Wednesday, January 2, 2019

A Current AIM Equity Holding: RELX Group (RELX, $20.53): “RELX - Relax?" By: Patrick N. Thiel, AIM Student at Marquette University

RELX Group (RELX, $20.53): “RELX - Relax?"
By: Patrick N. Thiel, AIM Student at Marquette University

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Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

RELX Group (NYSE: RELX) provides information and analytics solutions to businesses across all industries through its four business segments: Scientific, Technical & Medical; Risk & Business Analytics; Legal; and Exhibitions.  

• RELX remains the largest in its space by market cap in the United Kingdom.

• While the third quarter earnings of 2018 didn’t yield favorable results, EPS increased 46.4% from 2016 to 2017, with a current earnings yield of 5.1%.

• Management continues to spend ample time in their risk and business analytics expansion. Growing twice as fast as the company itself, RELX Group’s RBA segment represents 28% of total revenue while undoubtedly growing.

• Although RELX is currently trading at $20.64, roughly $3 below its 52 week high, the group has hit two new 52-week highs in the past three months.

Key points: RELX Group Plc. ADR remains “in play” even during the current market uncertainty. Their subscription based-revenue stream is a significant and sustainable portion of the group’s total revenue and as long RELX continues to control the number 1 or number 2 spot in their space respective to each of their four segments, Marquette AIM remains bullish on the company.  The group is also very active in M&A activity, including the £750 million acquisition of Threatmetrix. Due to the fact that RELX is trading at a discount versus its peers, concerning P/E ratios (19.7 compared to sector average of 24.9), going long on the company while it’s discounted seems to be a logical move.

Cyclical companies such as RELX may suffer during the volatile market conditions we are currently experiencing, but RELX is able to protect themselves through their subscription-based revenue. The group has done an excellent job of differentiating itself from its peers through its development of value-added products. They offer unmatched decision making assistance, unlike any other consulting firm in their space.

On average, RELX does around £250 million of M&A activity a year. In 2017, one acquisition alone amounted to £750, which is a good sign for potential investors. The acquisition of ThreatMetrix has been referred to as “the largest deal for a decade” by many analysts and will be a catalyst for future growth. ThreatMetrix was considered one of the largest fraud prevention and analytics firms of its kind.

In order to stay successful and “in-play” RELX must continue to remain the top provider of data analytics solutions. Proprietary rights are crucial to long-term success, so if RELX can sustain its M&A pipeline along with their continued margin expansion, they will be in safe waters.

What has the stock done lately?

Since being added to the AIM International portfolio on November 9, 2018, RELX Group stock is up ~5%. With just a month of portfolio exposure, specifically this past November, RELX has done an admirable job in beating the market. The benefits of the large £750 acquisition will kick into effect soon and drive the group’s growth top and bottom line growth.

Past Year Performance: RELX is down -13%YTD, which allowed the AIM Students to buy in on the low end of the 52 week range in early November. 2017 proved to be an unusual year for RELX as they have made some huge investments in their company. Sales, EBIT, and net margins have consistently (and rapidly) increased throughout the past, leaving investors with good faith in the company moving forward. With a 5yr average gross margin of 59.7% and a 5yr net margin of 18.2%, Marquette Aim is confident in the future of RELX.

                                                                                                                     Source: Google Finance

My Takeaway
RELX group is a strong hold for our international portfolio. I would suggest taking a long position on the company and adding the bullish stock to your personal portfolio. It has performed well throughout the market turmoil the past few months and I think the light is visible at the end of the tunnel. The current Brexit dealings may also benefit RELX through new opportunities that may arise through a new, civil agreement. The company is growing at an accelerated rate in respect to its peers, and show no signs of slowing down. I believe that RELX is still trading at a discount relative to its average comp P/E ratio. There is still a lot of upside potential for RELX.