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Relx hosted an investor seminar focused on AI in the Legal division On 31 Oct, Relx Legal CEO and Head of Product hosted an investor seminar focussed on how AI is contributing to faster growth and higher cost efficiency. While there was little new information disclosed, the overall tone was supportive. Management focus is on continuing to improve organic revenue growth from the current 7% In our view, the two main takeaways were: 1) The ARPU uplift when moving from Lexis+ to Lexis+AI is higher than when clients move from Lexis Advance to Lexis+. 2) Management also indicated that electronic reference revenues (est.30-40% of divisional revenues) were benefiting from a growth pick-up when integrated into Lexis+ and Lexis+ AI. From this, we conclude that with an average contract length of 3 years, most of the Gen AI acceleration is likely to be ahead and reaffirm our above-consensus forecast of 8% organic revenue growth in Legal in FY25. A long-term roadmap to develop more Gen AI assistants Management announced the commercial launch of Protege (the third instalment in Relx Legal AI products based on personalised Gen AI) for early 2025. It also presented a roadmap for developing additional Gen AI assistants for ''thousands of specific personas and tasks''. Like in previous Risk seminars, management talked of ''a decade or more'' of faster growth. Gen AI also contributes to improved cost efficiency Relx has deployed Gen AI modules internally to improve editorial processes and streamline software coding and debugging. Internal efficiencies are likely to support further margin expansion in our view. Relx claims market-leading position Management pointed to its proprietary content and its modern, flexible, scalable, modern tech platform as drivers of its rapid pace of AI innovation. We maintain our Outperform rating.
RELX PLC
We reaffirm our Outperform rating ahead of 9M update and investor seminar Relx is reporting a 9M trading update on October 24th and hosting its annual investor seminar on October 31st. We expect a consensual 7% organic revenue growth for 9M and expect management''s presentation on the Legal division to support our thesis of structurally improving organic revenue growth rates. We reaffirm our Outperform rating on the stock with an unchanged TP of GBp 4,000. Faster for longer in Legal After a stronger-than-expected H1 24 orgrev growth performance, we believe that Relx''s Legal division (20% of group revenues) is likely to accelerate to 8% next year (vs. VA at 7%). Our view is supported by our price tracker and based on the improvement in the product mix. AI drives ARPU and leads to faster organic revenue growth. We see particularly strong adoption of Lexis+AI with small law firms (c40% of revs) and accelerating adoption with big law firms. STM to accelerate in FY25 Our BNPP Open Access monitor suggests Relx is gaining share in Open Access as ytd volume growth is over 40%. We find evidence that countries under Transformative Agreements grow faster than countries under national subscription licenses. We see a low risk of negative surprises on ongoing large national license contract renegotiations. A higher base of OA and Databases and Tools revenues and a lower base of declining Print revenues bode well for faster growth in FY25. We expect STM orgrev growth to accelerate to 5% in FY25, ahead of current cons forecasts of 4%. Valuation metrics stabilising Relx trades on FY25 PE of 25x and offers a 3.8% Eq. FCF yield. After a phase of rapid PE expansion in FY23, Relx''s forward PE has stabilised in the mid-20s this year. Its market-relative PE has declined by c10%pts over the last 3 months. With double-digit TSR expected in FY24 and FY25, we argue valuation remains justified, if not attractive, compared to US information services companies.
Relx reported solid H1 results on margin beat Organic revenue growth of ~7% came in line with expectations while adj. EPS beat by 1%. This was largely driven by 110bps group margin expansion yoy (vs. consensus 30bps) on a combination of higher margins in Exhibitions coupled with stronger operating leverage and cost efficiency gains. Legal growth acceleration Legal organic revenue growth has accelerated to 7%. This is largely driven by the shift to Lexis+ with some initial revenues from Lexis+AI. Management''s narrative on GenAI is unchanged. We continue to anticipate a further acceleration to a peak of 8% next year. STM likely to accelerate too, but in FY25 Article submissions to Elsevier were up 20% in H1 24 after 12% growth in FY23 and 7% in FY22. This acceleration bodes well for the long-term value of this business. With the mix shift towards higher growth revenue streams accelerating (faster electronic growth, faster print decline in H1), we continue to believe that STM will accelerate to 5% in FY25 but have reduced our FY24 forecasts from 5% to 4%. Exhibitions: faster growth and higher margin business With over 500bps margin expansion in H1, RX beat expectations to an even greater extent than Informa Markets yesterday (c.200bps). FY top-line growth is likely to slow down in H2 with seasonally lower margins than in H1. Outperform reaffirmed As in the past, Relx''s H1 24 was solid but not spectacular. The AI story is unfolding nicely. The stock trades on a 3.8% FY25 Eq FCF yield, an attractive level for a GenAI winner offering a total shareholder return of c.15% pa. We reaffirm our Outperform rating with an unchanged TP of 4,000p on the back of nominal estimate revisions.
H1 results broadly robust RELX have reported headline revenues of £4,641m, driven by organic growth of 7% - divisional growth rates (STM +4%, Legal +7%, Risk +8% and Exhibitions +16%) were all in line to ahead of consensus (and the exhibitions growth Informa reported yesterday) but reported revenues were c.2% below consensus. EBITA of £1,583m and EPS of 59.5p were both in line with expectations, albeit with a very strong profit performance in Exhibitions offsetting profits in the other 3 divisions, each modestly below consensus. AI to keep growth accelerating On the outlook, the qualitative commentary continues to be management highlighting positive momentum across the group, as they continue the further shift towards provision of analytical tools and combining their data / content sets with AI technologies. We would expect a key area of questioning at the presentation to be around the take up and monetisation of products such as Lexis+ AI, and the investment going in to support their roll out. Leverage was at 2x at the period end, with £700m of this year’s £1bn buyback done – this leaves plenty of headroom for bolt-on acquisitions to further bolster this process over time. Valuing a global AI winner The stock currently trades at c.18x CY25E EBITDA. As we wrote previously (see RELX.AI), as AI product roll out further accelerates organic growth, we see scope for further re-rating towards the level of US peers with EBITDA multiples in the mid-20s.
RELX PLC Informa Plc
A new Stanford University research paper shows Legal Gen AI tools hallucinate A preprint study from researchers at Stanford''s RegLab and Institute for Human-Centered AI that is currently under review provides the first comparative examination of Legal Gen AI tools and shows that Relx''s Lexis+ AI and Thomson Reuters'' Westlaw Gen AI research tools hallucinate less frequently than ChatGPT. However, it also shows that these tools still tend to hallucinate quite a lot. 17% to 33% hallucination rates The study, based on 202 complex queries, shows that Relx Lexis+AI and Thomson Reuters Westlaw demonstrated hallucination rates (i.e. inaccurate or nonsensical outputs) of 17% and 33% respectively, and only 65% and 42% accuracy rates. We consider these to be very high rates of inaccurate answers and believe such results could cool the hype around Legal Gen AI tools for users and investors alike. We note Relx''s product performed significantly better than Thomson Reuters''. No change in forecasts and views While we admit this study provides a cause for concern, we are not yet changing our outlook. For one, we continue to believe in the productivity gains Gen AI tools offer and point to the many limitations noted by Stanford University researchers in their own study. Secondly, we also note that these tools offer access to the references used by the system and that it is lawyers'' responsibility to check the sources used by the AI. Thirdly, we believe such studies will help vendors improve on the current state of their technology. Fourthly, Stanford noted that the prompts used may not be reflective of the complexity of real-world queries. Effective real-world hallucination rates may actually be lower. Prefer Relx over Thomson Reuters While we believe the study has limited implications at this time, we also see the superior performance of Relx''s product as reinforcing our preference for Relx shares over the more expensively valued Thomson Reuters. Relx''s H1 results...
RELX PLC Thomson Reuters Corporation
Outperform reaffirmed, TP raised to GBP40 (from GBP39) We reaffirm our Outperform rating on Relx and see 20% share price upside potential in the context of further top-line growth acceleration in Legal and STM, which represent a combined 54% of group 2023 revenues. Our analysis of the legal Gen AI opportunity (published today in Legal Gen AI: too big to ignore), our unique access to the 2023 edition of the leading legal information vendor survey and our updated proprietary BNPPE Open Access monitor provide new and supportive evidence. Gen AI to drive a 50% increase in TAM: too big to ignore Based on our analysis of vendor price points and addressable volumes, we raise our legal Gen AI TAM estimate from USD2bn to USD5bn. The forced accelerated migration to Lexis+ is an additional benefit. We expect corporate legal departments, international law firms and product expansion to drive demand. This amounts to a 50% increase in Relx Legal TAM - too big to ignore. Our unique access to a survey of 100 US law firms suggests that Relx is gaining market share on established competitors and that 93% of US law firms expect to procure Gen AI from established vendors. Relx Legal orgrev growth is likely to surprise to the upside in FY24 and FY25. STM to surprise to the upside as Relx gains market share in OA Our updated BNPPE Open Access monitor shows that OA revenues now account for c11% of divisional STM revenues. We expect OA growth contribution to accelerate on pricing, volume and new contracts. More importantly, we see Elsevier claiming back market share on disrupted native OA publishers in Q1 24. STM orgrev growth is also likely to surprise to the upside in FY24. Valuation: 3.6% FCF yield remains well supported Relx trades on a PE24 of 26x and offers a 3.6% FCF yield. Our work leads us to be 4% and 5% ahead of VA consensus EPS on 2024 and 2025 as we see orgrev growth at Legal and STM coming at the top end of consensus expectations. We see valuation supported...
Relx delivered a solid FY23 results Relx reported underlying revenue growth of 8% for FY23 in line with expectations. Group adj. op. margins came 30bps ahead of expectations and drove a 2% EPS beat. All divisions performed in line with or ahead of expectations with Risk at 8%, Legal at 6% and STM at 4%. Exhibitions did better at 30%. Outlook in line Management guided that it expects ''another year of strong underlying growth in revenue and adjusted operating profit''. It commented that: 1) its scholarly journal subscription renewal campaign was running ahead of last year, 2) it has seen very good uptake of Lexis+ AI, 3) Insurance growth was lapping tougher comps but that Business Services had seen accelerating momentum in Risk. Relx expects STM and Legal orgrev growth to gradually accelerate. Exhibitions: a higher growth, higher margin, higher value asset Management is bullish on RX as it expects the division to see higher growth and higher margins than preCovid. We estimate digital products are an increasingly important driver of revenue growth. We think a disposal in FY24 is unlikely but continue to believe it may be on the agenda in the mid term. TP raised to GBP39 suggesting some 15% upside left We have trimmed our EPS on forex and lower-than-expected increase in the share buyback. Our FY24 orgrev growth is unchanged and our group margins are raised by 20bps on RX. Our revised mid term growth forecasts for RX coupled to the SOP/DCF roll over drive most of our TP increase. We continue to see Relx orgrev growth accelerating driven by an improving product mix resulting in higher client retention rates and ARPU. Gen AI is also likely to drive cost efficiency gains. We stand 3% ahead of VA Cons. on EPS24 with higher orgrev growth forecasts in STM (5.1% vs. 4.3%) and Legal (7.1% vs. 6.5%). With 15% upside, Relx remains our top pick in Media and Internet.
