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Experian facing near-term headwinds

Regulatory hurdles and a switch to a digital business model will subdue second-half growth
November 6, 2014

Shares in credit-checking specialist Experian (EXPN) went some way to reversing this year's steady decline, with a gain of over 3 per cent on the back of a modest increase in half-year profits. However, significant headwinds remain, principally a stricter regulatory environment and the challenge of becoming a digitally operated business.

IC TIP: Hold at 971p

Total revenue growth from continuing activities at constant exchange rates was a modest 4 per cent, but organic growth was flat. Consumer services suffered a 12 per cent top-line decline in North America, as the company switched its focus from legacy 'free' brands towards the higher-margin Experian.com model. While revenue at Experian.com grew by 15 per cent, revenue from legacy brands fell by nearly a third. Moreover, progress in the affinity channel, which helps businesses grow relationships with their customers, was held back by new regulatory requirements, which distracted affinity partners from day-to-day marketing concerns.

On a stronger note, operations in Brazil improved during the second quarter as business activity recovered from the disruption created by the World Cup. There was also organic growth of 5 per cent in the UK and Ireland, boosted by a new platform designed to help clients handle more complex digital marketing campaigns.

Prior to these numbers, broker JPMorgan Cazenove was forecasting full-year pre-tax profit of $1.3bn (£0.8bn), giving adjusted EPS of 95¢ (from $1.24bn and 90¢ in 2013-2014).

EXPERIAN (EXPN)
ORD PRICE:971pMARKET VALUE:£9.61bn
TOUCH:970-971p12-MONTH HIGH:1,209pLOW: 910p
DIVIDEND YIELD:2.5%PE RATIO:18
NET ASSET VALUE:301¢*NET DEBT:124%

Half-year to 30 SepTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20132.3448034.211.5
20142.3953441.812.25
% change+2+11+22+7

Ex-div: 2 Jan

Payment: 30 Jan

*Includes intangible assets of $6.5bn, or 659¢ a share

£1=$1.6