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Experian - credit demand remains, on track for guidance

Experian reported third quarter organic revenue growth, excluding the impact of exchange rates, of 6%.

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Experian reported third quarter organic revenue growth, excluding the impact of exchange rates, of 6%. That was in line with company expectations and reflected growth across all business segments and geographies.

Latin America was the standout region, with organic growth of 16%. That was driven by a 40% improvement in Consumer Services revenue as free memberships in Brazil rose to 78m.

Both North America and UK & Ireland saw a continued tightening of credit criteria, but the bulk of lenders were still extending credit. UK & Ireland suffered from October's lending market disruption, which contributed to an 8% decline in Consumer Services organic revenue.

Full year expectations remain unchanged, for organic revenue growth of 7-9% and a modest improvement in margins.

The shares were broadly flat in early trading.

View the latest Experian share price and how to deal

Our View

Third quarter results saw Experian's robust performance continue and full year guidance remains on track.

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, as the world continues to digitise, we think the data led solutions that Experian can offer to businesses are likely to keep increasing in demand. Plus, the group's business products are critical as economic conditions worsen. Making better lending decisions is 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 first half. The balance sheet's looking healthy too, with net debt relative to underlying cash profit being sub 2 times last we heard, 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.

One thing to be wary of (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 likely in the short-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
Senior 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: 17th January 2023