Get defensive with a UK data play

It is worth persevering, however. GlobalData (DATA) is an Aim-traded company that provides thousands of clients with “gold standard” insights. These include macroeconomic indicators, thematic research, polling results and job listings, and are produced and packaged by teams of analysts, researchers, data scientists and journalists.

GlobalData emerged in its current form in 2016 when billionaire and majority shareholder Mike Danson merged several established companies, but it has existed under different names since 1999. The group sits alongside businesses such as Wilmington (WIL), YouGov (YOU), Ascential (ASCL), Informa (INF) and most notably Relx (REL), the £48bn information giant that is one of the FTSE 100’s most reliable – and most reliably overlooked – constituents. 

Build one, sell many

Data providers tend to fly under the radar because they are not consumer-facing and, even if they were, spreadsheets are a hard sell. Some are slightly better known because they host famous events such as Cannes Lions International Festival of Creativity, featuring sunshine and yachts, and Comic Con, a get-together for superhero superfans.

GlobalData has no such bells and whistles. It does, however, have an eye-catching business model – not least because of its recurring revenue base. The company makes around 80 per cent of sales from subscriptions, and clients typically sign up for at least 12 months. Other sales come from bespoke consulting, single copy reports and small events. For investors ever fearful of unwelcome surprises, this level of visibility is reassuring. 

Even more attractive is its operational leverage. GlobalData has a “build once, sell multiple times” model, as one data set can be flogged to any number of customers. This is starting to result in rapid margin growth. After a bumpy expansionary period, its operating margin has climbed from 18.5 per cent in 2020 to 27.2 per cent in the first half of 2023. Sales growth has also been strong, leading operating profits to more than quadruple to £56mn in the three years to 2022.

As the group scales up, building data sets could get easier, according to one GlobalData investor, Liontrust fund manager Anthony Cross. “The methods of creating its content are quite formulaic,” he said. “You can repeat procedures and formats within the company in not only the selling but also the generation of research. It’s an engine that runs and runs.”

Cross’s theory echoes recent comments from YouGov, which said that even customised work was becoming “very repeatable” with more clients opting for templated solutions.

There are plenty of ways to boost turnover too. As well as securing new subscribers and increasing prices, GlobalData can upsell existing customers to more sophisticated products and encourage them to sign more employees up to the platform. Management says the US and the professional services markets will be particularly important sources of growth in future.

With these tailwinds at its back, GlobalData wants to become a ‘rule of 50’ company, an investment concept that scores businesses by adding underlying revenue growth to the adjusted Ebitda margin. Any company that scores over 50 is part of the club. Given that 75 per cent of GlobalData’s asset base is intangible, meaning amortisation is very high, we still think operating margin is the key metric to focus on, but this is a solid ambition, nonetheless. 

Debt and demand 

The key issue for GlobalData will be demand. Put bluntly, when push comes to shove, how mission-critical are its insights? Will managers and corporate strategists be tempted to ditch or switch them if they need to cut costs? 

So far, the signs are positive – particularly given that the group has been charging more. While overall client numbers dipped from 4,814 to 4,739 in the year to 30 June 2023, the number of clients spending more than £20,000 a year rose from 2,473 to 2,700. Of those high-value clients, 83 per cent renewed their subscriptions in the period, resulting in a ‘value renewal rate’ of 99 per cent once price hikes were factored in.

This, in turn, contributed to organic revenue growth of 8 per cent, and management is confident of achieving double-digit underlying sales growth across the full year.

This suggests that GlobalData’s products quickly become embedded in company workflows, making it hard for clients to abandon ship or switch providers. Analysts at Investec concluded that “structural shifts are increasing the requirement and necessity for market data, intelligence and analytics” and that corporates tend to cut staff and marketing costs before cancelling their subscriptions.

There are still nagging concerns, however. Ironically, GlobalData provides investors with very little information about its own clients. We know it serves about 20 sectors and analysts have estimated that consumer, tech and pharma are among the larger industries, potentially representing 40 per cent of group revenue. But there are no concrete figures. It is difficult to assess, therefore, how resilient its end markets are likely to be. 

Artificial intelligence (AI) is the other big question mark. While no company looks immune to the transformative effects of AI, GlobalData looks to be at the sharp end. Its very existence relies on gathering and presenting information in digestible formats, and AI chatbots have the ability to do this at the click of a button, ushering in potential disruptors. 

For now, though, we remain optimistic. GlobalData has an abundance of proprietary data and tech talent, so should be able to use AI to enhance its products and operations. Management says that it has been “consistently investing in machine learning since 2017” and is using it to win new clients, monitor existing relationships, coach the sales team and improve user experiences.

Liontrust’s Anthony Cross is similarly positive. “I think people will want authenticity, provenance behind the data. So it’s important to have a recognised brand and recognised research,” he told us.

Global comparators 

If this optimism proves misplaced and sales falter, the group has more than enough operational gearing to worry about. Following a spate of acquisitions, share purchases and investments, net debt (excluding lease liabilities) sits at £231mn, or 2.3 times adjusted Ebitda. A near-threefold jump in interest payments to £12mn in the six months to June shows a large slug of cash flows is currently being used to simply service debt costs.

Excellent cash generation – as demonstrated by a free cash flow conversion rate of 120 per cent in the first half of 2023 – together with high levels of recurring sales means this burden should be manageable, if not ideal. However, it is important to think about the valuation implications as well.

GlobalData is cheaper than Relx and YouGov on a forward price/earnings basis, but its enterprise value to Ebitda ratio – which accounts for debt and stands at just under 20 – is higher than those of all its major UK peers. Bullish analysts tend to dwell on global comparators, and the fact that US rivals such as Moody’s (US: MCO) and Verisk (US:VRSK) are significantly dearer, but its standing in the UK is clearly still important. 

Ultimately, however, we are convinced that GlobalData’s widening margins and strong organic growth is enough to push shares higher. Eustace Santa Barbara, co-manager of the Marlborough Special Situations Fund, also noted that GlobalData has “all the attributes that would make it attractive to private equity – or trade [buyers]”. 

For impatient investors, it’s worth noting that there’s been a fair amount of M&A activity in the data sector, and interest from an industry giant such as Relx could prompt a swift re-rating. However, GlobalData’s long-term growth story is just as enticing.