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Quality stock going cheap with publishing fears overdone
Thursday 01 Mar 2018 Author: Tom Sieber

Data analytics, events and publishing business RELX (REL) is down 14% year-to-date as a reversal in the dollar strength which had boosted earnings and a dispute over the pricing of scientific journals have dogged the shares.

Sentiment is starting to turn and the stock is coming off its 2018 lows. We believe there is further upside to come, so buy now.

The shares trade on a forward price to earnings (PE) ratio of 16.6 times compared with 19-times average over the last decade according to SharePad.


Based on our previous experience of covering the stock, this valuation anomaly is unlikely to persist indefinitely.

We wrote positively on RELX, previously called Reed Elsevier, in June 2015 when the company was trading on a PE of 17.1 times after a period of underperformance. Within 12 months the stock was trading 20% higher.

Is anything different this time? The threat to its scientific, technical & medical (STM) arm from a newly-formed consortium of German universities complaining about pricing looks modest. Investment bank Berenberg reckons this business accounts for 0.5% of divisional revenue.

There is always a danger this is a ‘canary in the coalmine’ warning of the more aggressive pursuit of open access – the principle of giving away publicly-funded peer-reviewed research for free.

However, most global governments have adopted policies which are unlikely to be too disruptive to subscription-based publishers like RELX.

Investors should keep tabs on this situation but there appears little reason for panic at the moment.


The company was bullish on the STM division in an otherwise typically reliable set of full year results on 15 February.

The 2017 figures revealed profit up 6% and revenue up 4%, in line with recent trends. The dividend was lifted by 10% to 39.4p, underpinning robust guidance for another year of growth in 2018.

An announced change from a dual share structure to one single PLC share listed in London and Amsterdam also simplifies and improves the investment case.

Since taking over in 2009, chief executive Erik Engstrom has helped shift from print to digital, invested in its analytics skill-set and moved into faster-growing geographies.

The business is increasingly aligned with the big data trend given its ability to absorb large quantities of information and distil this data into information which can help its customers operate more efficiently.

The projects it completes often account for just 1% of customers’ total cost base but can have a significant and positive impact on the economics of the remaining 99%, says RELX.


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