The momentum that’s made RELX (LSE:REL) one of the best returning FTSE 100 stocks of the past 40 years has been backed to continue after the publisher was named a top pick for 2024.
Despite a re-rating for shares during 2023, City bank UBS sees room for RELX to go deeper into record territory based on a new price target of 3,640p. That represents a 21% upside to today’s price.
UBS told clients: “RELX is one of few stocks in Europe that offers structural growth, a low asset beta, high liquidity, a healthy balance sheet, and short-term earnings upside potential.”
RELX is now the ninth-largest stock in the FTSE 100 index based on a market valuation of £58 billion, having previously delivered a total shareholder return of 368% in the ten years to the end of 2022. That compares with 85% for the wider FTSE 100.
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It ranks alongside British American Tobacco (LSE:BATS) and Rio Tinto Registered Shares (LSE:RIO) as the best of the 1984 FTSE 100 originals, when RELX was trade magazine publisher Reed International. A 1993 merger with a Dutch scientific publisher created Reed Elsevier before a change of name in 2015.
The company is now the second-biggest holding of the Finsbury Growth & Income (LSE:FGT) Trust, neck and neck with London Stock Exchange Group (LSE:LSEG), having delivered a total return of 11.3 times since 2000 compared with 5.4 times for the Nasdaq. Its manager Nick Train said recently: “Even now, some of our clients are surprised to see how well RELX has done, even compared with the ‘home’ of technology, the Nasdaq.”
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The biggest division is Risk & Business Analytics, which with a valuation exceeding £30 billion was described recently by Bank of America as the “biggest company you’ve never heard of”.
The US bank highlighted a long-term growth story with headroom for Risk to more than double sales, supporting 7-8% revenue compound growth over more than 15 years.
Its September analysis noted the division was deeply embedded into customer workflows, with its contributory datasets difficult to replicate. The US bank added: “AI is an enabling technology, and we expect RELX to benefit from its continued evolution.”
The Elsevier journals operation Science, Technical and Medical (STM) generated revenues of £2.9 billion in 2022, compared with £1.8 billion for the LexisNexis-based Legal arm and Exhibitions at £953 million.
UBS said today it expects organic growth in STM to accelerate to 5% in 2024 and for Legal to achieve 7% due to the continued adoption of analytics tools and early sales of LexisAI+.
The bank sees scope for the division to deliver an additional £1 billion of revenues by 2030, noting a recent ABA Legal Technology Survey that found 40% of all US law firms now use legal analytics products versus 33% in 2022.
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The survey also points to momentum behind generative AI adoption as 14% of large law firms are seriously considering purchasing AI-based technology tools against just 3% in 2022.
UBS now values Legal at 22 times forward 2024 earnings compared with 18 times previously, with STM moving to 18 times from 16 times. Risk stays at 23 times and Exhibitions 13 times.
Overall, the shares trade on 23 times 2025 forecast earnings but the Swiss bank notes this is below a group of 16 large cap defensive, quality growth European stocks on 24 times. It is also a large discount to US peers Thomson Reuters Corp (NYSE:TRI) on 35 times and Verisk Analytics Inc (NASDAQ:VRSK) on 32 times.
The bank’s analysis assumes a share buy back in 2024 of £850 million versus £800 million in 2023, although with room for a bigger sum if merger and acquisition activity remains at a lower than normal level. The company trades with a 2% yield.
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