Life is never exciting at RELX, the former Reed Elsevier business, and the nine-month figures were about as racy as it gets. Underlying revenue growth was 4 per cent, the same as in the first half, but an acceleration from the 3 per cent of the past five years.
The growth at its legal business, which has been hit by a general slowdown in legal action in the US, was 2 per cent — for the past five years it has been stuck at 1 per cent. At the risk and business analytics side, underlying growth ticked up to 9 per cent, from 8 per cent at the halfway stage.
This may not sound that exciting but this slow acceleration of growth is significant because RELX is heavily operationally geared and such growth falls straight through to the bottom line.
The company’s continuing share buyback programme, £670 million of a proposed £700 million completed for this year, boosts reported earnings per share.
Revenues, operating profits and earnings per share were ahead by 3, 5 and 7 per cent last year. At the interim stage the comparable figures were 4, 6 and 8 per cent. RELX is one of those consolidators and there is no reason why this lockstep progress should not continue in a virtuous circle.
The reasons are the recovery in legal, where the company is shifting towards online and more sophisticated information that allows lawyers to better assess the potential outcome of litigation, and that risk businees. This provides data to insurance companies, healthcare companies and public bodies in the US that allows them to save money and operate more efficiently.
RELX is adding to the information and services it can provide, with two acquisitions this summer, and moving into other territories such as the UK, Brazil, India and China.
As to the rest of the business, it performed well enough. Exhibitions experienced some minor slowing of growth but will be in line with last year’s 5 per cent by the year end. Scientific, technical and medical publishing weathered signs of a slowdown elsewhere in that market.
So far, so grindingly reliable, which explains the seemingly unstoppable rise in the share price in the past five years. The shares, up 33p at £14.62, sell on just above 20 times earnings but are worth holding even then.
My advice Buy
Why Investors have not gone wrong buying the shares over the past five years, and as a consolidator the growth looks set to continue
Vesuvius
The best that can be said for Vesuvius is that it is doing a good job in challenging, highly cyclical markets. About 60 per cent of the revenues from this former part of Cookson Group comes from the world steel industry. This is still in decline outside China, partly because of those well publicised cheap exports. Interestingly, there are signs that these are slackening but that domestic demand is holding up though, as ever with China, exert caution over the statistics. Vesuvius has reacted by cutting its exposure to developed markets and costs while focusing on growth markets such as India. The company announced another £5 million of cost savings, taking the total to £30 million, while weaker sterling will boost profits this year by £11 million.
The foundry side, the rest of the group, is experiencing mixed markets, with areas such as mining and agriculture remaining weak and showing few signs of recovery. The shares had a boost from the referendum vote but, up 17p at 365p, are pretty much where they were a year ago. On 14 times earnings they seem fairly valued, and it feels too early to get back on board again.
My advice Avoid
Why No obvious catalyst for further progress
Henderson Group
Henderson’s proposed merger with Janus Capital Group of the US offers retail investors a difficult decision. The deal is done, with little prospect of anyone else coming in to break it up, given how hard it is to make a hostile offer for a people-oriented company such as a fund manager.
Henderson has traditionally been a good dividend payer, yielding 4 per cent or more, and continuing investors are promised a “progressive” dividend policy, though just what this means is anyone’s guess. Consolidations of fund managers are fairly easy to achieve cost savings from, in terms of back office and IT, and the market can only continue to grow.
On the other hand, the merged group will be quoted in New York and Australia and investors may be uncomfortable with losing that London listing. There will inevitably be some disruption ahead of and after the merger, with some investors pulling out their money.
Henderson’s third-quarter figures should have contained few surprises, given that the fund manager updated the market on funds under management to August 31 when the merger was announced this month. Funds went ahead by £900 million in September to £100.9 billion. About £1 billion of retail funds came out in the quarter but the majority was in July, after the referendum.
The shares, off 7p at 231½p, shot up to 270p after the deal was announced, so some of this uplift has been lost. On balance, those investors who have not taken profits might as well stay in.
My advice Hold
Why Investors should await results of merger
And finally . . .
Fidessa Group has reassured the market again that, whatever the outcome of Britain’s exit from the EU, it should be unaffected. The company makes software for dealing rooms and admits there will be uncertainty. It believes, though, that the Mifid II regulations will be introduced in Europe and the UK no matter what happens, which will drive sales. In addition, it gets more than 60 per cent of revenues outside Europe — and wherever dealers are based, they will still need its products. The shares added 7.88 per cent.
