Business Overview
RELX PLC (REL) is the world’s leading global information services company, assisting clients all over the world with data and analytical tools. The company was incorporated in the year 1903 and formerly known as Reed Elsevier PLC; headquartered in London, the United Kingdom. The group employees more than 30,000 personnel across 40 countries, customers in more than 180 countries around the globe. The company is a constituent of the FTSE 100 index. Erik Engstrom is the Chief Executive Officer of the group.

The group operates in four business segments: Risk & Business Analytics; Exhibitions; Scientific, Technical & Medical; and Legal. The Scientific, Technical and Medical business segment gives analytics and information to the professionals and institutions that empower progress in science, advance healthcare, and performance improvement. The Risk and Business Analytics business segment engages in data-based analytics and decision tools that consolidate the industry and public specific content with algorithms and technology to help in assessing and predicting risk. The Exhibitions business segment engages in the events business. The Legal business segment is a supplier of analytics and information to professionals in law, corporate, and government associations.

Key Statistics

 
Segment Analysis

(Source: Annual report, Company Website)

In the year 2018, scientific, technical & Medical revenue increased by 3 per cent to £2,538 million due to the three small acquisition made by the company. Risk & Business Analytics revenue surged by 2 per cent to £2,117 million, mainly due to the acquisition’s initiatives being done to acquire three data and analytics businesses in 2018. Legal revenue was down by 4 per cent to £1,618 million, due to the rollout of new platform releases with broader datasets and tools across the United States and the International markets. Exhibitions revenue was up by 10% to £1,219, due to the strong growth in Europe, Japan, and China.

On year on year basis, FY2018 adjusted operating profit from scientific, technical & medical segment up by 3% to £942m; Risk & Business Analytics segment increased by 2% to £776m; Legal segment down by 2% to £320m, and Exhibitions segment adjusted operating profit rose by 9% to £313m.
 
Top Investors

(Source: TR)
 
Financial Highlights (FY2018, £m)

(Source: Annual Report, Company Website)

Financial Commentary
The reported revenue increased to £7,492 million from £7,341 million, an increase of 2 per cent. The growth was driven by continued accelerated growth in the electronic and further developments of analytics tools but print revenue declined. The underlying adjusted operating profit increased by 6 per cent and reported adjusted operating profit increased to £2,346 million, up by 3 per cent, due to the growth in revenue and close control of costs. The adjusted operating margin was 31.3 per cent in FY2018. The reported operating profit (including amortization of acquired intangible assets) surged by 3 per cent to £1,964 million in 2018 from £1,905 million in 2017. The company’s adjusted net interest expense had also increased marginally in comparison with the last year data mainly due to the high interest payable on borrowings. The company’s adjusted profit before tax was surged by 2 per cent to £2,145 million in FY2018 as compared to £2,101 million in FY2017. The company’s adjusted tax was decreased to £465 million in FY2018 as compared to £473 million in FY2017. The adjusted net profit increased by 3 per cent and reported net profit decreased to £1,422 million, down by 14 per cent. Reported EPS was down by 12 per cent, reflecting lower net profit and a higher tax rate due to a change in the US tax legislation, adjusted EPS was up 6 per cent. The net borrowings stood at £6,177 million.

Financial Ratios

 (Source: TR)

Ratios Commentary
In 2018, the gross margin was increased by 0.5 per cent to 64.7 per cent as compared to the corresponding period of the last year and was less than the industry median. The company’s reported EBITDA margin increased from the last year and was well above as compared to its peers. In 2018, the company net margin increased significantly and registered 19.0% profit as compared from the previous year data. The liquidity position of the company was less than the industry in terms of quick and current ratio. Both the quick ratio and current ratio decreased from the previous year data. The company’s debt-equity ratio surged to 2.73x from 2.29x as reported in 2017 and was well above than the industry median. It reflects the company is highly leveraged as compared to its peers.

Recent News
On 21^st February 2019, the company announced the non-discretionary share buy-back programme, amounting to £150 million. On 15th January 2019, RELX PLC announced the acquisition of Mack Brooks Exhibitions Ltd. Mack Brooks is a trade show organizer, from Brooks Events Ltd.

Risks Assessment and Growth Prospects
The company expects full-year organic revenue growth to remain at the top-end of the guidance range. The company is also expected to expand its global platform opportunities across various regions. Data is increasing across the world, which provides companies with many great opportunities. Any critical change in credit markets could significantly impact the company’s financial performance and reduce growth potential.
 
Share Price Performance

Daily Chart as on Mar-13-19, before the market close. (Source: Thomson Reuters)

On March 13, 2019, shares of RELX Plc were trading at GBX 1,657.50 (before market close, GMT 9:46AM), up by 0.030 per cent against its previous day closing price. Stock’s 52 weeks High and Low is GBX 1,812.38/GBX 1,423.50. At the time of writing, shares were trading 8.55 per cent lower than its 52w High and 16.44 per cent higher than its 52w low. RELX Plc share price increased significantly by 2.03 per cent in the last three months (as at March 12, 2019), and in the last one year, the stock has surged by 8.91 per cent returns. Stock’s average traded volume for 5 days was 4,152,399.20; 30 days - 3,957,503.77 and 90 days - 3,823,525.20. The average traded volume for 5 days was up by 4.92 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.72, reflecting low volatility as compared to the benchmark index. From a technical standpoint, the stock was trading below its 60 and 30 days’ simple moving average. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 17.9x as compared to the industry median of 11.8x. Total outstanding market capitalisation was around £32.50 billion.

Valuation Methodology
Method 1: Price/Earnings Multiple Approach (NTM)


To compare RELX PLC with its peers, Price/Earning value multiple has been used. The peers are Wolters Kluwer NV (NTM P/E was 21.26x), Pearson PLC (NTM P/E was 14.07x), Informa PLC (NTM P/E was 13.58x), and Daily Mail and General Trust P L C (NTM P/E was 24.01x). The mean of P/E (NTM) of the company’s peers was 19x.

Method 2: Price/Cash Flow Multiple Approach (NTM)

To compare RELX PLC with its peers, Price/Cash Flow value multiple has been used. The peers are Wolters Kluwer NV (NTM P/CF was 14.93x), Pearson PLC (NTM P/CF was 13.07x), Informa PLC (NTM P/CF was 12.38x), and Daily Mail and General Trust P L C (NTM P/CF was 20.26x). The mean of P/CF (NTM) of the company’s peers was 16x.

Note:  All forecasted figures and peers have been taken from Thomson Reuters.

Conclusion
Given the current trading levels, there are strong indications that a positive movement in the stock can be seen. Support is coming from a few growth drivers, specifically from the expansion of data, and an increase in revenue from exhibitions segment. Based on strong fundamental performance and the valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 1,657.00 (as on 12th March 2019) with single-digit upside potential based on 19x NTM Price/Earnings on FY19E earnings per share and 16x NTM Price/Cash flows value on FY19E cash flow per share.

*The buy recommendation is also valid for the current price as covered in the report (as on March 13th 2019).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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