The third-quarter trading update from Experian was greeted with a shrug of the shoulders from the stock market. The numbers were in line with consensus forecasts among analysts and, for those investors who tend to flick straight to a company’s outlook in brief trading statements, here too the message was: steady as she goes.
The consumer credit reporting agency said yesterday that group revenue from ongoing activities rose by 5 per cent in the three months to the end of December on a constant currency basis compared with the same period a year ago. The board was confident of improvement in the final quarter, which is usually a stronger one for Experian. It tends to launch products in the first half, where it takes the cost, and then enjoys the benefit in the second.
The 5 per cent growth, although in line with expectations, was better than the 4 per cent achieved in the second quarter. It meant that Experian reiterated its full-year guidance of organic revenue growth to trot along at mid-single digits, with margins stable and further progress in its earnings per share.
There was little, as is not untypical with a company whose main business is credit services, to set the pulse racing. Its shares had been climbing before the update, up about 5 per since the interim results in November, but eased back yesterday, down 16½p to £16.45, suggesting a bit of profit-taking among investors.
Beyond the headline numbers, the update showed the imbalance of Experian’s business. However, there are signs that management are addressing this. Revenue in its business-to-business division ticked up 8 per cent on an organic basis, offsetting a 4 per cent decline in its consumer services business.
Double-digit growth in Europe, the Middle East and Africa and Asia- Pacific helped to make up for a flat performance in the UK and Ireland and slower growth in the Americas.
The challenge for Experian in the past few years has been to make money from its large consumer base. Its rival credit check providers have started offering free services. Having struggled to find an answer, Experian has settled on a hybrid approach of offering products at no cost for a while and then converting them to paid products. A “meet your data self” advertisement featuring Marcus Brigstocke, the comedian, has been launched to drive the message home.
Free services include a credit score check and online comparison services. With these, Experian generates revenue from the lender rather than the consumer. Fee-paying products include full credit reports and fraud and ID protection.
It was the performance of Identity Works, its fraud protection product launched in May in the United States, that interested investors. The number of customers has risen from 120,000 in October to 150,000 and there are hopes for some revenue momentum in the next few years.
This transition has, as expected, hit earnings, although there are signs this is easing. In North America, where the transition happened sooner than in the UK, Experian expects to return to growth in its consumer business in the fourth quarter. This would be the first time since the first three months of 2016.
The going was better in Experian’s B2B division, which made up for more than three quarters of revenue at the half-year stage. Growth here was driven by its decision analytics business, which seeks to minimise the risk of fraud for companies by developing software to analyse data.
In all, it appears that Experian has settled on an answer to the disruption in its market and is making steady progress in returning its consumer business to growth.
ADVICE Hold
WHY Experian is making progress on returning its consumer business to growth but shares are close to record highs
City Fibre
Taking on an industry giant like BT in its core business and its own backyard sounds like a tall order, but the broadband supplier City Fibre was set up six years ago to do exactly that.
The telecom company’s mission is simple: build a rival broadband network to BT’s dominant Openreach by laying down high-speed fibre-optic cables in 100 smaller cities outside London.
The company, which already operates full fibre high-speed networks in cities such as York, remains small with a market value of £360 million. It is also loss-making on a pre-tax basis although it expects to deliver underlying earnings of £5.1 million and £5.4 million in 2018 and 2019.
But City Fibre, which yesterday announced plans for a big expansion in Milton Keynes, where it intends to invest at least £40 million, retains a loyal following in the City — and for good reason. The group has a very credible management team led by the American Greg Mesch, who has successfully built and sold telecoms networks across Europe for decades.
It also has relatively low costs because, unlike BT, it has very few legacy assets which it needs to maintain and upgrade. Regulators and government are on its side. They are eager to boost competition in an industry over which BT retains what most see as an unhealthy monopoly.
Most importantly, City Fibre has secured the backing of Vodafone to expand its network to up to 5 million UK homes by 2025. If Vodafone is pleased with initial progress, it could consider stepping up its investment and accelerating its roll-out plans.
Vodafone is keen to become a serious player in the UK fibre broadband business, an industry in which it already operates in many other markets worldwide. It views City Fibre as the best vehicle through which to do that — a big vote of confidence. Digging up roads and laying fibre cables isn’t cheap; City Fibre spends nearly £500 per household to install its networks. However, once built and paid for these networks can remain in service for decades delivering robust returns.
The shares jumped after the deal with Vodafone was announced in November but at 57p they remain good value for a long-term investor.
ADVICE Buy
WHY Strong management with clear long-term plan
