Bank fears weigh on Experian shares

The 5 per cent decline in Experian’s (EXPN) share price in early trading following the release of its full-year numbers was hardly surprising.

Although the credit data company’s chief executive, Brian Cassin, highlighted the “breadth and resilience” of its portfolio, as well as a 9 per cent increase in adjusted earnings before interest and tax of $1.8bn (£1.45bn), its statutory operating profit fell by 11 per cent, dragged down by a $179mn goodwill impairment to European businesses.

EMEA and Asia Pacific were the slowest-growing of Experian’s regions, at 3 per cent each, but a stronger performance in Latin America (up 16 per cent) and North America contributed to group-wide organic growth of 7 per cent in the year to March. 

The company faces more challenging conditions this year, with growth forecast to moderate to 4-6 per cent as credit markets remain tight – particularly in the wake of the turmoil hitting regional lenders in the US. 

Investments made in both new products and service lines (the company has poured about $5bn back into the business over the past five years, achieving an average return on capital of almost 16 per cent) should help to maintain momentum. The question for investors, though, is how much they’re prepared to pay for this. 

Experian’s shares have already dropped by around 16 per cent since February as nervousness about the US banking market grew. They now trade at about 24 times UBS analysts’ forecasts of $1.36 a share, which is below their five-year average of 28 times. Assuming another banking collapse is avoided and credit conditions ease, this looks like an opportunity to buy into a business with a solid track record. Buy.

Last IC View: Buy, 2,902p, 16 Nov 2022