Worried about your credit score and whether you might be ineligible for a loan? Companies such as Experian can help you to check. At least that’s the received wisdom about this FTSE 100 company; actually, it’s in the business of doing this and a lot more — and the mantra is data and analytics.
The modern Experian was created in 1996 when two businesses in Britain and America combined to become part of the Great Universal Stores retailing conglomerate. However, it traces its history back to the formation of the early credit agencies during the latter half of the 19th century. The company was demerged from the renamed GUS in 2006, at which point it listed on the London Stock Exchange.
It employs about 17,000 staff in 37 countries and in its most recent financial year made pre-tax profits of $994 million on revenues of more than $4.6 billion. Its stock market valuation is nearly £19.3 billion.
Experian divides itself into two divisions. Its business-to-business unit, which provides services to companies including help with lending decisions, managing customer accounts, credit risks and fraud, accounts for nearly 80 per cent of revenues. The consumer services side is where the credit-checking for individuals sits, with products aimed at protecting customers against fraud and identity theft. North America generates more than half of its revenues.
The quality of its data and the ability to analyse it efficiently is critical and the company claims to be a market leader. In the United States it has transaction records on 200 million American citizens going back 16 years; that represents coverage of almost the entire population in a position to try to borrow money. In January, its US data showed 99.9 per cent accuracy.
Experian used to charge individuals to get its credit score, but it now provides it free, making its margin from the lender when, for example, a successful loan or credit card application goes in.
While the core of the model almost certainly will remain credit-checking, identity and fraud protection services, there is evidence that Experian aims to build on the data it has. It has worked with fire authorities, using its analysis of statistics to identify at-risk areas and to help to improve safety. It works with healthcare providers in the US, where its single identity product can block multiple applications for opioid addiction treatments and other prescription drugs.
The company has launched a scheme in the US where customers grant it access to other records, such as for mobile phone payments and utility bills, promising that doing so will only ever improve a credit rating and in the process gaining additional valuable data that it can use as part of its analytics.
Experian’s businesses are demonstrating solid, in some cases double-digit, revenue growth, including in its US market, while its activities in Latin America and elsewhere, including Africa and Asia, are small but expanding rapidly. While the opportunity in emerging economies is extremely large, the relative lack of a financial infrastructure and sophisticated data on transactions can get in the way and Experian tends to perform better in developed markets.
The company reports full-year results next month and analysts have pencilled in a 4.6 per cent increase in pre-tax profits under a new accounting standard to just over $1.2 billion despite adverse currency movements.
The shares, down 11p, or 0.5 per cent, at £21.10 today, trade for just under 26 times Morgan Stanley’s forecast earnings for a prospective yield of about 1.8 per cent.
ADVICE Hold
WHY Richly valued, high-quality business should deliver steady, long-term returns
Costain Group
The best reinventions don’t happen overnight. In the case of Costain Group, the transformation has been slow, sometimes painful, but undeniably for the better. During his 14 years as chief executive, Andrew Wyllie, 56, turned it from a loss-making heavy construction group with a shattered balance sheet into a sustainable civil engineer with a good consulting capability. Where there were debts, there is cash.
Costain was set up in 1865 as a firm of jobbing builders and undertakers in Liverpool by Richard Costain and his future brother in law. Having made forays into housebuilding, coalmining and the Middle East, Costain now operates solely in the UK and in infrastructure, which essentially means roads, rail, nuclear and water utilities.
The group has a market value of just under £366 million, employs about 4,000 staff and in the year to the end of December made underlying pre-tax profit of £49.7 million on revenues of just under £1.5 billion.
Costain carries out work for both the private and public sectors and the vast majority of its revenues come from a core group of 20 to 30 customers, including BP, Thames Water, Highways England and Transport for London.
While it is still big in the construction game — it has a role on the HS2 high-speed rail link, for example — Mr Wyllie has improved the quality of its contracts. As well as pitching for building work on a project, Costain now can bid for the planning, design and programme management parts.
This more lucrative work helps to give it an underlying operating margin of between 4 per cent and 5 per cent. Recent examples include work for Highways England on the design of a £125 million upgrade to the A19 in the North East.
While Costain’s British focus arguably may make it vulnerable to a post-Brexit downturn, the capital for many of its projects is ringfenced by the government or is lined up years in advance. The shares, off 1½p at 341p, trade on only 8.9 times Liberum’s forecast earnings and offer a yield of 4.5 per cent. Very tempting.
ADVICE Buy
WHY Shares look cheap for a company in strong financial health