Thomson Reuters Legal growth accelerates Thomson Reuters reported strong Q2 results to coincide with the sale of its stake in Refinitiv to the LSE. On the back of reporting 4% organic growth for the group (which is now dominated by its Legal and Tax businesses that compete with RELX and Wolters Kluwer respectively), it modestly raised its FY organic revenue growth guidance to 3.5-4.0% (50bp higher than previously). The ‘Legal Professionals’ business saw a pick-up to 4% organic growth in Q2 (vs Q1 at 3% and RELX at 2% for H1), although this is flattered by the recent creation of the separate ‘Global Print’ division (-3%) where Thomson Reuters has put all of its declining print assets. Competition builds In Legal, management highlighted that better growth reflected share gains from both faster-than-expected take-up of its AI-enabled Westlaw Edge platform by small/mid-sized firms and better customer retention rates. The improving trend should be further supported by the recent launch of its latest AI-enabled Legal product & recent purchase of a fast-growing Legal software business. These factors should be a reminder that the competitive environment for RELX in Legal must be getting tougher now Thomson Reuters can focus time and capital there (rather than fixing the financial information business), limiting the scope for further growth acceleration/margin expansion. At the same time, greater use of AI in the legal industry is providing opportunities for new entrants, such as Casetext, to attempt to build market share. Marginal gains get harder Even ignoring competition, margin expansion in Legal will become more difficult to come by in our view. RELX itself highlights that the cost savings from decommissioning old IT platforms in Legal are coming to an end, but at the same time, as the roll-out of the new IT platform completes, we expect divisional depreciation to accelerate towards the much higher level of capex over recent years, adding a further cost headwind. These Legal issues encapsulate our broader view on RELX – it remains a high-quality company with robust structural growth drivers, but this does not make it immune to cyclical (in the Risk division for example) or competitive pressures which may cause the recent track record of earnings growth to moderate somewhat. The valuation at 20x FY20E earnings arguably leaves little room for disappointment.