Relx and enjoy the quality

Recently reported results for the first half of the 2017 financial year have not defied the trend. On an underlying basis the group reported both revenue and adjusted operating profit growth across all of its four divisions (scientific, technical and medical; risk and business analytics; legal; and events), even though some significant markets – such as the US – experienced a slow-down. 

Relx, like many of its peers in the global publishing world, has recently had to contend with the waning demand for print. Since 2000, electronic publishing at the group has grown from 22 per cent of overall revenues to 72 per cent in 2016. Add that to revenues from events and the group’s print exposure is reassuringly low – just 13 per cent of last year's top line. This strategic realignment has not only helped ready the company for the demands of the digital age, but also gives greater scope for growth.

In the scientific, technical and medical division (31 per cent of revenues and 36 per cent of operating profits) the addition of electronic reference tools has helped attract new customers and promote additional relevant titles to doctors and scientists. The group’s journals – which include the prestigious Lancet publication – are some of the most highly regarded in the world and attract more than 10m unique visitors every month.

For risk professionals, Relx is also the number one global company. Revenue and adjusted operating profit here both rose 8 per cent in recent interim results and now make up 29 per cent and 34 per cent of total numbers, respectively. The group owns an extraordinary amount of data, collected over many years, which provides a very high barriers to entry for competitors. Using this data, Relx is developing analytical software to prevent fraud and manage risk in the corporate sector.

Exhibitions is the smallest of the group’s four divisions on a revenue basis at 17 per cent of the total. Its extensive geographical reach and exposure to more than 40 sectors, means it is protected from weakness in specific markets or industries. In the first half of the year the group launched 21 new events and acquired two small companies.

Customers are stable across all of the divisions: a university is unlikely cancel its journal subscriptions; the volume of jury verdicts, settlements and patents stored online at Relx means global law firms rely on the groups platforms; and the trust required in risk management means big businesses rarely switch. Customers are therefore "sticky" making revenue relatively predictable year-on-year.

Financially, there is also a lot to like about Relx. Capital expenditure has averaged just 5 per cent of group sales since 2012 and the vast majority of that has gone into technological development. Despite increased staff costs as the group expands it digital capabilities, operating margins have remained stable at 30 per cent. Tight capital control ensures excellent cash generation. The balance sheet is also in good shape, too; with historic pension deficit and lease-liabilities are included, the net debt to adjusted cash profits ratio stood at 2.4 times at the half year stage. All this stability allows the group to pay gradually increasing dividends while buying back shares - £700m worth in the current financial year.