ii view: Experian retains optimistic outlook

First-half results to 30 September

• Revenue up 7% to $3.62 billion (£2.86 billion)
• Adjusted profit (EBIT) up 10% to $1.01 billion (£798 million)
• Interim dividend up 7% to 19.25 US cents per share
• Net debt up 15% to $4.96 billion (£3.92 billion)

Chief executive Brian Cassin said:

"We delivered good growth in H1. Based on our progress, we are raising our margin outlook, and now expect margin accretion to be towards the upper end of our +30 to +50 basis points guidance range.”

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ii round-up:

Global information and credit services company Experian (LSE:EXPN) today detailed sales matching City forecasts, with all global regions contributing. 

Despite a subdued lending environment, adjusted first-half revenues to late September gained 7% year-over-year to $3.62 billion (£2.86 billion). Experian continues to forecast annual sales growth of 6-8%, but with the introduction of new products and advance analytics helping a gain in profit margin toward the top end of management’s prior 0.3% to 0.5% expected increase.

Shares in the FTSE 100 company fell 3% in UK trading having come into these latest results up by a fifth this year. That’s better than an 8% improvement for US rival Equifax Inc (NYSE:EFX) over that time. The FTSE 100 index is up just under 4%. 

Experian’s data helps consumers buy cars and houses and assists companies in offering credit prudently. Adjusted profit (EBIT) for the period climbed 10% to $1.01 billion. Pre-tax profit fell 6% to $718 million, hit by the change in the value of the group’s interest rate swaps. 

Consumer related sales led the way, gaining 9%, and helped by a 10 million increase in free members globally to 190 million. Corporate or B2B sales climbed 6%, aided by strength in North America and demand for mortgages.  

Geographically, Latin America sales improved to a gain of 9% in the second, up from 5% increase in the first quarter. Organic sales for its biggest North American region, accounting for around two-thirds of total group sales, remained level at a gain of 7%. UK & Ireland sales improved 2%. 

The interim dividend rose 7% to 19.25 US cents. Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the news. 

ii view:

Experian employs over 22,000 people across more than 30 countries. The group sells data to credit-granting institutions, individuals and other users, along with analytical tools and marketing data. Data is obtained from several sources, including retail customers, often at low or no cost. Business or B2B sales generate most revenues at close to three-quarters, with Consumer services the balance. 

For investors, elevated interest rates are likely to be adding to consumer caution in applying for new loans. An estimated one-year price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. Costs for businesses generally remain elevated, while the importance of data protection to Experian cannot be underestimated. 

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On the upside, still relatively low rates of unemployment in many of Experian’s key markets should help underpin demand for credit. Hopes regarding further interest rate cuts persist. Bolt-on acquisitions continue to be made, while its Latin America (largely Brazil) business has been expanded into Colombia, Peru, Chile and Panama. 

In all, and while some caution remains sensible, both the increasing value of data and a consensus analyst estimate of fair value above £44 per share appear to offer grounds for ongoing investor support.   

Positives: 

• Company enjoys both product and geographical diversity
• Growing free consumer memberships

Negatives:

• Economic outlook uncertainty
• Subject to currency movements

The average rating of stock market analysts:

Buy