ii view: data processor Relx still going strong

Nine-month trading update to 30 September

• Underlying revenue growth year to date up 8%

ii round-up:

Information and analytics company RELX (LSE:REL) today flagged its expectation for growth in both sales and profit to remain above historical trends over the current full year.  

Aided by a near one-third increase in sales for its pandemic hit exhibitions business, total group adjusted sales for the nine months to late September rose 8%, echoing growth seen over the first half and leaving Relx on track to meet current City forecasts. 

Shares in the FTSE 100 company drifted marginally lower in UK trading having come into this latest news up by just over a quarter year-to-date. That’s ahead of a 15% gain for rival exhibitions business owner Informa (LSE:INF) and better than a 0.5% loss for the FTSE 100 index itself. 

• Invest with ii: Top UK Shares | How to Start Trading Stocks | Open a Trading Account

Formerly Reed Elsevier, Relx trades across four divisions: its Risk business, which provides data for industries including insurance, is the biggest at just over a third of sales, with Exhibitions the smallest at just over a tenth of revenue.  

Sales for Risk rose 8% during the nine-month period, helped by demand for digital fraud and Identity solutions. The adjusted profit margin for Exhibitions is now expected to be above the pre-pandemic level, aided by divisional cost cutting during the Covid crisis. 

Revenue for its second biggest division - Scientific, Technical & Medical (STM) - accounts for a third of sales, and improved 4% during the period. Lastly, Legal related sales generating  a fifth of overall revenues, made a 6% increase, with demand for its Lexis plus service assisted by Artificial Intelligence functionality.  

Broker UBS reiterated its ‘buy’ stance on the shares post the news. Full-year results are likely mid-February. 

ii view:

Relx provides sophisticated information-based analytics and decision tools to its base of professional and business customers. Employing more than 35,000 people, nearly half of which are located in North America, Relx helps customers in more than 180 countries and has offices in around 40. 

For investors, the challenging and highly uncertain global economic backdrop warrants thought. An estimated price/earnings (PE) ratio above the 10-year average suggests the shares are not obviously cheap, while currency risks, given more than nine-tenths of its sales are generated overseas, deserves consideration. 

• Q3 results preview: profit expectations and an upgrade for UK stocks
• Insider: a £1.6m share buying spree after price plunges
• Daily Trading Flash: 10 most-traded shares 19 October 2023

More favourably, diversity of both operations and geographical regions exists, and bolt-on acquisitions have in the past supported growth. Artificial Intelligence is now aiding its services, while the dividend has grown consecutively for more than 10 years, with the forecast dividend yield standing at around 2%.  

For now, and despite relatively defensive growth not coming cheap, exposure to data demand across a variety of industries is likely to leave fans of this FTSE 100 giant remaining optimistic about long-term prospects. 

Positives: 

• Diversity in both business type and geographical region
• Growing dividend payment

Negatives:

• Pandemic hit exhibitions business 
• Subject to currency headwinds

The average rating of stock market analysts:

Buy