Shareholders in Relx have had little cause to grumble over recent years (Simon Duke writes). The business information and publishing conglomerate has trebled in value since the last financial crisis.
This year, however, the FTSE 100 group formerly known as Reed Elsevier has stumbled. Its shares have fallen by a fifth since hitting an all-time high in February amid concerns over its corporate events division, reducing its valuation to £32 billion.
The pandemic has hammered the business of arranging trade fairs and exhibitions, in which Relx is the world’s second largest player, after Informa. Yesterday, the company warned that its events wing would lose up to £210 million this year.
Relx is running shows in China and Japan, but in Europe and the Americas it has cancelled most. Despite online and hybrid shows, sales at its events division have fallen by 70 per cent since January. It expects full-year revenue of between £330 million and £360 million, with overheads between £530 million and£540 million, excluding one-off charges.
Exhibitions, however, are only one part of Relx, whose diverse interests should offer protection. Trade shows accounted for a mere 16 per cent of turnover and 13 per cent of operating profits last year, with the remainder coming from digital publishing and data analytics products.
The company was formed in 1992 by the merger of Reed International, a British book and magazine publisher, and Elsevier, the Dutch scientific publishing house. Relx is the world’s largest academic journal publisher, sells legal and scientific information and develops digital tools that help businesses to analyse their data. Since Eril Engstrom, 57, became chief executive in 2009, the company has sold print publications such as Variety, invested heavily in growth businesses and coaxed more clients on to subscription-based packages.
Relx’s scientific and journals wing, which includes The Lancet, remains its largest division, accounting for 40 per cent of profits in a typical year. Under Mr Engstrom, it has come under sustained attack by university administrators and librarians over the high price of journals, which rely on research funded in large part by taxpayers. Yet despite the pressures, the division delivers operating profit margins of about 40 per cent.
Underlying revenue rose by 2 per cent in the first nine months, with digital sales representing 85 per cent of the total. Relx said that it had enjoyed “strong growth” in the number of articles submitted to subscription and open-access journals; the latter are free to read, with authors paying to have their work published.
At the risk and business analytics unit, revenues rose by 3 per cent in the first nine months. Relx said that the rate was just over half the growth it had enjoyed in recent years and that full-year results would depend on “the rate of improvement in business activity” in the next two months. Turnover at the legal division rose by 1 per cent in the nine months to the end of September and Relx expects “modest” growth for the full year.
Analysts at Citi called the trading update a “mixed bag”, with the lack of a meaningful recovery in exhibitions offset by a better performance in scientific publishing.
Relx is expected to publish full-year pre-tax profits of £2 billion mor so this year, rising to £2.4 billion next year. Its shares fell 16½p, or 1 per cent, to £16.36½ yesterday and offer a dividend yield of 2.8 per cent. The rating is attractive, considering that Relx is a well-managed, diverse company that has shifted from traditional to digital publishing.
ADVICE Buy
WHY Relx shares look cheap after concerns over its exhibitions divisions prompted a steep sell-off
Polymetal
The third-quarter production update from Polymetal yesterday, in the words of analysts at RBC Capital Markets, “doesn’t look like it belongs to 2020” (Emily Gosden writes). Despite significant disruption caused by the Covid-19 pandemic, the Russian precious metals miner managed to produce comfortably more gold than the market had been expecting.
Its total “gold equivalent” production was 477,000 ounces, 17 per cent above analysts’ consensus forecasts and 7 per cent up on the same period a year earlier. With the pandemic also keeping prices north of $1,900 an ounce, that outperformance is worth even more: revenues jumped by 35 per cent to $884 million.
Polymetal has seven sites in Russia and two in Kazakhstan. The company is listed in London, Moscow and Astana and is one of the world’s top ten gold producers and one of the top five silver miners. Gold prices rallied to record highs this year as investors bought into the “safe haven” metal during the pandemic, topping $2,000 an ounce in the summer. While they have fallen back somewhat, they are still up a quarter in the year to date and plenty of experts think that they could yet rise further. Ole Hansen, of Saxo Bank, believes that “the powerful combination of rock-bottom rates, rising demand for inflation hedges and the potential for a weaker dollar all point to further gains” and he sees gold ending the year at about $2,000 an ounce.
All of which bodes well for Polymetal — as long as it can keep producing the stuff as promised, helping it to fund an attractive dividend policy, which Citi estimates will yield 5.9 per cent this year. Analysts reckon that yesterday’s update puts it on track to exceed full-year guidance, but the company is sensibly remaining cautious and sticking to its original outlook, with “Covid-related risks remaining the key source of uncertainty” with a second wave of cases in Russia. Still, Polymetal seems to have handled such challenges impressively, with a testing and quarantine regime in place at its sites and overcoming outbreaks at two sites in September with no impact on production.
ADVICE Buy
WHY Impressive performance, attractive dividend and gold could have further to rise
