ii view: US mortgages excite Experian shares

Quarterly sales should now grow and investors are taking a look at this global information provider. 

Quarterly trading to the end of September

• Expects organic revenue growth in the range +3 to +5%
• Expects first half cost growth of between 2% and 3%

ii round-up:

In a surprise announcement, credit information and data analytics company Experian (LSE:EXPN) today upgraded its sales forecasts following better than expected demand for data relating to US mortgages. 

Second-quarter revenue estimates were raised to growth of between 3 and 5%, up from a previous forecast of between flat to down 5%. First-quarter organic revenue to the end of June at Experian retreated by 2%. 

Experian shares rose by 4% in UK trading having risen by more than 10% year-to-date. Shares for US rival Equifax (NYSE:EFX) are up nearly 20% in 2020. 

The company employs over 17,000 people across 45 countries. It recently took a foothold in Germany, acquiring a majority stake in the nation’s second largest credit bureau. 

Experian’s direct relationships with consumers grew to 82 million over the last financial year, up from 55 million. It has also been investing in a wide range of unique data sources to help grow its corporate customer business.

Ongoing investment is now expected to push first half costs up between 2 to 3% compared to a prior estimate of unchanged. This cost growth is expected by analysts to reduce the benefit of increased sales to profits, although brokers still expect a 4% increase to the half-year consensus profit estimate.

First-half results are scheduled for the 17 November. 

ii view:

Experian describes itself as “the world's leading global information services company.” It looks to help individuals to access financial services and businesses to make smarter decisions. Its data can help with the buying of a car or a house, help companies to offer credit prudently or assist in preventing identity fraud and crime. 

Sales to businesses provide its bread & butter at around 80%, individual consumers the balance. Geographically, the US accounts for the lion’s share of sales at around 60%. Next comes the UK and Brazil, both at near 15%. 

For investors, a sales decline in the first quarter to the end of June highlights some susceptibility to Covid-19. Consumers are unlikely to want to make big ticket purchases if their jobs could be lost due to the pandemic. But the growth in data generally looks to offer ongoing opportunity, while more evaluated credit application processes in the likes of Latin America provide geographical potential. In all, while an estimated price-earnings (PE) ratio of close to 40 and above both the three- and 10-year averages does not scream value, further long-term growth looks highly probable.  

Positives: 

• Company enjoys both product and geographical diversity
• Six years of consecutive dividend growth

Negatives:

• First-quarter organic revenue declined due to Covid-19
• 2019/20 net debt rose 19% to $3.89 billion

The average rating of stock market analysts:

Buy