Company Name : Experian Plc
Nb of shares : 924.2m
Last close : GBP15.52
Market Cap : GBP14.3 bn
Sector : Business Services (information services)
What’s the company doing ?
The company is one of the largest providers of information on consumers, corporates, property and motor vehicles. The company provides consumer information (credit scoring…) and other types of services (decision analytics, marketing data) to a wide range of clients in the financial services, automobile, telecommunications and retail sectors. US is the largest market for Experian, which reports in USD. North America generated a FY 2017 revenue of USD2.46 bn on a total of USD4.34 bn and an 2017 EBIT of USD781 m on consolidated USD1.2 bn for the whole company. Other business segments are Latin America, UK and Ireland and EMEA/Asia Pacific.
What happened ?
On Friday Nov 24, Exane has upgraded its rating on the stock, which was up 1.6% during Friday trading session.
How did the market appreciate it (Performance vs Bench) ?
Stock has returned 12% per annum over the last 10 years (dividend excluded).
What’s the Equity Story ?
Key valued driver for the company is its credit bureau activity, with leading market position in the US and the UK. This business enjoys limited competition on price (oligopolistic structure of the market) and is a capital-light activity, which translates into high margins (23-25% EBIT margin) and high return on capital employed (45%+) and free cash-flow .
What’s the Valuation and What’s in the Price ?
Shares trade in the range of 20-21x earnings, which compares to 7% earnings growth until 2020 (based on consensus data). Valuation ratios are quite high when compared to some peers (Dun & Bradstreet trades at a P/E of 14x 2018e) but not all (Equifax trades at a 21.1 2018 P/E multiple).
What Are the Key Risks ?
The company relies on the evolution of credit and consumption in some of the largest developed and emerging markets (US, UK, Brazil, Europe, Asia).
US Mortgage activity has been a tailwind for the business but could turn if the US were to go into recession in the coming years.
Lack of scale in regions other than North America (especially EMEA/Asia).
According to Exane BNP Paribas’s analysts, « Identity Works de-risks the near-term Consumer outlook, an area which we have previously argued is pivotal to the investment case. » Based on this view, they expect an acceleration in organic growth to c7% in Q4, and also factor in a lower cost of capital (WACC lowered to 7.7% from 8.0%), which boosts the Target Price to GBP15.40, justifying the change in rating from « Underweight » to « Neutral ».
Their EPS estimates for 2018 and 2019 are in-line with IBES consensus data.