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Relx - solid Q3 sees full year outlook intact

Relx's underlying revenues have grown 8% over the first nine months of the year.

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Relx's underlying revenues have grown 8% over the first nine months of the year. Its smallest business, Exhibitions, was the star performer growing 32%, with event revenues remaining above pre-pandemic levels.

Revenue growth in the three analytics businesses (Legal, Scientific and Risk) were all in mid-to-high single-digit territory. The initial testing of Relx's AI powered legal assistant has "progressed well".

The full-year outlook is unchanged with growth in revenue and underlying operating profit expected to remain above historical levels.

The shares fell 1% following the announcement.

View the latest Relx share price and how to deal

Our view

Relx, a leading data solutions provider, operates across four main segments: Risk, Legal, Exhibitions and Scientific, Technical & Medical (STM). The company provides critical data analytics services to top insurance companies, law firms, and academic institutions.

Strong momentum of the group's Exhibitions business continued into the third quarter. It's encouraging to see the recovery from Covid in full swing, but its not just face-to-face activity driving the growth. The space is becoming increasingly digitised and the new streamlined operation means margins are set to improve from pre-pandemic levels. It's a relatively small piece of the pie, but enough to move the dial.

Its digital products are the real lever though, accounting for 84% of group revenue at the last check. This is the area we're most excited about. The company has a large competitive moat due to its proprietary, hard-to-replicate, data and its sophisticated analysis that produces valuable customer insights. That's one of the reasons it can offer cutting-edge products.

Data analytics is also a relatively anti-cyclical area, meaning it tends to be essential irrespective of economic conditions. Plus, over 50% of the company's revenue comes from recurring subscription models, providing stable and predictable cash flows.

Being weighted heavily toward electronic services has other benefits too. Earnings are very high quality, meaning almost all of the group's operating profit is backed by operating cash flow and it doesn't cost much to keep things running. That helps support the 2.2% prospective forward yield, and helps pave the way for buybacks such as the one currently underway. As ever, no returns are guaranteed.

Future growth is going to be driven by improving data analytics, the use of AI being a key element. It's an exciting area given the boom we've seen this year but not something Relx is new to. Having huge troves of data starts to really shine through when you can apply AI, so we see the suite of products continuing to improve from here.

We like the business. Recurring revenue, as well as high quality earnings, are key attractions and providing data analytics is an area we see growing. But there's no such thing as a free lunch, and the valuation at around 24 times expected earnings has continued its march above the long-term average, suggesting that investors see some upside to analyst forecasts. That adds pressure to deliver and increases the chances of short-term ups and downs.

Relx 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
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 19th October 2023