Experian Plc (EXPN) Ordinary USD0.10

First quarter underlying revenues rose 6% year-on-year, with good growth in both business-to-business (B2B) and Consumer Services (up 6% and 8% respectively).

Guidance for the full year remains unchanged.

The shares were down 2.3% in early trading.

Our View

Credit checks are still Experian's bread and butter. But with big data playing an increasingly important role in all walks of life, it's turning its data mining expertise to marketing and analytics as well.

Business-to-business (B2B) sales are growing nicely, helped by expansion into new geographies. Latin America has been a particular success, accounting for around 16% of profits despite economic and political turmoil in Brazil, the region's biggest market.

However, it's not all been plain sailing. A few years ago rivals began offering free consumer credit checks in the US and UK, undermining Experian's subscription service and blowing a massive hole in higher margin consumer revenues.

Experian has responded with its own free product, and plans to use its large audience to cross-sell advanced credit products and price comparison services. With both the US and UK back in growth, albeit from a far lower level, investors can return their focus to the secular growth in the B2B business.

Given the large quantities of sensitive personal data Experian holds, perhaps our biggest concern is the group's exposure to cybercrime. Rival Equifax has already been caught out, and higher regulatory costs would be far from ideal - especially since our longer-term gripe with Experian is that margins have remained stubbornly flat.

Nonetheless, we continue to believe Experian is a high-quality business and has a bright future. Big data is an increasingly important part of an ever-growing number of industries, and Experian's steady growth is testament to its willingness to innovate and enter new markets.

That potential means the group is highly rated, with a price to earnings ratio of 27.9 times close to an all-time high. That adds a degree of short term risk, because anything other than perfect delivery risks a de-rating and share price fall, and means the shares offer a prospective yield of just 1.6%.

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First Quarter Results

Experian's North American business saw revenue rise 8%. B2B revenues rose 8% on strong credit volumes, with the modular Ascend product continuing to perform well. Consumer Services revenue grew 9%, reflecting growth in CreditMatch as well as identity and partner solutions. Around 21m US consumers are now signed up to Experian's free membership platform.

Latin America saw revenue rise 9%, driven by Brazil. Free memberships increased to 34m at the end of the quarter.

Organic revenue was flat year-on-year in UK and Ireland, as a poor result in B2B Decisioning, which saw revenues fall 13%, offset better results elsewhere. Consumer organic revenues returned to growth in the quarter, up 1%, with free subscribers of 6.1m driving growth in CreditMatcher.

A 1% decline in EMEA/Asia Pacific organic revenue was driven by a weak Decisioning result, as the group lapped a strong comparable result last year. Management see a good pipeline of opportunities going forwards.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. 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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