Shareholders in Experian will be breathing a sigh of relief (Ben Martin writes). A trading update yesterday from the FTSE 100 credit-checking group showed that it had suffered a smaller blow from the pandemic during the last quarter than many had feared. But does this make it a good moment to buy its stock?
Experian is one of the world’s largest credit reporters, alongside Equifax and Trans Union, its American rivals. Based in Dublin, it has about 17,800 employees in 45 countries and provides credit assessment tools and data to businesses, including lenders and retailers, as well as to consumers.
It has a market value of about £26 billion, making it one of the biggest companies listed in London, and generated pre-tax profit of $942 million in the 12 months to the end of March on revenues of almost $5.2 billion. Brian Cassin, its chief executive, has led the company for six years.
The business can trace its roots back to the early 19th century and for a decade was owned by Great Universal Stores in Manchester, the now-defunct retail group. Experian became a separately listed company in London in 2006 when Great Universal Stores broke itself up by demerging the credit-checking business and Home Retail Group, which owned Argos. Almost two thirds of its business is in North America, the region that helped it to outperform expectations over the three months to the end of June, the first quarter of its financial year.
Group organic revenues slipped by only 2 per cent in the period, which was better than market expectations for a 6 per cent slide and Experian’s own guidance for a fall of 5 per cent to 10 per cent. Analysts at Barclays told clients that if a 2 per cent decline “is as bad as it gets”, then Experian “has demonstrated remarkable resilience”. The shares fell 9¾p, or 0.3 per cent, to £28.35.
The company was boosted by growth in North America, where organic revenues rose by 4 per cent, as well in Brazil, which accounts for the bulk of its business in Latin America. Lloyd Pitchford, Experian’s finance chief, said that the group had benefited as homeowners in North America rushed to refinance their mortgages after Federal Reserve rate cuts. Experian’s consumer services business in the region, which enjoyed 10 per cent organic revenue growth, was also buoyed by the economic fallout from Covid-19.
“The consumer in North America is very credit-savvy and credit-score-savvy and when you enter a period of financial uncertainty, one of the things they do is engage with us, often through a subscription product, to try to improve their financial position,” Mr Pitchford said.
By contrast, the virtual freeze on Britain’s housing market hit Experian’s business in the UK and Ireland, where revenues fell by 15 per cent on an organic basis.
Experian has long had a strategy of pushing heavily into data. This includes its Ascend platform used by lenders to find new customers with certain credit profiles. It also has a business in the healthcare industry, which helps American hospitals with billing, and offers fraud and identity-theft products.
The company is likely, too, to benefit from the shift online. “We think, when we stand back from the events we’ve seen in the last three or four months, it will be a catalysing event for a broad-spread increase in digitisation in the world,” Mr Pitchford said.
Experian has not given any guidance for the full-year because of the uncertainty caused by the pandemic. Nevertheless, the business is performing better than had been anticipated and the company is nicely placed to profit from the long-term trend towards digitisation, which makes its shares worth buying.
ADVICE Buy
WHY Likely to benefit from digitisation post Covid-19
SSE
The direction of travel at SSE is clear (Greig Cameron writes). The energy company completed the sale of its retail business to Ovo in January and is intent on developing its renewable energy, network and transmission infrastructure. Executives believe that these will offer shareholders more reliable long-term returns and they have plans to invest £7.5 billion over the next few years.
Those returns were in the spotlight yesterday as the company said that it planned to increase its annual dividend in line with the retail prices index, having paid 80p for its most recent financial year. It has pencilled a 24.4p interim dividend for November, which would be paid in March 2021. That comes in spite of concerns about the impact of the pandemic on the wider economy.
SSE also said that operating profit in its first quarter to the end of June was in line with its forecasts, although it still anticipates a drop of between £150 million and £250 million across the financial year. Renewable energy generation was about 15 per cent lower than anticipated in the three months to June as a result of weather conditions — May’s calm, sunny spell not suiting everyone, clearly.
The company is moving forward with the Dogger Bank offshore wind project, which is expected to be the largest in the world once complete, and intends to develop Britain’s largest onshore wind farm on Shetland. The latter project received a boost yesterday when Ofgem, the regulator, said that it would approve a transmission link to the Scottish mainland, allowing the Viking Wind Farm to be connected to the grid.
When Tempus looked at SSE in August last year, it was rated a “buy”, with the shares trading at £11.09. The stock started 2020 at £14.38 and was changing hands for more than £16.80 by mid-February. The sell-off in markets and uncertainty around coronavirus saw it fall below £11 during March and April, but since then it has stabilised. Yesterday it rose 2.5 per cent, or 33½p, to £13.97.
With its pipeline of developments, SSE should play an important role in providing some of the essential elements needed to hit targets for a lower-carbon economy. The recommendation hasn’t changed.
ADVICE Buy
WHY Income prospects for the dividend look reliable
