RELX plc (REL) ORD 14 51/116P

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RELX reported underlying revenue growth of 7% over the first nine months of the year, in line with market expectations.

The Legal division grew at the fastest pace, up 9%, driven by a shift in business mix towards higher growth, higher-value legal analytics and tools. Growth rates in the other three divisions were all in mid-to-high single-digit territory.

Guidance for the full year is unchanged, pointing to “strong” increases in underlying revenue and operating profit.

The shares were down 1.4% in early trading.

Our view

RELX continues to demonstrate its strengths, with trading over the first 9 months looking strong across the board. We were pleased to hear positive commentary on the AI rollout in the Legal division, but some may have wanted a few more specifics.

RELX provides critical data analytics services to top insurance companies, law firms, and academic institutions. The company has a large competitive moat due to its proprietary, hard-to-replicate, data and its sophisticated analysis that produces valuable customer insights. Its fully digital products are the real lever, accounting for 84% of group revenue - this is the area we're most excited about.

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 (12% 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 2.0% prospective dividend yield on offer, plus the buyback was given a hefty 50% increase for 2025 – though nothing is guaranteed.

Improving data analytics, with AI as a key element, will drive future growth. Given the boom we've seen, this is an exciting area, but it's 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 and high-quality earnings are key attractions, and data analytics is an area we see growing. Recent weakness looks overdone, and we see upside on offer if RELX can keep delivering and, importantly, start to showcase a material impact from AI. Of course, there are no guarantees.

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.

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 LSEG. 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.

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