Company Reports

Wide-moat RELX’s first-quarter trading update indicated initial performance in fiscal 2024 is tracking in line with guidance and our expectations. Shares are trading flat intraday. We don’t expect to make a material change to our GBX 3,650 fair value estimate. At current levels, the shares look undervalued.

We’re initiating coverage of RELX, Wolters Kluwer, and Clarivate; three companies in the business information industry that provide curated data, analytics, and software solutions to a variety of professionals in academia, health, law, finance, government, and others. RELX has a wide moat, fair value estimate of GBX 3,650, and 4-star rating. Wolters Kluwer has a wide moat, a fair value estimate of EUR 137, and 2-star rating. Clarivate has no moat, fair value estimate of EUR 137, and 3-star rating.

RELX, based in the UK, is a global provider of business information, analytics, and decision-making tools for professionals in various industries. It generates revenue mainly by creating and selling access to curated information databases, analytics, and journals. In addition, RELX organizes major events such as trade shows and conferences.

We are dropping coverage of RELX. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals over the years. The company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to close to 13% in 2021, against a weighted average cost of capital of just 8.3%.

With constant-currency revenue growth of 13%, one might think something strange is going on with the usually reassuring "dull" interim results by narrow-moat RELX. The answer is, of course, the effect of the exhibitions business, which has come roaring back in the first half of the year with revenue up more than 200% as economies opened up globally and businesses resumed activities. Although we may adjust our near-term estimates upward on the back of this update, we do not expect this to change our view of the stock, relative to our GBX 1,760 fair value estimate. We view the shares as overvalued.

RELX’s first-quarter update omitted numbers entirely, but the message was loud and clear, performance is on track, and the company will likely deliver a full year result at least as good as previous years. We are slightly more optimistic, believing that there are enough tailwinds to push growth materially above historical averages in 2022. We don’t expect to make any material changes to our forecasts on the back of this update, and reiterate our GBX 1,760 fair value estimate. With the shares up more than 20% over the last month, we believe they currently sit in overvalued territory.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals over the years. The company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to close to 13% in 2021, against a weighted average cost of capital of just 8.3%.

Narrow-moat RELX closed out the year strongly, with organic revenue growth of 7% and EPS back to within touching distance of precoronavirus levels. With the shares off 5% or so on Feb. 10 it appears the market has got ahead of itself in terms of expectations, but we believe management’s guidance of growth in 2022 above historical trends represents a coup in this generally uncertain economic environment. We reiterate our GBX 1,615 fair value estimate and believe the shares remain overvalued.

Narrow-moat RELX printed a solid third quarter update. Organic revenue growth rose by 6% in the first nine months of year, with relatively broad-based growth across the divisions. This level of growth is roughly in line with our full expectations, so we do not expect to make any material changes to our group level forecasts at this point in time. We reiterate our GBX 1,615 fair value estimate and believe the shares represent little value currently, sitting more than 20% above their pre-pandemic levels.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals, such as that of data aggregator ChoicePoint in early 2008, which subsequently burdened the company with significant debt-service costs. Despite these challenges, the company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to more than 13% in 2019, against a weighted average cost of capital of just 8.30%.

Narrow-moat RELX’s first-half results reflect a decent performance, in the face of mixed fortunes for the business. Revenue rose by 4% on a constant currency basis, while operating margin rose by 400 basis points to 25.3% on an actual basis. While we continue to monitor developments, particularly in the exhibitions business, we believe progress so far this year has been closely tracking our expectations. As such, we do not expect to make any material changes to our forecasts at this time, nor to our GBX 1,615 fair value estimate. We believe the shares are moderately overvalued.

All in all, this morning’s trading update from narrow-moat RELX told us very little we didn’t already know. The exhibitions division continues to be a drag on the overall business, with little in the way of improvement seen thus far in 2021. RELX’s other three businesses, which have historically generated around 85% of group revenue are broadly following precoronavirus patterns of growth. While we continue to monitor developments, particularly in the exhibitions business, we believe progress so far this year has been closely tracking our expectations. As such we do not expect to make any material changes to our forecasts at this time, nor to our GBX 1,615 fair value estimate. We believe the shares are moderately overvalued.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals, such as that of data aggregator ChoicePoint in early 2008, which subsequently burdened the company with significant debt-service costs. Despite these challenges, the company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to more than 13% in 2019, against a weighted average cost of capital of just 8.3%.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to closer to 90%. This change was achieved primarily through a series of targeted acquisitions and disposals, such as that of data aggregator ChoicePoint in early 2008, which subsequently burdened the company with significant debt-service costs. Despite these challenges, the company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to more than 13% in 2019, against a weighted average cost of capital of just 8.3%.

