RELX plc (REL) ORD 14 51/116P

RELX has reported a “strong” start to the year as it continues to transition towards higher growth analytics and decision tools.

There was broad-based growth across all categories. The largest segment, Risk, saw “strong” underlying revenue growth which continued to be led by Financial Crime & Compliance and digital Fraud & Identity solutions.

RELX has confirmed its full-year guidance for “strong” underlying revenue growth across all categories, with underlying operating profit growth slightly exceeding underlying revenue growth.

The shares fell 1% in early trading.

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.

Growth last year came from all fronts, with the Exhibition business leading the way. It's encouraging to see the recovery from Covid is still in full swing, but it's 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 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.

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. Add in a strong balance sheet and shareholder returns are well supported. There’s a modest 2.0% forward dividend yield on offer and buybacks are also an important part of the returns strategy. The group returned £800mn last year buying back shares, and the plan is to buy back £1bn worth over 2024. 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 build and train AI tools on top of it. Lexis+ AI is the shiny new AI-driven platform available for legal users, and the roll out is continuing to do well.

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 26 times expected earnings has continued its march above the long-term average. That adds pressure to deliver and increases the chances of short-term volatility.

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