Analyst Note| Michael Field, CFA |
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.