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Experian - Consumer services growth pads profits

Underlying revenue rose from $5.3bn to $6.3bn, in line with guidance and reflecting organic growth of 12%.

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Underlying revenue rose from $5.3bn to $6.3bn, in line with guidance and reflecting organic growth of 12%.

Consumer Services was the standout performer, but there was strong growth in all geographical segments and product areas. This fed into a 19% increase in underlying operating profits to $1.6bn.

The group announced a second interim dividend of 35.75 cents, a 10% increase.

Experian expects organic revenue growth of 7-9% this year with modest margin improvements.

Shares were down 3.1% following the announcement

View the latest Experian share price and how to deal

Our View

Experian's been riding a wave of increased borrowing as the global economy sputters back to life following the pandemic. The group's position as a digital middleman between borrowers and lenders has been a sweet spot as demand for data from both sides continues with strength.

The revamped Consumer business has been a big winner more recently, after a long period in the doldrums. Credit matching has become more attractive as lending criteria ease and more consumers have been searching for credit cards and personal loans.

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.

We're particularly encouraged by the improvement in the UK ;amp Ireland. Not only is revenue moving in the right direction, but a far reaching transformation programme means margins improved substantially.

Longer term, we think the trends underpinning Experian's business model, like online shopping and working from home, are here to stay. 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. Plus, the group's business is critical as economic conditions worsen. Effectively evaluating the health of customers is all the more critical for banks and other lenders as belts start to tighten.

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 like Buy Now Pay Later should provide long term growth opportunities.

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 has been rapped on the knuckles by UK regulators for breaching GDPR rules. It's not an insignificant risk and increases in regulatory costs can't be ruled out either.

The market hasn't been overly impressed with Experian's growth forecasts and modest margin expansion, which is evidenced by a valuation that's inline with the long-term average. However, many businesses can't deliver top and bottom growth given the current conditions.

Experian key facts

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.

Full Year Results (Underlying and Organic)

Organic revenue growth in B2B was 9%, reflecting strong volumes in Data as the economy improved in most geographic segments. Vertical Markets also had a strong performance with Health leading the way due to increased investment in the US and Covid-related tailwinds. Customer Services organic revenue rose 22% with free memberships growing by 24m to 134m.

Revenue in North America (65% of revenue) rose 13% to $4.1bn with double digit increases in both B2B and Consumer Services. Within B2B consumer re-financing activity was a drag on results, which is expected to continue again this year. However, this was more than offset by growth in short-term lending data and the Buy Now Pay Later segment. Consumer services was the fastest growing segment as free memberships and premium upsells rose. Operating profits for the region rose 15% to $1.4m, despite costs associated with developing an insurance marketplace.

UK and Ireland (14% of revenue) operating profits were up from $123m to $188m and margins improved to 22.2% from 16.7%. Revenue rose 11% to $847m, reflecting strong growth in Consumer Services as the group added 1.5m new free members. B2B revenue was also higher as the group added new business from a wide range of sectors including Buy Now Pay Later, Fintech and traditional banking.

An expanding portfolio in Latin America (13% of revenue) helped revenue rise 17% to $791m.The economic recovery helped B2B revenue rise 14% and consumer services saw revenue growth of 40% driven by the expansion of the group's debt resolution service. Operating profits rose 27% to $223m and margins improved to 28.2%.

EMEA/Asia Pacific (8% of revenue)saw revenue rise 3% to $507m and the group's focus on streamlining the portfolio meant the region broke even on an operating level, compared to a $27m loss last year.

Underlying free cash flow rose from $1.1bn to $1.3m, reflecting improved profits. This fed into a small decline in net debt to $4.0bn or 1.9 times underlying cash profits, below the targeted 2.0-2.5 range.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Laura Hoy
Laura Hoy
ESG Analyst

Laura is part of HL's ESG analysis team, working to offer research and analysis to help with sustainable decision making. She also works with other parts of the business to help integrate ESG.

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Article history
Published: 18th May 2022