ii view: momentum still in RELX’s favour

Exposure to global demand for information-based analytics and with its exhibitions division recovering from the pandemic. Buy, sell, or hold? 

Nine-month trading update to 30 September

• Underlying revenue growth year to date up 9%

ii round-up:

Information and analytics company RELX (LSE:REL) today flagged its expectation for full-year adjusted operating profit to be higher than historical trends. 

Underlying revenues for the FTSE 100 company is up 9% year-to-date, with growth reported across all four of its divisions. 

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RELX shares rose by around 1% in UK trading having come into this latest announcement down by just under 8% year-to-date. Shares for advertising company WPP (LSE:WPP) are down by a third year-to-date, while magazine publisher Future (LSE:FUTR) is down by two-thirds. The FTSE All Share index is down by a tenth during 2022. 

RELX, the former Reed Elsevier, pointed to continued strong momentum going into the fourth quarter. Sales for its Legal division, accounting for just over a fifth of overall revenues, rose 5% in the third quarter versus growth of 4% in the first half, triggered by customers trading up to the enhanced functionality of its Lexis Nexis platform. 

Demand at its Risk division, accounting for just over a third of overall revenues and including its insurance business customers, remained up 7% during in the third quarter, in line with the first half. 

Sales for its Scientific, Technical & Medical division, generating for a further third of sales, rose by 4% during the latest quarter, aided by strong research article publication and again in line with the first half. 

Demand at its Exhibitions business continued to rebound from previous pandemic disruption, rising by 85% during the third quarter, although down from over 200% in the first half. Exhibitions accounts for a tenth of overall sales. 

ii view:

RELX provides sophisticated information-based analytics and decision tools to its base of professional and business customers. Employing more than 33,000 people, nearly half of which are in North America, RELX serves customers in more than 180 countries and has offices in around 40. Each division either leads or is a major provider in its area. 

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For investors, a highly uncertain global economic outlook cannot be ignored. An estimated price/earnings (PE) ratio above the 10-year average suggests the shares are not obviously cheap, while currency risks given more than four-fifths of its sales are generated from outside the UK, also warrant consideration. 

On the upside, today's numbers appear to underline RELX’s defensive credentials given another period of consistent growth. Diversity of both operations and geographical regions is enjoyed, targeted acquisitions to support its organic growth strategies remain a management focus, while the dividend has grown consecutively for more than 10 years. 

On balance, and despite relatively defensive growth not coming cheap, a consensus analyst estimate of fair value at over £25 per share is likely to leave investors backing the business for the long term.

Positives: 

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

Negatives:

• Virus hit exhibitions business 
• Subject to currency headwinds

The average rating of stock market analysts:

Buy