This FTSE 100 stock is a top pick for results season
It’s been hugely successful over the years, and one City analyst thinks this blue-chip can keep going. They also name a couple of other buy tips.
17th October 2024 16:18
by Graeme Evans from interactive investor
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Top-performing FTSE 100 stock RELX (LSE:REL) has been backed for more success after a City bank highlighted the LexisNexis owner’s potential AI-growth acceleration in 2025.
In its preview of the Media & Internet sector’s third-quarter results season, Bank of America named RELX as its top pick and forecast a further 16% upside for shares to 4,300p.
The bank also holds Buy recommendations on Informa (LSE:INF) and Auto Trader Group (LSE:AUTO), noting their re-rating potential, but is Neutral on coursework publisher Pearson and Underperform on Rightmove.
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RELX is due to report figures on 24 October, but Bank of America believes the bigger event comes a week later when the Legal division hosts a seminar for analysts and investors.
The presentation follows the roll-out of the Lexis+ AI platform, which leverages generative AI tools and has already enjoyed strong take-up in the US legal market.
The bank thinks the seminar could be a positive catalyst for building confidence in the division's above-consensus AI growth acceleration heading into 2025.
Legal is the group’s third-largest division, with the two biggest being Risk and Business Analytics and the Elsevier journals operation Science, Technical and Medical. The fourth and smallest part of RELX is its Exhibitions arm, which is home to events including the London MCM ComicCon.
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The group’s success has been built on the work of some 11,000 technologists and an annual IT budget of £1.3 billion. It has used extractive artificial intelligence for more than a decade to help customers make better decisions, get better results and be more productive.
This investment has helped to make RELX one of the best returning FTSE 100 stocks of the past four decades, ranking alongside British American Tobacco and Rio Tinto as the best of the 1984 FTSE 100 originals.
The shares have risen by a fifth this year, but Bank of America said the discount versus US-based information services peers has widened in recent months. This is despite similar underlying revenue growth prospects.
The bank expects an upsized share buyback of £1.2 billion, reflecting expectations that RELX will end this year with its lowest debt to earnings ratio since 2013.
At publisher and trade shows business Informa, Bank of America believes the economic uncertainty that has weighed on the valuation in recent months looked overly harsh.
The FTSE 100 company trades on one of the highest free cash flow yields in the sector, post its recent acquisition of Cannes Lions events organiser Ascential.
The bank sees a material re-rating potential as its research suggests a still robust industry backdrop. It highlights this week’s Canton Fair, the largest trade show globally where exhibitor numbers have grown by mid-single digits.
The bank has a price target of 1,075p, which compares with 841.8p this afternoon.
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The price objective on Auto Trader is 1,000p, underpinned by the platform’s “multi-faceted and well-supported” five-year record showing compound earnings growth of about 13%.
The bank believes this leaves the company as best placed in classifieds to capture a sector re-rating from still inexpensive levels.
It added: “We think reassurance on the full-year outlook and building confidence in double-digit ARPR (average revenue per retailer) growth potential thereafter could stimulate further re-rating.”
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