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Experian - H1 profits rise, guidance remains

First half underlying revenue came in at $3.2bn.

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First half underlying revenue came in at $3.2bn. That reflected organic growth of 8%, with Latin America the standout - though, all regions saw growth.

Consumer Services saw organic revenue growth of 12% to $887m. The group added 11m new members to its free service, taking the total to 145m.

Business to Business grew revenue to $2.3bn, reflecting 7% organic growth. Performance was driven by growth across both the Data and Decisioning business segments.

Underlying operating profit rose 8% to $881m, as revenue growth outpaced higher costs.

The group generated free cash flow of $474m, broadly in line with last year. Net debt decreased from $4.3bn to $4.1bn as some debt was paid down and there was a positive benefit from exchange rate moves.

Full year guidance remains unchanged, with organic revenue growth expected between 7-9%, total revenue growth of between 8-10% and modest margin improvement.

The board has announced a 17 cents per share dividend, up 6%.

The shares were broadly flat following the announcement.

View the latest Experian share price and how to deal

Our View

Experian had a decent first half, maintaining momentum despite consumers and businesses dealing with higher inflation and rising costs.

The threat of a global downturn very much remains, though, but as consumers work through their savings and look to borrowing to finance their lifestyles, Experian's in a position to get some relief there. Lenders are starting to adjust risk appetite, favouring borrowers with less credit risk, which is where a range of Experian's services can help.

We've been pleasantly surprised by the extent of the success for the Consumer business. This division was given some real TLC in recent years and that work has paid off. We also view this area as a very strong asset for the long term. As people become more financially knowledgeable, with education around personal finance becoming more mainstream, Experian's primed to benefit.

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 products are 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.

There are further opportunities as new technologies take hold too. Open banking, which allows you to give third parties access to your bank account transactions, has been around in the UK for a few years but is in its relative infancy globally. Experian uses open banking as part of its 'boost' service, helping customers improve their credit scores by giving access to more data. That's just one example of value-added services that have long been a driving force for growth as data becomes more readily available and technology evolves.

Experian remains a strong cash generative business, with cash conversion coming in a little shy of 90% over the half. The balance sheet's looking healthy too, with net debt relative to underlying cash profit being sub 2 times, slightly better than Experian's internal targets. That gives scope to weather any storms and look for acquisition targets should any present themselves. The group spent $287m on acquisitions in the first half looking to build out the verification services offering in the US.

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 group's valuation's come down this year, though is still a touch higher than the long-term average. We continue to think Experian has a strong product and much improved operating model which should be considered a long-term benefit. However, ups and downs are increasingly likely in the medium-term.

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.

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
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 16th November 2022