Relx Plc

Relx Plc (LON: REL) is a FTSE 100 listed global information services Company. It is a provider of information-based analytics and decision tools for professional and business customers. The Company has offices in about 40 countries and serves customers in over 180 countries, with more than 33,000 employs.

On 29 July 2021, the Company will release its interim results for the six months to 30 June 2021.

Rationale for Valuation – Expensive at GBX 1,936.50

• Trading near a 52-week high, while on a trailing 12 months, the Company’s Price/Earnings, Price/Cash Flow, EV/Sales and EV/EBITDA multiples are significantly higher than the Professional & Commercial Services industry multiples, reflecting overstretched valuations.
• The economic uncertainty stays as a result of the new UK-EU trading arrangements and Covid-19 pandemic.
• The Company’s Debt/Equity ratio for FY20 stood at 3.39x, which is higher than the industry median of 0.78x.
• On the liquidity front, REL’s current ratio was lower than the industry median.
• From the technical standpoint, 14-day RSI is near to the over-bought territory, which means that the stock price could decline in the short term.

Key Risks

• The Company is exposed to several operational risk associated with geological and weather conditions.
• The macroeconomic disruptions may cause significant project delays.
• The ongoing challenges of the Covid-19 pandemic and Brexit may increase its operating cost and hamper business activities.
• The Company is exposed to currency risk due to foreign exchange rate fluctuations.

Trading Update (as on 22 April 2021)

• In STM (Scientific, Technical & Medical) business, Electronic revenue has continued to grow well, and Print revenues have been stabilised.
• In the Risk business, the transactional revenue witnessed good growth rates at the start of 2021, stepping up further from mid-March.
• In the Legal business, electronic revenue has continued to see good growth.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

In STM and Legal, the Company expects modest underlying revenue growth and decent growth in underlying adjusted operating profit. In Risk business, it expects strong underlying revenue growth. Overall, in 2021, the three largest business areas, STM, Risk and Legal, is expected to deliver another year of growth. However, in the exhibitions business, the outlook remains uncertain due to the evolving Covid-19 pandemic. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. The stock made a 52-week low and high of GBX 1,505.00 and GBX 2,000.00, respectively.

Based on the factors highlighted above, we believe the stock of Relx Plc is “Expensive” at the current price of GBX 1,936.50 (as on 23 April 2021 at 8:30 AM GMT), with support from recovery in the trading environment needs to be evaluated at a later stage.

GB Group Plc

GB Group Plc (LON: GBG) is a FTSE AIM UK 50 Index listed Company that provides a range of solutions to its clients for validating and verifying the location and identity of their customers. The Company is headquartered in the United Kingdom and employs over 1,000 people across 16 countries.

Rationale for Valuation – Hold at GBX 914.50

• In FY21, the total revenue and adjusted operating profit were head of updated market consensus.
• The Company has decent fundamental metrics as it has maintained a net margin above the industry median.
• The debt/equity ratio recorded by the Company in the first half of 2021 was considerably below the industry median. In H1 FY21, the debt/equity ratio was 0.11x.
• From a technical standpoint, 200-day SMA (GBX 816.50) supports an upside potential.

Key Risks

• The increasing incidents of cyber-attacks can put data security at risk.
• Moreover, the travel restrictions can have an impact on new business and pipeline opportunities.
• Adjacently, increased competition can affect the Company's leadership position and its growth trajectory.

Pre-Close Trading Update (for the year to 31 March 2021, as on 22 April 2021)

(Source: Company Website)

• During the year, the total revenue was ahead of the updated market consensus.
• The Company delivered strong growth in Identity, supported by US stimulus.
• It has shown good growth in fintech, while the Location business grew well, underpinned by increased transactions in the online retail sector.
• The Company witnessed a strong cash generation, with net cash balances of £21 million as at 31 March 2021.
• Despite the challenging conditions, GBG has had a strong year and benefited from customers shifting to digital models.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

In FY21, the adjusted operating profit is expected to be approximately £58 million, an increase of 21% on last year and also ahead of updated market consensus. Subsequently, the Company resumed its dividend payment. Presently, the Company has a highly cash-generative business model with improvement in net debt. It also looks forward to considering partnership and acquisition opportunities to generate accretive growth. The Company also has a diverse customer base to combat the market uncertainties. Overall, the business is well-positioned to pursue the upcoming market opportunities. The stock made a 52-week low and high of GBX 590.00 and GBX 999.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on GB Group Plc at the current price of GBX 914.50 (as on 23 April 2021 at 8:35 AM GMT) and will recommend fresh buying at the right time.

 

*All forecasted figures and Peer/Industry information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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