Relx
Anyone with a typical UK tracker investment product is about to double their bet on Relx. The data group better known by its old name of Reed Elsevier is abandoning its dual company structure and changing to a single entity with a single class of share.
It won’t make much difference to the way the business operates. The group headquarters will remain in London while Elsevier, the scientific journals division, will continue to be run from Amsterdam. It will have no impact on profits.
This was a much easier decision for Relx than for that other Anglo-Dutch dual company structured business Unilever, which is agonising over where to locate its head office.
Shareholders of the Dutch company, which owns 47 per cent of the Relx group, will receive one Relx plc share for every Relx NV share they currently own. Relx plc will apply for a listing on Euronext in Amsterdam and is expected to be included in the local AEX index.
The one big difference is that the rejig bulks up Relx’s London listed weighting. At a stroke it is set to become the 18th biggest listed company in Britain with a £30 billion or so market cap, up from number 35, and every fund tracking the FTSE 100 or All Share will have to own twice as much stock as before.
No one will complain about that if the group manages to maintain the performance of the past few years. Yesterday’s full year results showed more of the same solid progress with underlying revenues up 4 per cent and underlying profits up 6 per cent.
Relx is a very different beast from 18 years ago. Revenues from print are down from 64 per cent to 11 per cent. Revenues from traditional advertising are down from 15 per cent to 1 per cent. The company still does exhibitions and trade shows but this is now the smallest division.
The bulk of the revenues and profits come from subscription-based scientific journals and the fastest growing division, risk and business analytics.
This provides anyone from lawyers and insurers to public servants with a vast pool of data and the online tools with which they can manipulate it to make better decisions. That could be to help them decide where to sue, how to price an insurance product or how to identify welfare fraudsters.
Those magazines Relx has retained, such as Flight International, have spawned huge and valuable online databases that dwarf the original product.
Relx looks relatively recession-resistant — though the exhibitions division would be exposed to any downturn — and has very reliable revenue streams. For years investors have been able to rely on it to boost revenues by an annual 3 per cent, profits by 5 per cent and earnings per share by 7 per cent — thanks to frequent buybacks. It announced another £700 million of buybacks for the year ahead yesterday. Net debt at 2 times ebitda profits looks manageable.
The aim is to grow the dividend in line with earnings per share. The full year payout is 39.4p, up 10 per cent.
The shares have drifted lower in the past three months, partly because of the rise in the pound relative to the dollar: 55 per cent of revenues are from America. Relx’s dividend reliability has also, ironically, weakened its appeal with some investors. The shares are seen by some as bond proxies and have consequently lost some of their appeal as bond yields have risen.
This categorisation looks harsh and could provide a buying opportunity. Relx is a solid growth stock as well as a reliable income generator. The shares trade on 18 times earnings and yield 2.7 per cent.
ADVICE Buy
WHY Recession-resistant data giant with sticky customers and a strong record of absorbing acquisitions
John Wood Group
It is less than five months since John Wood Group formally sealed the £2.2 billion takeover of Amec Foster Wheeler.
The rationale for the deal looked solid. It accelerated plans to diversify Wood into more areas of engineering, construction and support services outside the oil and gas sector.
Amec’s positions in industrial and nuclear should mean that the enlarged group’s reliance on oil and gas drops to close to 55 per cent of revenue compared with more than 75 per cent for Wood on its own.
It is early days but there have been contract wins since the deal was completed in early October, including managing the construction of Europe’s largest onshore wind farm in Sweden, running the engineering, procurement and construction for a Glaxosmithkline biotechnology plant in Germany and providing inspection services at the Hinkley Point C nuclear power station in Somerset.
Work from a slowly recovering oil sector, where the crude price is rising, has also continued to roll in with an engineering and project management deal to develop the Marjan oilfield in Saudi Arabia for Saudi Aramco announced this week.
Wood said in December that it expects the merged business to book underlying profit of between $590 million and $610 million for 2017. It also highlighted its confidence over delivering the $170 million of savings it promised from the Amec deal.
The Aberdeen company upped its dividend for the first half of 2017 by 3 per cent to 11.1 cents and the board has a progressive policy of increasing payments to shareholders.
However, there remain questions about the potential impact of a Serious Fraud Office investigation into the activities of Unaoil, the Monaco-based oil group. Amec revealed that it was co-operating with the SFO investigation before the Wood deal, while Wood is conducting its own internal inquiry into possible connections.
Wood’s shares have fallen back from a high of 692p this year, being dragged down by market jitters towards an appealing 600p.
ADVICE Buy
WHY Benefits from the Amec deal will come through more fully in 2018 and the shares are at an attractive price