Meeting feedback, forecasts updated and new FY25E figures. We saw the results meeting as solid, but with limited new information and comments may not give the bulls much new boost on near term LFL growth expectations. Forecast adj. Basic EPS increases +2%. Hold - we like the RELX strategy, its rela
FY figures marginally better. Modest positive forecast changes expected at this stage. Hold - we like the RELX strategy, its relative defensiveness, and focus on data/analytics, though this looks priced in in our view. SOTP multiples-based PT increases to 3250p (2480p before) as we roll forward num
Estimate changes: RELX Group (REL.L, Price 3160p - Buy - TP: 3650p)
Gen AI is a major USD2bn+ opportunity for Relx''s Legal division, likely to drive top line acceleration and margin expansion, resulting in a material increase in cash returns. Relx remains our top pick in Media and Internet to play the Gen AI theme. We raise our forecasts and TP to GBP35 (vs GBP30). Gen AI to drive a USD2bn+ revenue opportunity Relx is currently developing an ecosystem of Gen AI products. Our industry contacts coupled with our analysis of Legal AI product pricing and AI product adoption curves has us argue that consensus currently underestimates the growth impact of this new technology. We expect Relx group to see top line growth accelerate to 7% pa from FY24 onwards (from 6% initially expected). Margin expansion could surprise on the upside As we enter 2024 Relx margins are likely to benefit from a 50% yoy reduction in its hiring activity as well as an easing of wage cost inflation. Internal Gen AI efficiency initiatives in content creation and curation as well as technology development in customer service should help margin expansion. Consensus expects Relx''s margin expansion to slow down relative to the historical 30bps pa. We expect margin progression to accelerate to 50/60bps pa and raise our EPS and TP to GBP35. Scope for increased cash returns to shareholders Relx''s balance sheet is in strong shape. We expect management to echo Thomson Reuters and Wolters Kluwer capital allocation policies and to increase its share buyback programme by over 50% to GBP1,200m in FY24 and GBP1,500m in FY25, double consensus current forecasts. Attractive defensive secular growth at reasonable price. Gen AI not priced in, in our view Relx PE relative to the Market ex-Financials is lower now than when Open AI announced ChatGPT in November 2022. Relx could look expensive but it is not, in our view, as its fundamentals continue to improve. It is our top pick in Media and Internet to play the Gen AI theme.
The performance we’d expect: RELX reported a robust 8% growth for the 9 months in its trading update yesterday – unsurprisingly, all divisions continued on the same trajectory as seen in H1. The company remains on track to deliver for the FY, but it was encouraging to see both the exhibitions and insurance (within Risk) markets demonstrate good momentum. RELX.AI: Both Legal & STM divisions saw the recent acceleration of growth sustained as the shift towards analytical tools continues. Perhaps more importantly though, management highlighted the good progress of the customer test phase for the new Lexis+ AI legal product (which we expect to start generating incremental revenues in Q4) and the launch of Scopus AI in STM. As we discussed in more detail in our recent upgrade note (here) we believe these can drive further acceleration in growth, making RELX a stand-out global winner in the rise of generative AI. Re-rating towards US peers: On forecasts, we increase revenues and EPS by 2-4% from FY23E onwards reflecting tweaked underlying assumptions and the impact of weaker sterling. The shares had rallied strongly ahead of results, but still now trade at c.16x CY24E EBITDA, a significant discount to the US peer group - we set our new £32 target price broadly in-line with our new SOTP and a target 20x multiple (the low end of the US group).
RELX released organic sales growth figures in line with expectations, confirming the strong momentum seen in H1 23. The guidance was reiterated despite the potential macro headwinds.
9M figures as forecast with trends in line with 1H and FY expectations. No material changes to our forecasts expected. Hold - we like the RELX strategy, its relative defensiveness, and focus on data/analytics, though this looks priced in for now. Multiples based PT 2,480p (u/c).
Meeting Notes - Oct 02 2023
REL INF DATA BCG GPP ATG SFOR TRN NFG AUTO LTG YOU WPP SAA MONY ITV RCH RMV FUTR BMY WIL PSON GAMA WISE RNWH BOO GHH 9L2
After 5 years without access to Elsevier''s core journals, Germany returns The German university library consortium, Project DEAL, announced that it has signed a 5-year scientific journal open access publishing agreement with Elsevier. DEAL has also purchased the Backfile Collection, an Elsevier archive (2003-2022). A large Open Access Transformative agreement In exchange of a per-article charge German researchers within around 900 eligible institutions will be able to publish in more than 2500 of Elsevier''s journals as well as read all articles published worldwide. Per-article charges will vary according to the take-up of this agreement and the type of journal and roughly amount to EUR2500 per article in Hybrid journals (growing to over EUR2800 in 2028 with Cell and Lancet at EUR6450) and to a 20% discount on fully Gold OA journals. We believe these charges are consistent with the implied revenue per subscription article which we estimate at cEUR2800 currently. Agreement adds c1%pt to STM organic revenue growth in FY24 We estimate total annual contract revenues for Elsevier at cEUR30m but we believe that Elsevier has lost 5-10%pts of article share in Germany since 2018 when DEAL stopped subscribing. Including the EUR10m one-off backfile purchase and minor pre-existing revenues, we believe that this contract could add an incremental cEUR30m of revenues in FY24 and probably as much in terms of EBIT. That is an incremental c1% of STM organic revenue growth and 3% of STM EBIT translating into 30bps of orgrev growth at the group level in FY24 and 1% of group EBIT. A deal not in consensus and supportive of faster top line growth ahead We believe this contract was not in VA consensus forecast of 3.7% STM orgrev growth in FY24 and could trigger a c1% EPS upgrade. We also believe this announcement underpins the view that Elsevier is not only able to navigate through Open Access meanders but that like Legal, the STM division is likely to see top line...
Thomson Reuters reports 5% organic revenue growth in Legal. Lexis does better Combining Thomson Reuters Legal Professionals and Global Print, we estimate that Thomson Reuters reported 5% organic revenue growth in Q2 23. Relx Legal - a comparable division - reported 6% organic revenue growth and performed ahead of Thomson Reuters for the first time in several years. Thomson Reuters commented that it expects Q3 orgrev growth to come at the higher end of its FY guidance range. Law firm spending shifting from real estate to technology vendors On its earnings call, Thomson Reuters management pointed that law firms were increasingly reallocating spending away from real estate towards technology: a trend that has recently accelerated and serves both TRI and REL. Gen AI drive customer retention rates and new market opportunities Thomson Reuters management argued that Gen AI would be a positive driver of customer retention rates as well as a driver of new addressable market opportunities. While management wants to build on the 6% top-line growth reported in H1 23 and expects margin expansion in the long term, it indicated that its short-term margin performance could be tempered by AI investments and related acquisitions. Over the medium term, TRI guided that capex to sales would revert to the 9% reported in FY22 vs. 8% in FY23 (and initial guidance last February of 7%) partly on increased AI investments. We note that Wolters Kluwer today suggested that its capex to sales would normalise down from the upper end of the 5-6% range it is guiding for in FY23. Relx: a Gen AI winner REL, TRI and WKL Q2 reports has us reaffirm our view that professional information services vendors are likely to be Gen AI winners. We believe Relx in particular has a strong position and is likely to see top- and bottom-line benefits.
Relx delivers solid H1 results, with growth picking up in Legal Relx reported 8% group organic revenue growth in H1 23 (6% excluding RX) driven by a consensually expected 8% orgrev growth in Risk and 4% in STM. At 6%, Legal beat expectations (VA Cons. at 5%) as it benefits from improving revenue mix. Electronic revenues saw 7% underlying revenue growth. Group Adj. EBITA margins of 33.0% came 30bps ahead of expectations and contributed to a 5% beat at the EPS level. Outlook on RX and Legal raised Like for Informa, management expects RX Chinese revenues to return to pre-Covid levels in 2023, earlier than expected. Management has also raised its RX margin guidance and now expects top-line growth and a streamlined cost base to result in adj. margins above pre-Covid levels (vs. ''close to'' previously). The improvement in Legal organic revenue growth reflects previous innovation and the shift in the product mix towards Legal Analytics. Trends in Risk Business Services have improved in recent months and are guided to remain solid as comps get easier in H2 23. Case on Gen AI growing stronger Relx has contractual and legal protection on its datasets. Disruption is unlikely. Lexis+ AI has seen a very positive customer response, with thousands of law firms registering interest. Management has yet to announce the commercial launch and price point of this new Gen AI product in H2. Relx is in the midst of developing additional niche products using Gen AI in other divisions. FX moves offset small underlying upgrades Our forecasts are unchanged as underlying operating profit upgrades on Legal and RX margins are offset by recent adverse FX movements. We reaffirm our Outperform rating and continue to believe that Relx is likely to be a winner in Gen AI.
The markets are cheering the solid results reported by RELX in terms of revenue and profitability growth across all divisions as well as the announcement of an increase in its interim dividend. The guidance was reaffirmed for the year with the performance expected to be above the historical trend.