With headline revenue falling by around 10% year over year and net income faring slightly worse, one could be forgiven for thinking narrow-moat RELX had a bad year. The devil is in the detail, however, and while there was some coronavirus-related disruption across the entire business, these effects proved to be a relatively minor drag in most areas, with the exception of exhibitions, which bore the brunt of business closures and travel restrictions. With this result in line with our expectations, and little clarity emerging in the way of guidance around the recovery in the exhibitions business, we do not expect to make any changes to our near-term forecasts on the back of this update. We reiterate our GBX 1,615 fair value estimate and believe the shares are slightly overvalued at this point.

Narrow-Moat RELX’s third-quarter trading update read very similarly to its second-quarter update. While three of its four businesses continue to perform reasonably well given the circumstances, the exhibitions business is feeling the pinch. Revenue here is down 70% year over year, and while the company, and investors, had been pinning some hopes on a resumption of the events calendar toward the end of 2020, these hopes now appear to be dashed, in the major markets of Europe and North America at least. The company now expects revenue of GBP 345 million for full-year 2020 from this business, little more than one quarter of the level delivered in 2019. While we plan on updating our near-term estimates on the back of this update, we do not expect this to alter our view on the stock, which we believe to be fairly valued relative to our GBX 1,615 fair value estimate.

For the first time in four years RELX's interim results didn’t contain the words “strong or robust” when describing operational performance over the period. Instead we were treated to an explanation of how its three largest businesses, STM, risk and business analytics, and legal, which together generate 84% of group revenues, are all holding up fine. This is, of course, to say that exhibitions is not doing so well. Revenues here collapsed by 70% year over year. Of course, analysts and the market had known well that this business would likely be experiencing disruption as a result of the coronavirus pandemic, but an operating loss in this division for the half year is an outcome that not many would have forecast. We will continue to revise our near-term estimates as the situation unfolds; however, we do not expect this to have a material impact on our investment recommendation nor our narrow moat rating. With the stock hovering just above our GBX 1,615 fair value estimate, we believe the shares remain fairly valued.

Over the past decade, RELX has undergone wholesale changes to the structure of the company, taking its exposure to electronic-format businesses from 35% to more than double this figure. This change was achieved primarily through a series of targeted acquisitions and disposals, such as that of data aggregator ChoicePoint in early 2008, which subsequently burdened the company with significant debt-service costs. Despite these challenges, the company has managed to significantly drive operating margin growth with the improved business mix. Since 2005, operating margins have expanded by close to 50%. This has also been reflected in returns on invested capital, which have increased on an adjusted basis from close to 8% in 2009 to more than 13% in 2019, against a weighted average cost of capital of just 8.3%.

Narrow-moat RELX today released its eagerly awaited first-quarter trading update. RELX is one of the most consistent performers in the European business services sector, continually delivering revenue, operating profit and net income growth in a 4-6-8 type model. In the first quarter, three of the four business segments grew at a rate ahead of 2019, enough of a result under normal circumstances to see a positive share price movement on the announcement. However, with the COVID-19 impact lurking in the background, investors will undoubtedly be picking apart this trading statement, probing for potential weaknesses in the business model. The elephant in the room is the exhibitions business, the obvious loser in the current environment. As things stand, however, the impact does not appear to be devastating. Luckily for RELX, the event schedule for the year is generally back-end loaded, with 70% of revenues coming in the second half. Of the events that had been scheduled for the first half of the year, it appears the vast majority are being postponed rather than canceled, some good news at least. Rescheduling costs, and the combining of events will undoubtedly mean lower revenues and profitability from this segment, but 2020 is far from being a write-off. Having revised our forecasts and our fair value estimate in the last month, we are not making any material changes at this point; we will, however, be monitoring the situation closely. As it stands, and despite the recent sell-off, we believe RELX shares remain fairly valued relative to our GBX 1,690 fair value estimate.