Few trends have affected as many sectors recently as the increasing focus on the potential of ‘big data’. Whether it’s football teams taking the Moneyball approach to success on the pitch or Amazon using its billions of data points to increase sales, every government and major company around the world appears to be jumping on the bandwagon.
That’s why I like Experian (LSE: EXPN) as a share to own for 2017 and many years beyond. The company is best known for its consumer credit check services, which is at its heart a big data play by using the information it owns on hundreds of millions of consumers across the world. Companies pay Experian to access these records in order to judge individuals’ ability to pay their mortgage, car loan or even purchase a phone.
This places Experian in a very good position as the volume of consumer credit checks is rising in the developed world and developing worlds alike. In fact, in the three months through June the company saw total organic revenue growth of 5%, driven by 8% and 9% growth in Latin America and Asia respectively.
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Aside from the long-term growth potential, Experian also brings to the table a very wide moat to entry for competitors. After all, it’s incredibly difficult, time-consuming and expensive to gather information on so many people. This means Experian and the other major credit check providers can charge high prices, which led to operating margins hitting 24.5% last year.
Rising revenue and impressive cash generation mean Experian has the ability to return significant cash to shareholders. Between the company’s 2% yielding dividend and hefty share buyback programme, it returned $988m to investors last year, or roughly 20% of total revenue. Shares are pricey at 20 times forward earnings, but high growth, high margins and high shareholder returns still make Experian one of my favourite large-caps going into 2017.
Blue skies?
A wide moat to entry is also why I have my eye on engine manufacturer Rolls-Royce (LSE: RR). Rolls is in the midst of a much needed turnaround plan to cut operating costs and modernise production processes, but the main reason for my interest is the duopoly it shares with GE in the global market for wide body aircraft engines.
As global air traffic rises significantly due to growing incomes in the developing world, Rolls stands to gain in several ways. First, it benefits quite clearly from new aircraft orders that bring in upfront fees. Second, it will benefit as rich world airlines sell their ageing planss to growing fleets in the developed world, which means longer lives for engines and more hefty high-margin maintenance work for Rolls.
That said, Rolls is still very much in turnaround mode and saw revenue fall 5% year-on-year in H1. This was caused primarily by lower sales of older aircraft engine models and a stunning downturn in the maritime engine market due to low oil prices and lower maritime freight prices curtailing orders from shipbuilders. However, its newest line of wide body civil aerospace engines is now entering service, which means lower capex and higher revenue, and cost-cutting plans are progressing well. If the new management team can clean up operations and exploit significant competitive advantages, it could be blue skies ahead for Rolls in the long term.