1H figures good, a little ahead at every level. Legal the only 'material' difference, with 1H LFL 1% point better. No material changes to forecasts expected ex FX into next year. Hold - we like the RELX strategy, its relative defensiveness, and focus on data/analytics, though this looks priced in,
Relx has a 30+ year history benefiting from AI. We think Generative AI is likely to contribute to higher levels of growth and margin expansion. Recent share price weakness offers a buying opportunity in our preferred Gen AI play in Media. Relx - our preferred Gen AI play within Media We review the implications of Gen AI on professional information vendors and argue that Relx is well positioned to benefit. We raise our TP to GBP30 and see Relx as our preferred Gen AI play in European Media. See also PROFESSIONAL INFORMATION: AI Winners. Fears of disruption look overdone Investors have recently voiced concerns on the impact of Gen AI on the group. These concerns look overdone. Relx owns high-quality, copyrighted training datasets on which AI models are likely to produce more accurate and valuable customer solutions than when trained on public data. The group also benefits from substantial entry barriers, e.g., embedded systems, an established sales force, recognised brands and a solid balance sheet. We view Relx as a likely winner in the Gen AI race. Gen AI to contribute to higher levels of growth and margin expansion We see Gen AI as a further step in the AI innovation spectrum that the company has pursued for many years. We believe this technology will contribute to higher top-line growth levels. Lexis+ AI could on its own add 1%pt of divisional growth in the next 3 years. We estimate that half of Relx''s jobs are likely to see efficiency gains thanks to AI, in particular within research article production and legal editorial costs. TP raised to GBP30; reiterate Outperform Excluding forex movements, our underlying EPS is up 1% and 5% respectively for FY24e and FY25e. From FY24, we expect Relx to deliver a sustainable 6% pa top-line growth, ahead of VA Consensus at 5%. We forecast adj. margins 60-80bps ahead and stand 2% and 4% above consensus EPS for FY24e and FY25e. A solid H1 23 performance driven by all four divisions could be the next...
AGM/1Q update looks net positive with no surprises/changes though 'number light' as always. We would be surprised if numbers changed. HOLD. We like the RELX strategy, its relative defensiveness, and focus on data/analytics, though this looks priced in. We roll forward SOTP model to 2023 implying PT
RELX’s results for FY22 came in above expectations. The continued growth in earnings as well as the EPS, dividend and share buyback program of £800m are being rewarded by investors who are boosting the share price to a new high.
FY 22 results broadly in line, Legal comes in ahead Revenues, at GBP8.553bn, came 1% ahead of VA consensus forecasts with 9% organic revenue growth. Risk (8%), STM (4%) and Exhibitions (64%) came in line while Legal orgrev growth of 5% beat consensus at 4%. Group adj. operating margin of 31.4% was 50bps below consensus. Adj. EPS was 1% ahead at 102.2p. DPS is up 10% to 54.6p. Solid outlook for FY and higher-than-expected share buyback Management provided solid comments underpinning the medium-term acceleration in orgrev growth in STM and Legal. Within Risk, some transactional revenues (bank accounting opening) have slowed in recent months while others (insurance) have accelerated. This division is likely to perform in line with its historical range. Exhibitions margins are guided to come back close to pre-pandemic levels in 2023. At GBP800m, Relx''s 2023 share buyback came in ahead of expectations. Disposal of Exhibitions division not ruled out Management did not rule out the disposal of the Exhibitions division (est. EV of GBP4bn). In the short term, it remains focussed on the Covid recovery, while in the medium term it will evaluate the value creation potential of the digital transition of this division to decide whether to keep the asset. We continue to think that a disposal within the next 18 months is a plausible scenario. Share price catch-up likely Relx''s share price performance is flat relative to the sector and the MSCI Europe over the last 3 and 12 months. The stock remains on attractive valuation levels at 21.6x PE23, a discount to its closest peers Wolters Kluwer (24.6x) and Thomson Reuters (33.3x). It offers an attractive double-digit annual total shareholder return. Its top-line growth profile is gradually accelerating. The stock offers defensive structural growth. We believe the share price performance is due for a relative acceleration after solid results, a strong outlook, higher-than-expected cash return, an attractive...
FY figures are in line/slightly above with no surprises though we note suggested £800m share buyback vs £500m in FY22 (we assumed it continued at this level). Forecasts – no material forecast changes expected ahead of call at 830am ex the share buyback. HOLD. We like the RELX strategy, its relative
This is our first report on Relx, a well-known provider of information-based analytics and decision tools for professionals as well as businesses. In the first half of 2022, the company generated solid financial results, with revenue growing by 13% at constant exchange rates. Business Services, accounting for around 45% of the division's sales, produced a significant revenue increase. Their digital identification solutions for fraud and identity saw extremely significant growth, with ThreatMetrix and Emailage expanding by almost 20%. Besides, the company's most recent acquisitions in financial crime and compliance and behavioral biometrics have increased its client value offering and are working effectively. Clinical solutions, research management, corporate, and medical education all continued to experience significant growth. In general, new sales and renewals are going well. The management anticipates underlying adjusted operating profit growth to be slightly higher than underlying sales growth in the future, with underlying revenue growth remaining above historical norms. Furthermore, during the first half, they completed 6 acquisitions for a total of GBP 342 million. Most significant were the additions of BehavioSec, a pioneer in behavioral biometrics, Flyreel, an insurance self-inspection software, and Interfolio, a provider of faculty information systems, to the Risk business and STM, respectively. We initiate coverage on the stock of RELX with a ‘Hold’ rating. Baptista Research looks to evaluate the different factors that could influence the company's price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology. In this report, we have carried out a fundamental analysis of the historical financial statements of the company. We also have a dedicated analysis of the company's Environmental, Social, and Governance (ESG) risk scores in order to evaluate the sustainability risk. We have added reasonable forecasts of the annualized income statement and cash flows and carried out a DCF valuation of the company using its Weighted Average Cost of Capital (WACC) to determine a forecasted share price.
Webinar yesterday focused on STM, the RELX information/analytics division serving academic institutions, government, corporate and health institutions. We believe STM is gaining investor credibility as it shifts to faster growth databases & tools, while academic & primary research is now ev
Relx hosts investment seminar on STM division: growth acceleration ahead Kumsal Bayazit, the CEO of STM and her team hosted a 90mn investor seminar on STM, the largest business unit, with 40% of Relx group adj. operating profit in 22e. The aim of management is to accelerate the revenue growth rate of this division as we discussed recently in RELX PLC : Untold opportunities and in RELX PLC : STM in rude health. We expect top-line growth to accelerate to 5% next year ahead of consensus 3-4% forecasts on new contract gains and improving mix. STM increasingly looking a lot more like the Risk division The mix shift towards mid to high single digit growth products in Databases and Tools (40% of divisional revenues) is driving the improvement in STM''s growth profile. Launched in 2014, SciVal, one of the key products, has seen 20% CAGR revenue growth in the last five years. Earlier this year, STM gained a new CTO from the Relx Risk division. She is in the process of migrating STM datasets to a common data model to drive further innovation in data and analytics. Over 30% of STM headcount are now technologists. Management sees a growth opportunity in the internationalisation of STM''s Health products. Open Access delivers same profit margins than Subscription journals Management has argued - somewhat surprisingly - that Open Access and Subscription articles operate on similar profit margins. Primary Research (c50% of revs.) is guided to sustain further revenue growth as article volume growth continues through the Open Access transition. Outperform maintained We believe this seminar underpins our view that the STM division is likely to see growth pick up, possibly ahead of current consensus, as the drag from print diminishes and the tailwinds from the mix shift to Data and Analytics continue. Relx offers a defensive structural growth profile with improving fundamentals. With a PE23 of 19x the stock trades at a discount to US information peers (i.e., TRI on...
The 9-months 2022 trading statement was in line, confirming organic revenue growth above historical trends for the second year. The group reiterated its FY22e guidance as “momentum remains strong”, which is very reassuring in light of the current macro environment.
Relx reported a solid 9M trading update Group underlying revenue growth reached 9%, driven by 7% growth in Risk, 5% in Legal and 4% in STM. Exhibitions rose by 85%. Within Risk, management reported improving trends in Insurance on the back of more shopping and switching of car insurance policies. Legal picks up steam Legal reported a pick-up in organic revenue growth from 4% in H1 22 to 5% in 9M22. Management argued that this improvement does not capture any price inflation but reflects the mix shift towards legal analytics, which now account for 25% of divisional revenues. New sales momentum remains strong into Q4. Risk Insurance shows counter cyclical characteristics In 2008, Choicepoint - Relx''s Risk predecessor - reported 10% organic revenue growth. Today, transactional revenues in Insurance (90% of subsegmental revenues) are seeing improved momentum as US consumers increase their car insurance policy shopping and switching. Following asset disposals, Risk is much less cyclical than during the GFC and Insurance (40% of Risk) has some counter cyclical characteristics likely to support the FY23 performance in our view. White House policy marks no change in trend STM benefited from improved print revenue trends, greater exposure to Databases and Tools and continuous growth in article publication volumes. Management claimed that the new White House policy did not mark a change in trend. We have argued in RELX PLC : Untold opportunities that it is likely to have a positive impact. Outperform maintained Our EPS23 is cut by c1% on higher interest charges. Relx remains a top pick within Media and Internet. It offers defensive growth characteristics with improving structural trends.
A stock well-suited to the current market context Relx has a defensive, structurally improving growth profile. STM has not seen a year of revenue decline in over 30 years. Legal could benefit from a mild recession forcing law firms to embrace productivity tools more rapidly. Risk has proven resilient in the GFC. Covid normalisation is likely to more than offset macro pressure in Exhibitions. Relx is a blue-chip stock well suited to the current macro environment. We reaffirm our Outperform rating ahead of the 9M update on 20 October. White House Open Access policy: more of an opportunity than a risk Our proprietary analysis of nearly all of Elsevier''s 2,700 academic journals suggests the share of federally funded US articles beyond paywall is rapidly declining and is likely to be less than 5% in 2027. This leads us to argue the new White House policy is unlikely to have a significant financial impact on journal subscription revenues but is likely to boost open access revenue growth. New US mandate to publish researchers'' datasets presents a major opportunity Historically, scientists were asked to publish research articles only. From 2027 onwards, US researchers will also have to publish their underlying datasets. We believe this will expand the demand for data analytics and could drive a USD1bn market opportunity. Relx is the only vendor offering researchers both article and data publication services. It has a strong competitive advantage in relation to this growing opportunity. The increase in data analytics, coupled with our expectations of new contract gains, leads us to raise our organic revenue growth forecast for STM to a consensus-topping 5% in 2023 (vs. 4%). 9M trading update on October 20th and positive newsflow in STM as key catalysts We raise EPS by 2% and 3% and stand 7% and 8% ahead of consensus for FY23 and FY24. Relx trades on 18x PE23 and offers a 5.4% FCF yield. While at market-relative highs, the stock continues to trade at a...
