North America leads the way for Experian

Information services specialist Experian (EXPN) rebounded strongly across the six months to 30 September. The group swung from a 2 per cent year-on-year contraction in organic revenue in the first quarter, to 5 per cent growth in the second quarter. This came as momentum in North America and Brazil offset pandemic pressures elsewhere.

The ‘business-to-business’ (B2B) division saw organic revenue decline by 2 per cent as customers delayed installations of credit 'decisioning' software. This effect was somewhat counteracted by new clients signing up to ‘analytics-on-demand’ platform Ascend, as well as strong mortgage refinancing activity in the US.

Meanwhile, despite lower lending volumes in the UK, organic revenue in consumer services jumped by over a tenth. People in North America have increasingly turned to credit monitoring services during this crisis and Experian’s subscriptions have increased. The global roll-out of Experian Boost – which helps consumers improve their credit scores – has also helped expand the free membership base by more than a third to 96m users.

Net debt is largely unchanged from the March year-end at $3.9bn (£3.0bn). Equivalent to 2.2 times adjusted cash profits (Ebitda), this is within the 2 to 2.5 times target range. Free cash flow, however, has more than tripled versus a year earlier to $411m.

Adjusted operating profit slipped by 3 per cent to $648m thanks to unfavourable foreign exchange translations, and the group foresees a 4-5 per cent currency headwind for the full year. JPMorgan places full year adjusted operating profit at $1.38bn, rising to $1.53bn in 2020.

A forward price/earnings multiple of 40 is rather steep, but as we noted in our recent tip, a cheap entry point is unlikely to arise. Experian’s essential data products and countercyclical services offer resilience during a recession and demand for its databases and analytical tools should only grow long-term. Buy.

Last IC View: Buy, 2,970p, 29 Oct 2020