| 13.1°C Dublin

Share Watch: Relx's digital evolution may stall as coronavirus takes business toll

 

Close

The fear of economic fallout from coronavirus is challenging equities. In Relx’s case it is best to sit on your hands for the time being. Photo: PA

The fear of economic fallout from coronavirus is challenging equities. In Relx’s case it is best to sit on your hands for the time being. Photo: PA

PA

The fear of economic fallout from coronavirus is challenging equities. In Relx’s case it is best to sit on your hands for the time being. Photo: PA

Last week was a challenging one for European and US shares. The spread of the coronavirus was responsible for the worst week since the collapse of Lehman Brothers and is a temporary pullback where you consider buying on the dip or investors in panic mode. The next few weeks will clarify.

Today it is so difficult to keep pace with the speed of corporate change. The company I've elected to analyse this week, the UK corporation Relx, has a relationship with the past that would challenge the most conscientious business historian. Today it is a global provider of information-based analytics and decision tools for professional and business customers, organising exhibitions in 180 countries - but ask yourself where this remarkable organisation came from.

Many of us can remember it was once the owner of Crown Paints, Sanderson wallpapers and Polycell adhesives. It also ran the politically powerful 'Daily Mirror' newspaper and entertained Irish and British ladies with 'Woman' and 'Woman's Own' magazines.

It was the muscle behind such significant book publishers as Heinemann. But in a blitz of divestments over the past two decades, it has become a very modern company worth £37bn (€40.7bn).

Over the past decade, Relx has transformed from a print business to a digital one. A decade ago the company published more than 300 trade titles and relied on advertising for half of its revenues. Last year advertising delivered less than 1pc of revenues.

It has been selling off its print business and recently announced the sale of its final print magazine, the 85-year-old 'Farmers Weekly'. In a significant change of direction, the company moved away from being a reference service to a data analyst helping client decision making.

Today the group operates in four market segments; scientific, technical and medical (STM); risk and business analytics; legal; and exhibitions. STM helps scientists make discoveries and accounts for one third of group revenues. Risk and business analytics is not far behind, contributing more than £2bn (€2.3bn). It provides decision-making tools to help banks fight money-laundering and insurance companies in fraudulent claims. Relx is also the world's leading provider in legal and regularity information and a world leader in exhibitions.

It has been investing in technology - 65 deals in the last decade. The company uses its cash to support bolt-on acquisitions which in turn drives growth. Today it has a considerable data archive: 15 million articles on science, technical and medical information, 81 million on legal topics and 45 million on business analysis. Over half of its £7.8bn (€9bn) revenues are subscription, so they are consistent.

Relx has also developed a competitive advantage in that its barriers to entry are considerable given the difficulty of constructing an equivalent data base with the necessary technology.

However, a worry is the problem developing in relation to open access of academic data. Relx shares tumbled after the University of California cancelled its subscription after Relx refused to consider open access.

From a financial viewpoint the company is attractive. Strong cash flow allowed Relx to return almost £7bn to shareholders over the last five years. Last year net income was £1.5bn, with margins of 20pc.

While the group spends heavily on acquisitions and debt is more than £6bn (€7bn), it has consistent cash flow and an ability to reduce buybacks. Its share price has quadrupled under CEO Erik Engstom since he took over a decade ago. Today the shares trade at £18.40p, just below its highest in the past five years.

But the fear of economic fallout from coronavirus is challenging equities. In Relx's case it is best to sit on your hands for the time being.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent