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The company has resilient earnings as its services are essential for clients
Thursday 14 Apr 2022 Author: Mark Gardner

Information services group RELX (REL) offers a unique combination of recession-proof earnings, coupled with an ability to generate solid earnings growth in a slowing economy.

This is a particularly valuable trait given the fragile nature of the UK economy and the increasing likelihood of a recession.

RELX is a high-quality professional publisher. Over
the past few years its portfolio has been refined to focus on
fast growing activities in risk, science and technology, legal
and global events.

The company provides information-based analytics and decision tools for professional and business customers to help them make better decisions, get better results and be more productive.

For example, during the early stage of the pandemic it helped various US states to clamp down on fraud involving unemployment claims. And in France it applied machine learning to historical hospital patient data to create models that identify patients at higher risk for healthcare-related adverse events.

Full year results for 2021 demonstrated the strength of the group with growth of 7% in revenue, 13% in operating profit and 15% in pre-tax profit.

On a divisional basis the scientific publishing and legal operations came in at 3% growth with print formats less of a drag than in previous years. 

On a group basis, print only accounted for 7% of its revenue in 2021 versus 86% from electronic means, which is a more cost-efficient way of delivering information to customers.

The risk division grew at 9% in 2021, while exhibitions recovered strongly with a 44% gain albeit from a low base.

In 2021, 58% of its revenue came from subscriptions, many of which involve multi-year contracts which highlights how RELX enjoys attractive recurring income.

With net debt to earnings before interest, tax, depreciation and amortisation falling to a ratio of 2.3, management has declared a £500 million share buyback. A figure below three is generally considered to be good.

The company has also retained the firepower for additional earnings-enhancing bolt-on acquisitions within the risk division.

Moreover, scaling the footprint of its electronic information will provide scope for further earnings growth.

Investors should expect most of their returns to come from a rise in RELX’s share price rather than income, although a 2.2% prospective dividend yield is a nice bonus.

Trading on 24 times forward earnings, RELX is cheaper than many of its data specialist peers including Experian (EXPN) and Thomson Reuters (TRI:NYSE). While that is not a bargain rating, the shares have always traded at a premium to reflect the company’s status as an attractive compounder.

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