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magazineRELX and enjoy benefits as publisher scales up
Specialist publisher RELX (REL) is on an accelerated growth track and investors should get on board with this quality company.
Recent third quarter numbers (27 Oct) confirm the upwards trajectory. The company posted underlying revenue growth of 4% in the first nine months of the year.
It is likely to see full year numbers flattered by a currency tailwind thanks to ongoing sterling weakness. Nearly 85% of its revenue is derived from outside the UK, with more than half coming from the US.
Attractive valuation
RELX – previously known as Reed Elsevier – has consistently delivered excellent performance over a long period. As such a 2017 price to earnings ratio of 17.6 and dividend yield of 2.5% look attractive.
The company is a publisher and provider of information solutions for professionals. It is made up of the following divisions: Scientific, Technical & Medical; Legal; Risk solutions; and Exhibitions.
A significant part of its business involves the publication of scientific journals. The company has a dual-listing in the UK and the Netherlands.
A corporate reorganisation in 2015 helped tidy up a slightly messy share and company structure and makes a compelling investment case easier to understand.
Accelerating growth
Investment bank Berenberg, which has a ‘buy’ recommendation and £17 price target on the stock, comments: ‘The company has demonstrated the ability, on an underlying basis, to deliver around 3% top-line growth, 5% operating profit growth and 7-8% earnings per share growth in recent years.
‘Scaling the footprint of its electronic information businesses should provide scope for sustainable acceleration in the mid-term,’ it adds.
This transition has been evident in the Risk division which sells banks tools to help detect risks such as financial fraud. Risk saw growth hit 9% for the first nine months of 2016 with increasing demand in the key US market.
The main area of concern which has weighed on the shares in recent years is open access. This is the principle of giving away publicly-funded peer-reviewed research for free. However, it appears most global governments are adopting policies which are friendly to the large subscription publishers. (TS)
It boasts excellent returns on capital, strong margin performance and dividend growth. Buy RELX at £14.64.
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