Delivering growth: Whilst headline results for H122 were modestly ahead of expectations, the key stand-out was the further acceleration seen across both the STM and Legal divisions (with each delivering 4% organic revenue growth). Validating the strategy, management highlighted the Legal acceleration being a sustainable reflection of the incremental added value tools & services being offered, and the benefit in STM of faster growth databases & analytical tools now representing c.40% of the division. Although the transactional revenues in Risk are not immune from a US economic slowdown, the economic value generated for customers should ensure significant resilience in absolute terms. Dollar discussion: As a significant dollar earner, RELX benefits from recent sterling weakness in terms of the translational impact on operating profits, but the impact of this on the balance sheet and interest costs was an unusual focus at the presentation – with management highlighting that c.40% of the debt is based on a floating rate, with significant dollar denomination – hence leading to a notable yoy step up in costs in FY22/FY23. Valuation full, but fair: Modestly higher organic growth assumptions and updated FX forecasts are partially offset by interest and tax charges, leading earnings to increase 3% longer-term, and driving our target price increase from 2250p to 2350p. RELX currently trades at c.20x CY24E earnings. With the scope to sustainably deliver resilient 4-5% organic revenue growth, and cost control / share buybacks moving EPS growth ahead of this, we see the valuation as very much justified, although with peers such as Informa trading below 13x PE in the same year, we see more scope for upside elsewhere.
Relx delivered another solid performance in H1 22 Relx delivered a 6% EPS beat and 5% EBITA beat on a 6% revenue beat in H1 21. Revenues came ahead in all divisions with organic revenue growth beating consensus in STM, Legal and Exhibitions. At 7% Risk suffered tough comps and missed consensus but it is looks likely to accelerate in H2. STM and Legal are picking up Our bull case is based on the acceleration in organic revenue growth in STM and Legal. The H1 performance strongly supports our view. Management argued that the consensus-beating 4% orgrev growth in both division was all driven by structural improvements with no-one offs benefits. STM and Legal had not posted such a strong number in 15 years. Risk slows temporarily but is likely to accelerate in H2 Management pointed to improving comps in H2 22 and to a pick-up in US car insurance shopping activity in recent weeks as well as in subscriptions to its Aviation databases. This leads us to believe that the Risk division is still on track to deliver on market expectations. Management suggested that this division was now less cyclical than in 2009 and had more resilient market exposure than peers. With 60% of its revenues generated from Transactions, a US macro slow down remains a key risk. Trade shows recover faster than expected Exhibitions revenues came in 2% ahead of our expectations and 23% ahead of consensus underpinning our scenario of a faster-than-expected business recovery. Profit growth was ahead too. Outperform maintained The positive performance of the Risk business in 2009 leads us to buy into the transactional exposure of this division despite the risk of a US recession. We remain Outperform and see scope for positive consensus revisions driven by the acceleration in STM, Legal and Exhibitions. Relx is a top pick in Media and Internet.
RELX reported excellent H1 22 results in light of the current macro environment. The management said that the momentum remains strong entering H2 22 and that it continues to expect the FY22e performance to be above the historical trend.
STM and Legal LFL growth better
Reaffirm Top Pick Outperform rating ahead of H1 results Relx shares have outperformed the MSCI Europe, the Media sector, the Staples sector and its closest peers year-to-date. We expect this solid performance to continue and to be fuelled by H1 22 results on July 28th. The faster-than-expected recovery in Exhibitions and the improvement in organic revenue growth at STM and Legal are the main catalysts. Deep dive in STM underpins our above consensus view VA Consensus expects STM top-line growth to decelerate in 2023. We forecast an acceleration to 4%. With our BNPPE OA Monitor we have collected volume, price and quality metrics on 2,000 Open Access journals from the Top 6 OA publishers for the last 10 years. Our work suggests strong upside in Elsevier Open Access revenues as a contributor to faster divisional growth. STM Databases and Tools growth looks sustainable as focus on RandD productivity increases Our mapping of Elsevier''s product and competitive landscape supports our view that the growing contribution from fast-growing Databases and Tools and diminishing headwinds from Print will drive stronger divisional growth. Risk Insurance Transactional revenues likely to prove resilient With US auto insurance rate increases accelerating, car insurance shopping volumes are likely to bounce. Historically, pressure on US consumer spending led drivers to switch car insurance policies. We expect Risk to deliver on FY22 and FY23 expectations. Earnings yield gap remains attractive We raise EPS 22e and EPS 23e by 3% and 4% largely on forex. Relx''s market relative PEs are elevated but defendable given the improving growth profile of the group. The earnings yield gap with US 10Y yields is more attractive than over 1997-2007 when Reed Elsevier had weaker fundamentals. We maintain our Outperform rating on Relx and see a consensus-beating H1 22 orgrev growth as the next catalyst.
RELX released a reassuring trading statement ahead of its April 2022 AGM to confirm its FY22e outlook, as all business lines performed well in Q1 22. Not to look a gift horse in the mouth, but perhaps a little more detail about Exhibitions would have been appreciated…
1Q update as expected. Nothing new
Focus on accelerating growth On Relx roadshow, management reaffirmed that renewal rates were in line with history at STM and Legal and reaffirmed that New Sales were strong. Relx''s strategy aims at maintaining high single digit revenue growth for many years in Risk while accelerating top-line growth in STM/Legal. Automation to offset cost inflation Relx expect costs to grow less than revenues. Automation (e.g. AI algorithms instead of humans to summarise legal cases or extract details from chemistry journals), offshoring, cloud migration, real estate consolidation and operating leverage should help offset higher cost inflation. Focus on product innovation as a growth driver Relx has a strong focus on innovation, ranging from new datasets for automotive manufacturers to applying data analytics in Life Insurance (e.g., drug prescription history as a driver of life insurance risk premia) or crop yield analytics for US farmers to patient treatment efficacy and medical diagnostics for instance. No meaningful direct impact from Russia / Ukraine Relx generates less than 0.5% of revenues from Russia/Ukraine. It operates a sanction-monitoring business but played down any significant short-term increase in revenues as its sanctions database is priced per transaction and not by the number of sanctions. Exhibitions initially focussed on Reopening On Exhibitions, management is currently focussed on capturing the benefits from the industry reopening. Relx has cut around GBP100m of RX overhead costs during Covid and has closed down 100 lower margin events which accounted for c10% of pre-Covid divisional revenues. We continue to believe that this division is likely to emerge from Covid with structurally higher operating margins. We continue to view an exit from Exhibitions as a likely scenario in the second part of this decade.
Relx reported results broadly in line with expectations Group organic revenue growth (excl. Exhibitions) reached 5% driven by 9% growth in RBA and 3% at Legal and STM. Group adj. EBITA missed expectations by 1.6% excluding a one-off restructuring charge of GBP35m. Lower net financial charges and tax benefits drove EPS 1% ahead of expectations. Net debt to EBITDA of 2.3x and a DPS of 49.8p were in line with our forecasts. Relx has reinstated a share buy-back of GBP500m in line with our forecasts for FY22. STM and Legal top-line growth expected to accelerate above historical trends of 2% Management guided for STM and Legal top-line growth to be above the 2% long term historical average these two divisions have reported. As discussed in PROFESSIONAL INFORMATION: Buckle up, an improving product mix is driving higher renewal rates, improved upselling and new sales and pricing power. Management suggested it could raise product pricing if inflation were to remain at elevated levels. Risk and Business Analytics is guided to remain in the high single digits. Inflationary pressure to be offset by further cost efficiency gains Management continues to expect cost growth to lag revenue growth as the migration of the group''s IT infrastructure to the cloud and a reduction in the real estate footprint is expected to more than offset salary inflation. Our EPS22 is unchanged, with lower adj. EBITA offset by lower financial charges. Our EPS23e is up as we assume a GBP500m share buyback in FY23. Reaffirm Outperform, TP cut from GBP30 to GBP27 on peers'' derating We have adjusted our SOP in the context of the recent derating of professional information peers. With c20% upside we reaffirm our Outperform rating. The growth profile of Relx is improving as STM and Legal can sustainably albeit gradually accelerate while Risk continues to drive high single digit growth. This should warrant a higher relative PE multiple than in the past. Exhibitions faces easier comps...
RELX’s FY21 top- and bottom-line trends fall short of expectations, dampening investor sentiment. The better-than-anticipated adjusted EPS and dividend, as well as the long-awaited return of the share buy-back programme, were not enough to support the share price…
Overall positive momentum. No surprises we see
Strong and well placed though priced in for now?
Relx hosted Mike Walsh, CEO of Legal for a teach-in on Legal Analytics Relx hosted a 1hr investor and analyst session on Legal Analytics. Legal Analytics is growing high single digit with some products growing double digit. It is presented as the main growth driver of the Legal division which itself accounts for 23% of group revenues and 15% of adj. operating profit. Management aiming at accelerating divisional top-line growth further through innovation We forecast Relx Legal division to report an organic revenue growth rate of 3% in FY21e after 2% pa over 2016-19 and 1% previously. With a further shift in revenues from Print (12% declining mid to high single digit) towards Electronic Reference (c.60-70% growing low single digit) and Analytics and Decision Tools (c.20-30% growing high single digit), management is aiming at further acceleration and margin expansion and sees the transition to Analytics as a decade-long tailwind. Current trends are improving Management reported that new sales (a leading indicator of future top-line growth), retention and upsell rates, usage, Net Promoter Scores were all ''nicely on the rise right now''. No market share losses to Thomson Reuters Management played down the top-line growth and margin differential with Thomson Reuters'' Legal division, pointing to the differences in reporting structure. Print and Corporate News are included in Relx Legal but excluded from Thomson Reuters Legal Professionals. Corporate costs and restructuring costs are included in Relx Legal margins but not in Thomson Reuters Legal''s and explain c.600bps of the c.800bps margin differential we forecast for FY21. In comparable business lines, Relx estimates it is growing on par with Thomson Reuters. Outperform maintained Relx offers defensive structural growth at a reasonable price. We see scope for an acceleration in the group''s growth profile and remain Outperform.
RELX shares reached a new all-time high this morning following the publication of the group’s 9-month trading update. Investors welcomed the – long-awaited – bounce back in Exhibitions as well as the improved FY21e guidance.
