- Recovery in UK & Ireland markets
- Improved margins on revenue growth
It is a cliché that credit checking companies will do well whatever the economic weather. Yet with so many financial decisions and transactions predicated on running credit checks – a trend that is taking hold in emerging markets as well as mature economies – Experian (EXPN) generally struggles to put in a bad performance and these results maintained the company’s decent run.
The company experienced a recovery in its mature UK & Ireland markets with the cash profit margin improving markedly to 22 per cent. Part of that was driven by improved organic revenue growth, but moves into new lending areas by Experian’s corporate customers are having a distinct impact on demand for credit checks, with buy now, pay later providing strong growth.
The overall emphasis from management is on generating sustainable organic revenues. For instance, acquisitions are only forecast to contribute 1 per cent growth next year, compared with between 7-9 per cent from the existing business. That points to the deleveraging trend seen in these results to continuing with greater urgency as interest rates rise – management forecasts an interest rate charge this year of $120-125mn (£92-96mn)
With returns on employed capital recovering to nearly 16 per cent, Experian can quickly rework its balance sheet to generate cash, as well as benefitting from having few fixed assets. That is largely reflected in a forward PE ratio of 27, based on JPMorgan’s forecasts for 2023 of EPS of 126ȼ, but it is a highly defensive business in the current market and we maintain our recommendation. Buy.
|ORD PRICE:||2,589p||MARKET VALUE:||£23.9bn|
|TOUCH:||2,588-2,589p||12-MONTH HIGH:||3,689p||LOW: 2,269p|
|DIVIDEND YIELD:||1.5%||PE RATIO:||26|
|NET ASSET VALUE:||435ȼ*||NET DEBT:||103%|
|Year to 31 Mar||Turnover ($bn)||Pre-tax profit ($bn)||Earnings per share (ȼ)||Dividend per share (ȼ)|
|*Includes intangible assets of $7.95bn, or 862ȼ a share. £1=$1.30|
Last IC view: Buy, 3,513p, 06 Jan 2022