ii view: why Experian shares just rallied to eight-month high

This data company has reported growth across all regions and all segments. Buy, sell or hold?

First-quarter trading update to 30 June

• Continued activities or organic revenue up 22%
• Total revenue up 31%
• Expects full-year organic revenue growth of between 9% and 11%, up from 7% to 9%
• Expects full-year total revenue growth of between 13% and 15%, up from 11% to 13%

Chief executive Brian Cassin said:

"We delivered a strong performance in Q1 through a combination of successful delivery of our innovation-led strategy and faster than expected recovery as economies emerge from the Covid-19 pandemic.”

ii round-up:

Credit data and information services company Experian (LSE:EXPN) today upped its full-year guidance as it reported a stronger than expected first-quarter performance. 

A one-fifth increase in US consumer services demand helped drive a 22% gain in quarterly organic revenue growth, exceeding managements prior estimate of up to 20%

Experian shares rose by around 5% in UK trading, leaving them up by more than 60% since pandemic induced market lows back in March 2020. Shares for US rival Equifax (NYSE:EFX) have more than doubled over the same time. 

Experian’s data helps consumers buy cars and houses and helps companies offer credit prudently. Significant pandemic and related job uncertainty this time last year caused consumers to rein in big ticket purchases.

Experian flagged growth for the quarter across all regions and all segments. Full-year guidance for organic revenue growth was raised to between 9% and 11% from a range of 7% to 9% as of its last full-year results in May. Management continues to expect strong earnings before interest and tax (EBIT) margin accretion. 

Geographically, organic sales growth was led by Latin America at 25%, then North America at 22%, the UK and Ireland with 20%; and finally, EMEA and Asia Pacific at 19%. 

First-half results are scheduled for 17 November.

ii view:

Experian sells data to credit-granting institutions, individuals and other users, along with analytical tools and marketing data. Data is obtained from several sources, including customers, often at low or no cost. Its growing array of consumer data held appeals to its corporate customers. Its free consumer memberships rose by 28 million over its last financial year to a total of 110 million. Brazil at 59 million members provides its biggest country segment, with the USA at 41 million and the UK at 9.5 million. Geographically, North America generates its largest slug of sales at around 65%. It is the number one UK and Brazilian consumer and business credit data bureau and among the top three in the US. 

For investors, the pandemic and the first half of 2020 demonstrated Experian’s economic susceptibility. Consumers are unlikely to want to take on credit and make big ticket purchases if their jobs could be lost. An estimated one-year price/earnings (PE) ratio above the three- and 10-year averages also suggests the shares are not obviously cheap. 

But the growth in data generally looks to offer further opportunities. A restructuring programme at its UK and Irish business remains ongoing, and its global consumer membership base now stands at over 100 million. In all, while economic outlook uncertainty because of the pandemic injects some caution, the growing value of data and raised full-year revenue expectations offer scope for ongoing investor support.   

Positives: 

• Company enjoys both product and geographical diversity
• Raising full year revenue forecasts

Negatives:

• Ongoing economic and Covid related uncertainty
• Total annual dividend remained unchanged since 2019

The average rating of stock market analysts:

Buy