Relx delivered a solid 9M21 trading update At a time when consensus anticipated the strong H1 revenue growth performance to ease in H2, Relx trading update showed that Risk, STM and Legal have maintained their strong performance with organic revenue growth rates reaching 10%, 4% and 3% respectively for 9M21. We have raised our FY21 forecasts for Legal to 3% and maintained our 9% and 3% forecasts for Risk and STM in the context of tougher Q4 comps. We estimate that consensus currently implies c.25% yoy decline in Print STM books in Q4, worse than historical trends and than management''s soft guidance. STM could come as a positive surprise in February. Exhibitions have restarted Relx reported 9% ytd organic revenue growth in Exhibitions after a -36% in H1 as shows have resumed in all major geographies. In Q3 only September is a major month. In Q4 October and November are two key months for Exhibitions. We have adjusted our numbers to be consistent with management''s soft guidance in the low GBP500s (vs. our previous forecasts of GBP567m). For 2022, Relx will host 90% of its 2019 revenues with events taking place at their usual dates. Further deleveraging suggests resumption of share buy back in February is likely Management has completed just under GBP200m of acquisitions year to date and is running below historical averages. This coupled with the recovery in Exhibitions profit has us anticipate and model a GBP500m share buy back programme to be announced in February 2022. Outperform maintained with TP raised to GBP23.5 Our scenario of faster for longer growth is underpinned by a solid Q3 performance and management comments that its priority is to accelerate STM and Legal organic revenue growth while maintaining Risk in the high single digits. The recovery in Exhibitions could push group orgrev growth to 10% next year, well above Wolters Kluwer and Thomson Reuters to which Relx trades close to relative PE lows. We remain Outperform and raise...
Solid 9 month update, a little ahead
Relx held a 90-minute investor seminar focussing on RBA''s Business Services RBA CEO Mark Kelsey and his team presented the Business Services (BS) division, the largest and fastest growing segment within Risk and Business Analytics. This segment accounted for 44% of RBA''s H1 21 revenues and derived 76% of its revenues from the US. A bit more than a third of BS revenues are derived from Fraud and Identity solutions, a little bit less than a third from Financial Crime Compliance and the remainder from Credit and Business Risk. Sustainable competitive advantage Relx claims to be number 1 in most of the segments in which it operates. Its strong linking technology coupled with contributory and proprietary databases constitute the main competitive advantage. Each new customer is contractually required to contribute its data sets to the Business Services platform. This creates positive network effects and a strong barrier to entry. Current growth trends remain solid Looking at the H1 21 performance of RBA, management argued that BS was growing ahead of the 10% divisional average. Insurance was said to have ''longer cycles'', which we interpret as suggesting relatively lower growth rates. Data Services is largely subscription driven and late cyclical with relatively weaker trends in H1. However, management stated that since mid-year Data Services had returned to historical growth levels, which we believe were around 10%. High single-digit growth ''for a decade or more'' Management argued it can maintain high single-digit revenue growth rates for RBA for a decade or more as it continues to innovate, expands into adjacent markets and pursues an international expansion strategy while benefiting from supportive underlying market trends (rise in online fraud, increasing financial regulation, growth in ecommerce and ebanking, etc). We remain Outperform and see Relx''s 9M trading update on 21 Oct. -- likely to show sustained strong top-line growth at RBA and the...
RELX raised its FY21e guidance on the back of very encouraging H1 21 results. Its three major divisions delivered a sound performance, similar to pre-COVID-19 trends, which offset the continued weakness in Exhibitions.
Relx reported a solid set of H1 results Relx (+) reported solid H1 results, with a 1% top-line beat, a 3% EBIT beat a 6% EPS beat. Organic revenue growth in Risk, STM and Legal were ahead of expectations, with Exhibitions broadly in line. Adjusted operating margins in STM and Legal came in higher than consensus forecasts and were broadly in line in Exhibitions. FY21 outlook raised Management has raised its guidance and now expects full year underlying growth rates in revenue and adjusted operating profit to be ''slightly above'' historical trends vs. ''in line'' previously. In particular, STM and Legal guidance has been revised up. STM organic revenue growth is seen as ''slightly above'' historical trends with adjusted margin expansion (vs. flat before). Legal organic revenue growth is seen ''at or slightly above'' historical trends. At the Q1 update, management had already guided for RBA to be slightly above historical trends. Leaving the door open for a disposal of Exhibitions Relx''s exhibitions division is in the midst of its digital transition. Once markets have normalised, we understand that management will look at the success of its digital strategy to determine whether it should keep or sell this asset. Reed Exhibitions has been operating at breakeven since April 2021 and we believe the Exhibitions newsflow is likely to improve in H2. Outperform maintained In recent months, Relx shares have had a lacklustre performance vs. peers and the market. We believe this is about to reverse as the market gains confidence in the improving top-line growth characteristics of the company. We have raised our EPS for 22 and 23 by 2% and see group organic revenue growth (excluding Exhibitions) at 5% in FY21 and FY22. H1 results underpin our positive stance. Relx trades on 20x PE22 and offers a 4.8% FCF yield 22e. We believe these are attractive levels and reaffirm our Outperform with a solid top-line recovery in Q3 as the next visible catalyst.
LFL sales trends generally better
Underwhelming quarters, underwhelming prospects, underwhelming consensus numbers - hasn''t Relx become just a little bit... pedestrian? Not at all: lift up the bonnet and this is a company whose engine is starting to purr. We refresh our analysis to uncover new promise in Risk and Business Analysis, while we also find brightening prospects at Exhibitions. To add to the good news, some of the threats to STM are looking weaker than before. As the horizon starts to clear, and it looks like summer is finally coming for Relx, we call a double positive surprise: rapid rebound at RBA and accelerating take-up at Exhibitions. We upgrade to Outperform on a target price of 2250p.
Relx holds investor day focused on CR Yesterday Relx management held a 2h investor seminar showcasing Relx achievements in Corporate Responsibility. Relx has been rated AAA in MSCI ESG rankings since 2016, it is rated in the Top 1% of 12,000 companies according to Sustainanalytics and ranks 3rd of all FTSE100 companies according to Responsibility100 Index. Management claims its leadership in CR provides a competitive advantage, improves client relationships and helps attract key talents. Corporate Responsibility in focus since 2003 CR has been a focus of Relx since it signed the UN Global Impact in 2003. The CR function was created 15 years ago and its activity has increased ever since. In 2017, the group launched the Relx SDG Resource Centre, a website offering SDG resources and news to a global audience of over 90k unique users. Elsevier, RBA and LandP showcase CR contribution Through the seminar, management pointed to how Elsevier helps improve global health, not least through enabling the free downloading of Covid 19 materials over 245m times since January 2020. It showed how RBA helps reduce cybercrime, ID theft and improve financial inclusion through the provision of alternative credit data. The LandP CEO showed how LexisNexis supports the rule of law, helps protect US civil rights - including through the launch of a US police misconduct litigation analytics on over 60k cases - and helps broaden access to justice in developing countries - including through the launch of a mobile court in the jungle of Borneo. Investment case unchanged This seminar reinforces the view that Relx is a global leader in corporate responsibility. Consensus forecasts are unlikely to move and our investment case remains unchanged. We remain Neutral on the stock but see some short-term support as the shares benefits from the ESG focus.
Steady progress ex Events
RELX released a trading statement ahead of its April 2021 AGM to confirm its FY21e outlook as most of the business performed well in Q1 21. The timing and pace of recovery in Exhibitions remains uncertain.
1Q as expected
Meeting Notes - Feb 15 2021
REL EBQ LTG NEXS SAFE
Confirming FX and Event downgrades
Relx delivered FY20 numbers broadly in line Relx FY20 revenues came 1% below while operating margins came 30bps ahead, bringing adj. operating profit in line with expectations. Lower financial and tax charges helped beat consensus by 4% at the EPS level. In H2, orgrev growth at STM and Legal came in line with consensus. Risk and BA was slightly below, probably held back by deteriorating subscription revenue trends (40% of divisional revenues). H2 Exhibitions was 12% below consensus but this division is now too small to have a meaningful share price impact. Relx reassures on STM, Risk and Legal Management guided to modest positive orgrev growth in 2021 in STM and Legal and to strong growth (in line with pre-Covid years) in Risk. As discussed in RELX PLC: Good science always prevails, STM journal subscription renewal rates are in line with recent years. Open Access growth is accelerating and databases and tools are seeing good momentum. The commercial roll-out of Lexis+ in the US is progressing well. Most KPIs in Risk are back to pre-Covid levels. Exhibitions remain uncertain but valuation now fully captures the risk The outlook for Exhibitions remains uncertain and a short-term risk to consensus 2021 forecasts in our view. Shows currently held in Japan and Moscow are seeing a 50% revenue decline. On the other hand, one could argue that the current share price captures hardly any value for Reed Exhibitions and consequently there may be room for upside. TP raised to 1900p We have raised our orgrev growth forecasts for LandP and STM margins and made other minor underlying changes to our forecasts but they are largely offset by forex in FY21. We raise our TP to 1900p, implying a 19x forward PE at target. We remain Neutral as we see limited upside left bar an acceleration in STM or Legal. The announcement of a deal in STM with the University of California or Germany could be the next positive catalyst.
The FY20 results are both satisfactory and in line. More than 4/5ths of the business are continuing to hold up well, with uncertainty remaining on Exhibitions. The FY dividend’s increase by 3% is good news. Positive stance maintained after allowing for negative tweaks on the Exhibitions outlook.
Operating profit/financials slightly better base vs FX and Event downgrades
We turn positive on Science, Technical and Medical (STM), which represents c40% of group adj. operating profit, and upgrade the stock from (-) to (=) with a revised TP of 1850p. Turning positive on STM Our industry contacts lead us to believe that the 2021 journal subscription renewal campaign is going well, with no signs of significant unbundling happening. Our tracking points to a pick-up in Gold Open Access (OA) volume growth at time when Elsevier price inflation is accelerating. Relx''s OA migration is proceeding well and we expect significant new contracts to be announced in 2021. We now expect STM to maintain positive orgrev growth in 2021 and to accelerate to 3% next year, above consensus. Exhibitions not out of the woods yet We remain cautious relative to consensus expectations on Legal and Exhibitions for 2021. A 50% decline in the number of exhibitors attending shows currently taking place in Japan suggests demand is limited and could surprise consensus on the downside. But Exhibitions now only account for 6% of Relx EV and are likely to be less of a share price headwind in 2021. Top-line growth likely to accelerate We expect a consensual recovery in Risk and solid trends in STM to help group orgrev growth accelerate to 3% and 4% in 2021 and 2022 (excluding Exhibitions). The commercial success of the newly launched Lexis+ could push this higher. Valuation more attractive Relx shares have underperformed Media (-15%) and the Market (-9%) over the last 6 months. Normalising for Exhibitions, the stock trades on 18x fwd PE. Its valuation is more attractive. We upgrade to Neutral, with the 2021 top-line outlook for Risk and STM at FY20 results on 11 February as the main potential catalyst.
