchange rates, was 22%. All regions and segments grew during the period.

Experian now expects full year revenue growth of 13-15%, of which 9-11% is expected to be organic.

The shares rose 3.8% in early trading.

View the latest Experian share price and how to deal

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 became more attractive as more consumers have been searching for credit cards and personal loans as lending criteria ease.

In North America the Consumer division has 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 make 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 rapped on the knuckles by UK regulators last year for breaching GDPR rules. 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 55% ahead of its long run average. In the most recent trading update, the group says it expects ''strong'' operating margin growth alongside revenue growth. We look forward to seeing some progress here because, ultimately, Experian needs to deliver steady, and ideally growing, margins to justify its valuation.

Experian key facts

  • Price/Earnings ratio: 33.6
  • Ten year average Price/Earnings ratio: 21.7
  • Prospective dividend yield (next 12 months): 1.3%

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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First quarter trading update

North America (65% of revenue) delivered organic revenue growth of 22%, with strong growth in both primary segments. The B2B (business-to-business) division saw revenue grow 19% as lending clients started looking for customers again. Demand was also strong for the cloud platform Ascend, which offers fraud and identity management services. 28% growth in Consumer Services was driven by increased membership and credit volume.

Organic revenues rose 25% in Latin America (12% of revenue), reflecting 18% growth in B2B and 107% growth from Consumer Services. The Consumer business did especially well in Brazil, where more people are comparing credit services online.

The UK & Ireland (14% of revenue) recorded organic revenue growth of 20%. B2B was up 15% as clients reactivated lending programs, and the Consumer division grew 37% as transaction volumes bounced back.

EMEA/Asia Pacific reported organic revenue growth of 19%, although revenue grew 61% if acquisitions in Spain and Germany are included. Although the recovery remains slow in countries dealing with low vaccination rates and new coronavirus strains, bureau and decisioning volumes have ''generally recovered across most markets''.

Find out more about Experian shares including how to invest

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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