By:
Patrick N. Thiel, AIM Student at Marquette University
Summary
• 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.