Mixed 9M 20 trading update Relx reported underlying revenue growth of 3%, 2% and 1% respectively for Risk and BA, STM and Legal and Professional. It did not report underlying revenue growth performance at the group or Exhibitions level. Exhibitions constant currency revenues are down 70% year to date. This suggests group underlying revenues are down by double digits. Disruption from Exhibitions looks priced in Management confirmed the FY20 outlook for STM, Legal and Risk although it continued to flag that Risk''s full-year outcome depends on the ''rate of improvement in business activity in Q4''. Relx guided for Exhibitions to reach GBP330-360m of FY20 revenues and the operating loss pre-exceptionals to be between GBP170m and GBP210m, 50% below consensus. Yet Relx shares have hardly moved. We believe the disruption that Covid 19 brought to the Exhibitions industry is now fully captured in the Relx share price. STM renewal campaign: too early to tell Management admitted that institutional budgets had been impacted by Covid 19 and pointed out that a third to 50% of annual revenues are up for renewal in any given year. It refrained from commenting on the ongoing subscription renewal campaign in STM. It pointed out that the renewal campaign in Legal was proceeding in a normal fashion. Open Access article submissions grew 100% year to date. This strong performance could help mitigate the pressure on subscription renewals into 2021 and appears as the main risk to our cautious view. EPS revision on Exhibitions and forex We have cut EPS20 and 21 by 6% and 1% respectively on Exhibitions and Forex. Relx shares have underperformed Media by 10% over the last three months. PE21 of near 20x is still above average at a time when earnings visibility is weaker than it has been historically. We remain Underperform.
RELX issued a fairly sound 9 month trading statement despite the Exhibitions division remaining highly impacted by the current pandemic. More than 4/5 of the business are continuing to hold up well, which we consider a positive. The FY20e outlook is unchanged for the three largest divisions while Exhibitions continue to suffer. Some downgrade adjustments are expected to our forecasts, mostly due to Exhibitions, but we intend to reiterate a positive recommendation on the stock.
H2 20 Exhibitions trends look weaker than expected Our review of Reed Exhibitions'' show schedule suggests that more than half the events scheduled to take place in H2 20 in the US and Europe have now been cancelled. Revenue attrition on the few shows still scheduled to take place looks higher than anticipated. Informa reported H1 20 results yesterday. Its outlook reveals disappointing H2 trends in North America and EMEA, partly mitigated by steadying trends in China and Japan. We cut Relx EPS20 and 21 by 4% to reflect below-consensus forecasts on Exhibitions. We now forecast Reed Exhibitions to show 50% organic revenue decline in H220, worse than consensus -30% forecasts. Limited visibility on STM journal renewal cycle In its earnings call, Informa management pointed out that some academic customers were under budget pressure and that most were asking for more flexibility, more openness and better value. Informa claims to have gone into renewal discussions early and expects that this move will serve them well. But - like John Wiley a few days ago - Informa did not provide an outlook on the 2021 journal renewal cycle. Informa would consider a -1/-2% organic revenue decline in FY21 as a solid performance. We remain at -3% for Relx STM in FY21. Cautious view maintained Relx no longer offers the strong visibility it used to. H2 trends in Exhibitions look weaker than anticipated. Informa has announced that it was delaying most of its early 2021 events to later dates next year. H1 21 Exhibitions numbers now look at risk too. Reed Exhibitions 2021 adj. operating profit recovery could be weak. Risk and BA needs to accelerate from the last reported numbers to meet H2 forecasts. STM has question marks on the 2021 outlook in the context of academic library budget pressure, growing alternatives to access the research literature and the risk of unbundling. Yet Relx stock continues to trade on a chunky 20x PE21. We reaffirm our Underperform rating.
Relx reported its worst quarter in over a decade Relx reported a 12% ccy revenue decline and refrained from disclosing an underlying revenue growth number for Exhibitions and group. We estimate group underlying revenue fell by 11% driven by a 71% constant currency decline in Exhibitions. STM was below, Risk above and Legal in line with consensus expectations. Adj. operating profit came in 4% below expectations. Lower financial charges and one-off tax credits help EPS reach 37p (vs. cons. 35p). Risk and BA current growth trending below H2 consensus forecasts Management pointed out that RBA underlying revenue growth for July was at 3.5-4%. An acceleration towards 5-6% for the remainder of H2 is required to meet consensus H2 numbers. We have cut our FY20 orgrev growth forecasts from 5% to 4%. RBA is 53% of group EV. Our -43% orgrev growth (cons. at -32%) for FY20 assume all the 252 H2 shows run on schedule and see an average revenue attrition of 10-15%. We believe there is room for downside on 2020 numbers. STM 2021 thesis intact Our recent double downgrade (MEDIA - PROFESSIONAL INFORMATION: The Science Behind the Show) was largely based on the idea that STM could turn negative for the first time next year. Management sees regulatory changes in China as slow and not material but claimed it was too early to comment on journal subscription renewal rates for 2021. We have not changed our views on the risk of unbundling for the 6,000 customers on the ''big deal'' contract. Underperform maintained Relx H1 has proven less resilient than expected. We continue to believe that the shares could derate further with signs of pressure on STM 2021 revenue growth trends. Forecasts for Exhibitions (c13% of group EBIT19) are likely to remain uncharacteristically volatile. Risk needs to accelerate further from current levels to meet FY expectations. Reverting to a steady 4% top-line growth profile will take time in our view. GBP720m of acquisitions in Q1 have...
RELX’s H1 20 results are clearly not good, impacted by COVID-19 as expected. Both revenues and adjusted OP were below our estimates and the street’s as Exhibitions were significantly hurt. Positively, all other businesses continued to deliver and are continuing to hold up well. The flat interim dividend, contrary to market fears, was also a positive. Our earnings will be downgraded. High volatility expected going forward for the share price but we remain confident in the group’s long-term strategy and business model. Positive recommendation reiterated.
We hosted P. Derycz, CEO of Nasdaq-listed Research Solutions, at an Expert Event on STM When we recently double-downgraded Relx (MEDIA - PROFESSIONAL INFORMATION: The Science Behind the Show), we argued that alternative ways of accessing research articles would lead to an erosion of the must-have nature of academic journals. We pointed to rapid document delivery tools as one of several alternative ways. Yesterday, we hosted Peter Derycz, CEO of Research Solutions, a provider of rapid document delivery tools. Rapid changes seen in US academic library landscape Research Solutions argued that the pace of changes within academic libraries had accelerated with Covid 19 putting the hammer down on budgets. Historically, academic libraries lagged corporate libraries in actively balancing document delivery vs. journal subscriptions. Research Solutions expects this to change with more academic libraries using document delivery instead of journal subscriptions, like the University of California does. To tap into this trend Research Solutions is about to launch Article Galaxy Scholar, a 24x7 platform to gain near immediate access to research papers in a legal way. The company currently has 250 academic libraries (+10% yoy) mostly from the US, Europe and Japan. Relx earns money through rapid document delivery While a move away from subscriptions to low-usage journals towards article delivery could put pressure on Relx STM revenues, we also point that Elsevier earns money from licensing its content to Research Solutions and the likes. Licensing price increases of 5 to 7% have been ahead of journal subscription price inflation in recent years. Relx could increase prices more to make this alternative route less attractive to academic libraries. Underperform maintained We expect Relx to report a 10% orgrev decline in H1 20 (July 23), driven by Exhibitions (-65%). STM, Risk and Legal seen at +2% each. We continue to believe that Relx STM growth could turn...
We hosted Dr. Heather Piwowar, co-founder of UnSub, in our Expert Event on STM When we recently double-downgraded Relx we argued that new tools such as Unsub would lead libraries to unbundle their Big Deal subscriptions to Elsevier journals. This would lead to greater revenue pressure than consensus currently forecasts. Yesterday, we hosted the co-founder of UnSub in a very well-attended Expert Event. A new journal data tool helping libraries design hybrid content-procurement strategies As discussed in MEDIA - PROFESSIONAL INFORMATION: The Science Behind the Show, UnSub is a new tool that helps libraries identify the cost per use of a journal as well as the availability of alternative ways to access research articles. Unsub was launched in November 2019. Beforehand, librarians looking to conduct this type of analysis would have to use spreadsheets and invest time and effort in finding the data. A handful of libraries have already used UnSub to unbundle their Elsevier Big Deals, with cost savings of 50% or more. Catching like wildfire Nine months after launch and Unsub already has 300 libraries on its platform. Piwowar expects there will be 1,000 by year end and perhaps 2,000 next year. Elsevier claims to have 12k customers in total. More importantly, one third of the 130 most research-intensive US universities are already using the platform. Research intensive universities account for a large share of the US journal subscription market. CRKN, the Canadian national library consortium, recently signed up. It is in negotiations to renew its Elsevier Science Direct contract expiring in December 2020. Underperform maintained We expect Relx to report a 10% organic revenue decline in H1 20 (July 23rd), driven by Exhibitions (-65%). STM, Risk and Legal seen at +2% each. We continue to believe that this time it could be different and that Relx STM growth could turn negative next year, for the first time in over 30 years. The stock is not priced...
RELX just released a trading statement ahead of is 23 April 2020 AGM to inform that it has suspended both its FY20e guidance and share buy-back due to the uncertainties related to COVID-19.
Numerous historical growth drivers: Auto insurance (focused on the US) makes up roughly half the Risk division and its revenue growth links to quote volumes. This has benefited from structural drivers since it was acquired, such as the shift to online, and increasing insurance penetration (Berkshire Hathaway noted at the weekend that total US policy numbers have increased by 35% over 5 years). It has also benefited from significant premium inflation however. Echoing UK trends, the 2019 JD Power auto insurance survey demonstrated that the propensity to switch policy accelerates with premium growth of $50 (c.3%) – and the market moved below this level for the first time since RELX has owned the business during 2019, and inflation remains flat. But signs of slowing already: The Risk division missed its 8% growth target last year – the 7% reflected ‘market’ growth of 2% (down from 3%), 4% contribution from ‘new’ products (down from 5%) and the inclusion of Threatmetrix into organic growth (c.1%). Recent acquisitions will not benefit organic growth in 2020, and so an acceleration in growth from the ‘market’ or ‘new products’ is needed just to sustain the current rate. And scope for further weakness: Management suggests growth has been better in the early part of 2020, reflecting major insurers trying to gain share. At the weekend, Berkshire Hathaway demonstrated this dynamic – reporting 5-6% premium growth at Geico in 2019, driven by higher growth in policy volumes. This however led to a 3pp margin fall, driven by 11% expense growth (from ad spend), which may not be sustainable. On the flipside, AllState noted the ‘massive’ ad spending by their competitors recently, but that it sees signs of competitive dynamics easing (with pricing differentials closing). If true, we could for the first time see low inflation lead to falling switching volumes – signs of cyclicality and maturity appearing could lead to de-rating.
