Experian Plc (EXPN) Ordinary USD0.10
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HL comment (15 May 2019)
Fourth quarter revenue growth of 10% was ahead of the 9% achieved for the full year, both at constant exchange rates. Underlying full year revenue hit $4.9bn, while operating profits rose 10% to $1.3bn.
The final dividend rose 4% to 32.5 US cents per share.
The shares were broadly flat in early trading.
Our View
Credit data is 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 and now accounts for 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 whole 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. After a tough couple of years US Consumer has turned the corner, with various new product lines delivering healthy growth, while UK revenue should return to positive territory soon.
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.
However, that potential means the group is on a comparatively high rating, with a price to earnings ratio of 25.5 times close to an all-time high. That adds a degree of short term risk and means the shares offer a prospective yield of just 1.7%.
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Full year results (constant exchange rates)
North America saw full year revenues rise 11% to $2.9bn, with good growth across the board. Data benefitted from the launch of Experian's big data platform and integration of additional data from Clarity Services.
New consumer offers continue to grow in the US, with credit comparison and matching services doing well. That supported a 14% improvement in overall operating profits from North America, which hit $940m.
Underlying revenues in Latin America rose 6% to $707m, with very strong growth in the Decisioning business. Political disruption in Brazil, the largest market in the region, is receding. Operating profits of $231m were 9% ahead of last year.
Revenues of $813m were 4% ahead of last year in the UK & Ireland, as a good result in B2B offset a 4% decline in consumer revenues. The strong B2B performance reflects increased credit check volumes and the introduction of Experian's big data platform. Operating profit fell 1% to $230m, reflecting the decline in higher margin consumer revenues and increased investment.
EMEA/Asia Pacific revenues rose 14% year-on-year to $422m, with good results from Decisioning. The region posted operating profits of $3m.
Free cash flow was 1% lower than in 2017 to $907m, due to higher interest and tax payments. That fed through to a 3.9% decrease in net debt, to $3.3bn, equivalent to 2 times EBITDA (earnings before interest, tax, depreciation and amortisation).
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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