RELX PLC

RELX PLC (REL) is a London based world’s leading global information services company. The company provides information-based analytics and decision tools to customers using innovative solutions which merge content and data with analytics and technology. Erik Engstrom is the Chief Executive Officer of the group. The group’s operations are differentiated in four operating segments: Risk & Business Analytics; Exhibitions; Scientific, Technical & Medical; and Legal.

Key Financial Highlights (FY 2018, in £m)


(Source: Company Filings)

Driven by growth in all four market segments, the underlying growth of revenue stood at 4% to £7,492m, while reported revenue was up by 2%, showcasing good growth in face-to-face and electronic revenues. Reflecting the benefit of tight cost control across the group, underlying adjusted operating profit grew ahead of revenue at 6% to £2,346m, while reported operating profit was £1,964m. This meant that overall adjusted operating margin over the prior year improved by 0.2 percentage points to 31.3%, though acquisition and disposals reduced the margin by 0.5 percentage points. Adjusted profit before tax grew by 2% to £2,145m. The adjusted net profit attributable to the company's shareholders stood at £1,674m and was up by 3%, while reported net profit attributable to company's shareholders was £1,422m, representing a decrease of 14% against last year. Adjusted earnings per share were 84.7p, up by 6% over the year, while at constant rates of exchange, it surged by 7%. The company has maintained leverage at an appropriate level and has a strong balance sheet, with return on invested capital of 13.2%. Total dividend for the year surged by 7% to 42.1p per share.

Valuation Methodology
Method:  Price/Cash Flow Approach (NTM)


Share Price Commentary
 
Daily Chart as at May-13-19, before the market closed (Source: Thomson Reuters)
 
On 13^th May 2019, at the time of writing (before the market closed, GMT 1:00 pm), REL shares were trading at GBX 1,750.50, up by 0.48 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,812.38/GBX 1,466.50. On the fundamental front, the company was trading at a trailing twelve months P/E multiple of 20x in comparison to the industry median of 12.4x. The company’s stock beta was 0.72, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was £34.03 billion with a dividend yield of 2.42 per cent.

Conclusion
The company is building out new products and expanding into higher growth adjacencies and geographies, which has led to more stable revenue through a better asset mix and geographic balance. It helps the group to improve its business profile and the quality of its earnings. Moreover, with selective acquisitions of targeted data sets and analytics, the company is looking to supplement its organic growth and expand in higher growth segments. However, demand for the company's products and services may be adversely affected by macro-economic and political events, a risk which has intensified in the past few months. Moreover, RELX operates in a highly competitive and dynamic market, and demand continues to evolve in response to rapid technological innovations. Failure to adapt to these changes can have a material impact on the company's performance. Additionally, the group is already trading near its 52-week high, indicating any potential upside might be limited. Keeping in mind healthy financials along with potential headwinds, and supported by valuation done using the above method, we have given a HOLD recommendation at the closing price of GBX 1,742.0 (as on 10th May 2019) based on 16.00x NTM Price/Cash Flow (approx.) on FY19E cash flow per share(approx.).

*All forecasted figures have been taken from Thomson Reuters.

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