The FY19 results were sound and globally in line with expectations. The group once again managed to improve its adjusted operating margin (31.6% from 31.3%) on underlying revenue rising by 4%. All in all, a satisfactory performance. RELX anticipates more or less the same positive trends over FY20e, although the Coronavirus impact on the exhibitions division is still highly uncertain. Not coming as a surprise, the Chairman of the Board Mr Habgood (74 years old) will retire once a successor is appointed.
FY19 results broadly in-line FY results were broadly in-line with expectations, with revenue of £7874m and EBITA of £2491m just modestly below our estimates, but EPS of 93.0p modestly above given lower tax. Organic revenue growth of 4% was as expected, with STM picking up back to 2%, but Risk staying at the 7% of H1 despite hopes of re-acceleration – management noted the US market was less supportive than previous years, albeit having improved during the year. 2020 remains the same, for now On the outlook, management noted the business is seeing similar trends to ‘recent years’ thus far, but has reduced the buyback to £400m in light of recent bigger M&A in the Risk division. Divisional commentary remains relatively vague as ever; it was noted on Risk that the ‘fundamental growth drivers’ remain strong, leaving scope for the weaker market backdrop that may continue (as we have highlighted given the sharp fall in US auto insurance premium inflation during last year). In addition, the mooted impact on the divisional revenue growth rate from venue constraints in Japan around the Olympics has been increased to 1-2%. Limited underlying changes to estimates Overall, we expect that limited changes are likely to consensus estimates, barring FX updates / the reduced buyback / inclusion of recent M&A, but further commentary on the trajectory of growth in Risk and the potential impact of US Open Access initiatives remains the key focus. With the stock trading at all-time highs and peak multiples (c.22x FY20E earnings), we see limited room for disappointment. Separately, the chairman is to retire.
Three weeks after announcing the expansion of its fastest growing LexisNexis Risk Solutions division through the acquisition of ID Analytics for $375m (i.e. c.£290m), RELX announced a definitive agreement to acquire Emailage for an estimated c.$480m in cash or c.£370m (CNBC Wires source; not disclosed by RELX).
RELX today announced that its LexisNexis Risk Solutions division has agreed to buy the US company ID Analytics, a provider of credit and fraud risk solutions for enterprises, for $375m (i.e. c.£290m). This is a rather significant acquisition for the group and, at first sight, an interesting one, in line with LexisNexis Risk Solutions’ offering. No change to our recommendation.
Legal losing its appeal: US peer Thomson Reuters reported Q3 results towards the end of last week, and although their view that the US Legal market is embracing technology more should be positive for both players, there were signs their newly re-invigorated focus on driving growth could be starting to drive share gains, with the division growing 3% (RELX at 2%) and even their print assets grew, for the first time since 2011. Separately, rising depreciation for RELX’ own newly implemented Legal technology platforms could also weigh on Legal margins more than expected. Risks to Risk: After disappointing the market by slowing to 7% organic growth in H1, Risk saw a similar level of growth in Q3, albeit management noted a more supportive backdrop and their easier comps in Q4. We think slowing Risk growth could be a topic for 2020 too - the strong US auto insurance pricing inflation of recent years has slowed dramatically through 2019, and - once annualised - lower policy switching volumes could weigh on divisional performance next year. At c40% of consensus EV, this could lead to the group de-rating. Full valuation: Post the Q3 trading update, we make very modest tweaks to underlying estimates, with earnings falling 1-2% mid-term driven by recent sterling strength. The stock now trades at 19x FY20E earnings - not outrageously expensive in absolute terms, but still at the top end of the peer group when compared to the current total return of earnings growth and dividend yield it provides. The stock will continue to trade with bond proxy sentiment for the time being, but we believe investors should not ignore the clouds slowly building on the horizon.
In line 9 months 2019 trading statement, reflecting a return to previous rates of organic revenue growth at the group level (+4%) after the slowdown registered in H1 (+3%). The FY19e guidance is reiterated, i.e. another year of underlying revenue, profit, and adjusted EPS at CER, as key business trends are in line with FY18.
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.
RELX reported H1 19 results globally in line, although marred by lower than expected organic revenue growth (+3% instead of +4%), reflecting STM’s top-line slowdown. The group, nonetheless, still delivered an improving operating margin (31.9% versus 31.5%). Full-year guidance was reiterated and the interim dividend is raised by 10% to 13.6p. Minor adjustments are likely to our model (which already cautiously integrates a slightly declining profitability for STM with no top-line underlying growth improvement) and still a Buy & Hold case.
Premiums can go up as well as down: A slow-down in the Risk division (despite fast growing Threatmetrix now contributing to organic growth) was in large part the cause of group growth disappointing for the first time in years. We highlighted the risks from slowing US auto insurance premium growth (figure 1 overleaf) in a recent note (here) and although management highlight that the current run-rate is back at historical trend levels, this market backdrop suggests switching-driven transaction volumes could slow further and more sustainably. Focus on margin, not just growth: On the flip side, easing comps for book sales at Elsevier should easily lead to the growth rate re-accelerating there, and we are optimistic that new divisional management could bring a more proactive, engaging approach to renewing delayed customer contracts. On the margin side, Legal saw modestly smaller than forecast expansion, and this could become a repetitive theme given the headwinds of a) reduced cost savings from decommissioning old platforms, b) increased competition from TRI, and c) depreciation rising towards capex levels as the new platform roll-out completes. Look past currency: On forecasts, our EPS estimates are upgraded 1-2%, largely driven by the impact of weak sterling. This however masks downward tweaks – albeit modest – to growth in the Risk division whilst we await evidence on the trajectory of growth into next year. Our price target also reflects the re-rating of peers. With the stock still trading at >19x FY20E earnings, the valuation leaves little room for disappointment on underlying trends, and hence we think the stock may struggle to outperform now the more balanced skew of risks is apparent.
Bond proxy re-rating: Share price strength in 2019 has come (aside from the benefit of weaker sterling) on the back of the yield curve reflecting lower future interest rates, effectively leading to a lower WACC being used to value bond proxies with resilient growth and cash returns. Sensitivity analysis (figure 2) for our DCF suggests the current share price implies a WACC of <7.5% (with terminal growth of 2.5%). Pricing risk: Interim results on 25 July will likely demonstrate that growth has remained robust in H1, but we see risks in assuming there is no scope for growth to slow. The Risk division in particular should be in focus – consensus assumes a continuation of the c.8% organic growth of recent years, it represents c.30% of revenues, c.35% EBITA and >40% of EV and is the key reason why RELX trades at a c.30% premium to Informa. Premium inflation can reverse: Insurance is c.40% of divisional revenues (more of profits) and has been supported by US auto insurance switching levels on the back of strong US premium growth. However, as figure 5 shows, this insurance premium inflation has dramatically slowed since mid-2018 – with the June 2019 level the lowest in ten years (mirroring the slowing seen for GEICO / Allstate). With a lag, this could lead to Risk growth slowing in H2 / FY20. Little room for disappointment: The stock now trades at over 20x FY20E earnings – understandable given the company’s track record of resilience of growth, but it leaves little room for disappointment, and arguably leaves the risks skewed to the downside (in the absence of further bond proxy re-rating with the yield curve).
J Wiley, a peer of RELX in the academic publishing space, reported fiscal Q3 numbers yesterday and gave details of a new deal signed with German universities. While the comments are generally supportive of RELX's recent comments on Elsevier, the comments on Open Access are likely to keep OA as a topic in investors minds and that may weigh on RELX's rating short-term.
A trade press article suggests that Elsevier’s contract with the University of California was a five year deal worth $50m. Assuming that $50m was spread over 5 years, as seems likely, that would represent 0.3% of FY Elsevier revenues or 0.1% of group revenues but it has managed to drive Elsevier shares down more than 7%.
The University of California has announced it is cancelling its academic journals contract with RELX's Elsevier division and has made a public attack on Elsevier's stance towards Open Access. Our view is that this is unlikely to have a material impact on the numbers at least in the short-term but that it will reignite the concerns over the direction of Open Access and so raises a question for the rating.
FY18 results were sound and in line with expectations. The group once again managed to improve its adjusted operating margin (31.3% from 31% a year earlier) on underlying revenue rising by 4%. RELX anticipates more or less the same positive trends over FY19e, while its top priority remains the transition towards analytics and decision tools. All in all, a satisfactory performance.
RELX delivered FY results very much in line with consensus expectations. While the 2019 guidance was the usual commentary about another year of revenue and profits growth, the comments on the customer environment in the STM (journals) business remaining “largely” unchanged should reassure investors given the concerns over the impact over Open Access.
RELX reported robust figures in its H118 trading statement. The operating margin increased by 50bps led by cost adjustment while underlying revenue growth was +4%. The company expects the positive trends to continue in H2, while its top priority remains the transition towards analytics and decision Tools. All in all, a solid performance.
RELX reported a solid H1 18, which was in line with expectations for revenue and a tick higher in margins. Operating profit rose faster than sales, leading to a moderate margin expansion. All segments reported growth in revenues and in operating profits. Bolt-on aquisitions continued and visibility looks satisfactory for this high quality stock.
We held a lunch with Dr Ralf Schimmer, Head of the Department of Scientific Information Provision at Max Planck Digital Library, to discuss recent trends in the Scientific Journals’ space, including possible disruptors of the publishing industry, new potential payment models and open access in Germany. The key takeaway is that a near-term resolution in the dispute with Elsevier looks unlikely and there are some signs the issue is spreading. The issue is also of relevance to Informa’s Taylor and Francis business.
We recently held a lunch on the academic journals space with senior figures from both the purchasing and funding side of the university research area. The general feeling we had from the event was one of reassurance that RELX’s Elsevier business is both structurally solid and that it is taking active steps to expand both its revenue streams beyond journals and its exposure to Open Access journals.
In these four short videos Media Analyst Ian Whittaker outlines why RELX remains a BUY in the media space, and explains why the share price has fallen YTD, whether the concerns around scientific journals are justified, if RELX can continue to accelerate organic revenue growth and why the company is still his top pick.
