RELX released a first quarter trading update ahead of its Annual General Meeting.
All four business units delivered growth. The standout mentions go to Legal (20% revenue) where new AI solutions are being rolled out and Scientific, Technical & Medical (32% of revenue) which saw very strong growth in research article submissions.
The outlook for the full year is unchanged. The group expects “strong” underlying growth in revenue and underlying operating profit (analysts expect mid-high single-digit percent growth for both).
The shares rose 0.6% in early trading.
Our view
RELX delivered a decent first-quarter update, with growth trends looking positive across its business units. We were happy to see some upbeat commentary around academic article submissions, an area some have been questioning of late, given the rise of AI.
RELX provides critical data analytics services to top insurance companies, law firms, and academic institutions.
Its fully digital products are the real lever, accounting for 83% of group revenue. 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.
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.
We’ve also been pleased with the continued evolution of the Exhibition business (13% revenue). It's not just face-to-face activity driving growth. The space is becoming increasingly digitised, and the new streamlined operation means margins have been improving. We see this as a key area where RELX can continue to bring the offering into the digital age.
Earnings are very high quality, meaning almost all of the group's operating profit is backed by operating cash flow. Cash demands are split across internal and external investment to grow the business and then areas like debt management and returns to shareholders.
Recent balance sheet improvements allow a shift toward shareholder returns. There’s a modest 1.8% prospective dividend yield on offer, plus the buyback was given a hefty 50% increase for 2025 – though nothing is 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 but not something RELX is new to. Having huge troves of data starts to really shine through when you build and train AI tools on top of it. The AI rollout is still in its early phase, so there are some risks on the execution side to keep an eye on.
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 the valuation at around 29 times expected earnings adds pressure to deliver and increases the impact of any missteps.
Environmental, social and governance (ESG) risk
The commercial services industry is low/medium risk in terms of ESG. Social and governance risks are the most acute - like product governance, data privacy & security, and labour relations - as exposure to environmental risks is minimal. Companies operating within facilities maintenance are also exposed to community relations and emissions risks.
According to Sustainalytics, RELX’s overall management of material ESG issues is strong.
In 2022, RELX’s board reviewed the company’s progress on sustainability and social responsibility goals, with regular updates from the global head of ESG. The CEO and CFO’s annual incentives are now tied to non-financial targets like carbon reduction and responsible sourcing. Employees receive training on data privacy, security, and business ethics, with a global mentorship programme and regular employee surveys to support human capital management.
RELX key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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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