Tap into Experian's big-data growth

The B2B segment is split into two branches – ‘data’ and ‘decisioning’. ‘Data’ creates large databases such as customers’ credit histories, while ‘decisioning’ provides businesses with software and analytics. B2B revenue reached almost $2bn in the first half of the 2020 financial year, reflecting 6 per cent organic growth at constant currencies. Recent B2B momentum has come from ‘big data’ platform Ascend, which provides access to historic credit data. With $270m-worth of contracts across the US, UK, Brazil and Italy, further sales growth is being driven by new modules and cross-selling opportunities.

Consumer services has been the poor relation to B2B in recent years as rivals’ free credit checks undermined Experian’s subscription services. But in strengthening its own free propositions, the group has built an audience it can make money from and provides additional data for the B2B division. The free membership base expanded from 4m in 2016 to 77m in the third quarter of this year. After two years of consistent quarterly declines, consumer services returned to positive sales growth in 2019 and has maintained this momentum. Growth in the first half of the year was aided by new product Experian Boost, which enables consumers to bolster their credit scores with non-traditional data sources. By enticing customers to its credit-matching services, ‘lead generation revenue’ – the commission from pairing consumers with loans and credit card offers – quadrupled.  

JP Morgan believes Experian can maintain organic revenue growth ahead of the wider global information services market, driven by investment in new products and services. Analysts there forecast 6.1 per cent organic growth between 2024 and 2030 versus a market average of 5 per cent. The six months to 30 September saw Experian record 7 per cent organic revenue growth and it has narrowed its full-year guidance from 6-8 per cent to 7-8 per cent.

North America is responsible for around 60 per cent of Experian’s sales and enjoys high margins – the adjusted operating profit margin expanded by 0.2 percentage points in the first half to 34.6 per cent. Double-digit organic revenue growth in the first half of the year and third quarter reflects the successful roll-out of Ascend and Experian Boost. Meanwhile, Latin America is benefiting from an improving backdrop in Brazil, propelling an 18 per cent increase in organic revenue in the third quarter. This comes ahead of the introduction of its ‘positive data’ products following Brazil’s switch to an opt-out system for gathering consumers’ good credit data. The UK remains a weak spot as B2B customers have deferred spending on large software installation amid political and economic uncertainty, but pent-up demand could be released next year if there is more certainty on Brexit.

As the group invests in creating new sources of data and ways to use that data, capital expenditure jumped almost a quarter year on year to $226m in the six months to 30 September. Together with a $317m working capital outflow, this pushed adjusted free cash flow down almost two-thirds to $124m. But Experian has a good long-term track record of cash generation, which has underpinned share buybacks. The group intends to buy $400m-worth of shares in the 2020 financial year of which $137m was repurchased in the first half.

Excluding $222m in lease liabilities, net debt reached $4.1bn at the half-year stage, up almost a quarter since the 2019 year-end thanks to $499m spent on acquisitions and minority investments. Equivalent to 2.4 times adjusted cash profits (Ebitda), this remains within the group’s 2-2.5 times target range.