We update for the results and FX changes, which are by far the most significant driver of our downgrades. The underlying performance of the business remains strong and the recent results provided reassurance on secular issues. RELX is one of our top picks in media and we reiterate the Buy.
RELX produced satisfactory FY 17 results even if was a bit below consensus, with organic revenue growth positively reaching 4% (i.e. similar to FY16). Consolidated revenues reached £7,355m, up +7% after a total forex impact of +5% reflecting the stronger US$ and Euro against Sterling (only c.7.5% of sales in the UK). The adjusted OP amounted to £2,284m, up 6% organically, i.e. ahead of revenue growth and implying an improving margin at 31.1% from 30.7% in FY16, slightly above our 31% expectation. The adjusted EPS increased by 12% to 81p (AV: 82p) while the full-year dividend is raised 10% to 39.4p (AV at 40p). Regarding the FY18e guidance, management was as vague as usual, i.e. “delivering another year of underlying revenues, profit and earnings growth”. Note that another £700m of share buy-backs was announced for FY18e (£100m already completed) after £700m in FY17 and that the group is proposing to move from the current dual parent holding company structure to a single parent company.
FY results were in line and, together with the usual guidance comments, should reassure the market. RELX shares have been the worst performer of the major European media names YTD and we view this as unwarranted given the quality of the assets and the solidity of the company. We therefore see the weakness as a Buying opportunity. Reiterate the Buy.
RELX reports FY results tomorrow. We do not expect much change from the 9m statement where it reported +4% underlying revenue growth and think that the recent share price pullback, which has been driven by several factors is overdone and represents a buying opportunity. However, we would get the results out of the way first due to a slight concern around a slowdown in like for like revenues in Elsevier.
RELX hosted an investor teach-in focused on its exhibitions division yesterday evening. We make no changes to estimates, but came away impressed by (1) a very clear organic strategy to deliver sustainable 5%-plus top line growth allied with strong margins and cash flow; (2) a focus on true value-based pricing (as opposed to price-gouging) for exhibitors; (3) an accelerating use of the tech assets in the broader RELX group to grow the business (making divestment of the division look ever less likely than ever, in our view). We remain ‘stuck on a Hold’ on valuation grounds on RELX, but this event was a further reminder to us of why RELX is the quality play in UK large cap media.
RELX once again reported a positive 9 months 2017 trading statement, highlighting organic revenue performance of +4%, similar to the same period last year (+4%) and in line with H1 17 (+4%). The full-year outlook is confirmed for delivering “another year of underlying revenue, profit, and earnings growth”. This is not very precise, as usual, but these solid 9 months trends indicate low risk for any FY disappointment.
The Q3 update looks like the usual short and sweet affair from RELX, with overall organic growth maintaining at 4%, the Risk division remaining a key driver at 8%, and other divisions in line. Full year estimates may drift down 1-2% due to a small FX headwind. The stock remains fundamentally attractive and a core holding in the sector for its defensive growth merits. However, valuation continues to look full to us at c21x FY17E EPS. After very strong performance already (+70% over the last 3 years, +16% 2017 YTD) today’s update may not be enough to push the stock any higher in the near term. Call 0900.
RELX produced slightly higher than expected H1 17 revenues at £3,718m (+£461m) and reflecting a solid +4% organic growth. Adjusted OP grew a bit faster, up +5% to £1,154m (+£151m), implying a 20bp margin improvement to 31% compared with 30.8% a year earlier. The adjusted EPS at CER rose by 8% and +19% in sterling and the interim dividend per share is raised by 14% to 11.70p. The group specified that the £500m share buy-back programme was completed and further £200m will be made in H2 (£40m completed over July), i.e. £700m for the full-year as previously announced. An update will be made on the FY18 buy-back plan (thus implying there will be another one) in February 2018. The FY17e guidance was reiterated, i.e. delivering “another year of underlying revenue, profit, and earnings growth in 2017”. This is as vague as usual but the solid H1 results and the current trends (in line with FY16) indicate that risk for disappointment remains very low at this stage for this very well-managed company.
As expected, RELX produced satisfactory FY 16 results, with organic revenue growth positively accelerating to +4% (FY15 at +3%). Consolidated revenues reached £6,895m (+15%) after a total forex impact of +11%, reflecting the weakness in sterling versus both the US dollar and euro (only 7.3% of sales in the UK). The group’s adjusted OP amounted to £2,114m, up 6% organically (+16% reported) and reflecting an improving margin to 30.7% from 30.5% in FY15, although slightly under our 31% expectation. The adjusted EPS increased by 8% at CER to 72.2p (AV: 71.8p). The full-year dividend is raised 21% to 35.95p (AV at 34.8p) after a final at 25.7p from 22.3p a year earlier (as a reminder, the group had announced in August a larger than usual interim dividend primarily due to end-period forex). RELX announced a new £700m share buy-back programme for FY17e (£100m completed so far) after £700m completed in FY16 and is confident to deliver in FY17e “another year of underlying revenues, profit and earnings growth”, a positive statement although as vague as usual.
A presentation yesterday on Relx’s legal division was reassuring, underpinning expectations of several years of tick-up in revenue growth and margins to come from this business – albeit in line with existing forecasts. Even more interesting to us was a 5% fall in the stock price yesterday – unrelated to the presentation but driven by market rotation out of ‘bond proxy’ stocks. The shares are down 14% from the high reached in the last month. At 17x EPS (FY17E) they do not yet look cheap: but we highlight closer to £12 as an attractive entry point for what remains a fundamentally very attractive situation.
Another strong update from the now-metronomic Relx, maintaining its increased top line pace at the 9 month stage (+4% organic) helped by a particularly strong Q3 for transactional revenues in the Risk division. All underlying FY guidance remains intact, and we expect estimates to rise c5% catching up with current FX rates. Valuation remains the biggest risk, but does not look too stretched at c17x 17E EPS (FCF yield 5.3%, dividend 2.4%). Having moved back from Buy to Hold at around the £12 level, we are loath to upgrade again at current levels: but Relx remains a core holding in the sector.
RELX produced solid H1 16 results, with organic revenue growth positively accelerating to +4% (FY15 at +3%). Consolidated revenues reached £3,257m (+10% or +£293m) after a total forex impact of +5%, reflecting the sterling weakness versus both the US dollar and euro (only 7.6% of sales in the UK). Adjusted operating profit amounted to £1,003m, up 6% organically (+10% reported) and reflecting an improving 30.8% from 30.7% margin (cost control and continued process innovation impact). About £500m share buy-backs were completed over the period and a further £200m will be deployed by the end of the year. Adjusted EPS increased by 8% at CER. The interim dividend is raised 39% to 10.25p, nearly 26% above our forecasts, as the group announced a larger than usual interim dividend for RELX Plc primarily due to end-period forex. Note that the full-year dividend policy is unchanged, i.e. in line with adjusted EPS growth with a cover level at least 2x over the long term. Regarding the FY16e guidance, the statement is as vague as usual, i.e. “delivering another year of underlying revenues, profit and earnings growth”. CFO Nicolas Luff specified that, at current rates (i.e. with the dollar and the euro averaging between 10% and 11% stronger against sterling for the year as a whole), he would expect an 8% to 9% benefit to sterling-reported growth rates for the full year.
RELX produced solid FY15 results, globally in line with our forecasts, with revenues at £5,971m (+3%) after a total forex impact of only +1%, despite generating only 8% of its sales in the UK, as the strengthening US dollar versus sterling was offset by the weakening euro. The underlying revenues trend was similar to the 9-month period at +3%, once again supported by growth across the four businesses. Adjusted operating profit reached £1,822m, up 5% organically, and reflecting a solid 30.5% margin, in line with our expectations, up from 30.1% in FY14 and 90bp higher on an underlying basis. EPS rose by 7.9% and by 8% at CER to 60.5p, when we had forecast a slightly higher 63.5p. The full-year dividend per share is to be raised by 14.2% to 29.7p, while a further £700m share buy-back was announced for 2016 (coming after a £500m plan in 2015). Regarding the FY16 guidance, the statement is as vague as usual, i.e. “delivering another year of underlying revenues, profit and earnings growth”, with early FY16 trends being in line with those of FY15.
RELX produced solid first nine months trading results, similar to H1 15 trends. Underlying revenues improved by 3%, once again supported by growth across the four businesses. The group, which pursued its portfolio management over the period (14 content, data and exhibition assets acquired year to date for £91m and 11 assets disposed of for £72m) reaffirmed its FY guidance, although remaining as vague as usual, i.e. "delivering another year of underlying revenues, profit and earnings growth". Out of the £500m share buy-back plan announced for 2015, £425m has been completed so far with the remaining £75m to be deployed by year-end. It was specified that the Board will not make any decision on a 2016 share buy-back until February.
Another solid week for the UK media sector, in particular powered by a good bounce for heavyweight RELX. What catches our eye in particular is the growing valuation gap opening up again between RELX (+4%) and INF (-2%). Both are fundamentally similar stocks in our view (defensive steady growth stocks and beneficiaries of recent USD strength). While we recognise that Informa also needs to deliver on its management turnaround story, the recent performance has widened the valuation gap between the two. RELX is now valued at 16.8x EPS (16E) with a 2.5% dividend yield – a premium of 26% to INF on 13.3x/3.5% respectively. Informa also has a potential catalyst upcoming, with an investor day scheduled for November 17th. We have a Buy rating/650p TP for INF, compared to Hold/1200p currently for RELX.
RELX Group once again produced solid results over H1 15, with revenues up 3% underlying (i.e. in line with the same period last year, excluding exhibition cycling), supported by growth across the four businesses. Profitability was further improved to 30.7% compared with 30.2% a year earlier (FY14 was 30.1%). Out of the £500m share buy-back programme announced for 2015, £300m has been completed over the period and the interim dividend will be raised by 6% to 7.40p for RELX Plc. As a reminder (please refer to our 1 July 2015 Latest), the new corporate structure, share listings, and entity name changes have been completed. Parent company boards were fully aligned on 21 July 2015. FY guidance was reiterated, although remaining as vague as usual, i.e. "delivering another year of underlying revenues, profit and earnings growth". Note that forex impact was broadly neutral over H1, the strengthening of the US$ against sterling (average rate: +10%) being partly offset by the euro weakness (average rate: -10%).
As expected (please refer to our 26 February 2015 Latest), the group is completing today its structure simplification and listed entity name change.
