Hidden treasure? This company is breaking records and beating the competition, yet few know it
Since a Swedish entrepreneur took over as chief executive in 2009, the company analysed today has seen a dramatic rise, catapulting it into the top 10 UK companies in recent months. Under his leadership, the firm's market capitalisation has increased by more than £50bn and its share value has risen by more than 500%.
This success is the result of a thoughtful strategy focused on digitalisation and innovation that is not only outperforming the FTSE 100 but also transforming the data and analytics business.
Company introduction
RELX
RELXRELX $RELX+1.5%, formerly known as Reed Elsevier, is a global leader in information and analytics services. Its history dates back to the late 19th century when it was founded as Reed International in 1894 and Elsevier in 1880. In 1993, the two companies merged to form Reed Elsevier, which changed its name to RELX in 2015.
RELX focuses on four main areas: scientific publications, legal information, healthcare, and business analysis. In the area of scientific publications, RELX provides prestigious scientific journals and databases such as Elsevier's ScienceDirect and Scopus. In the legal sector, the company offers tools and services that facilitate the work of lawyers and legal advisors, for example through products such as LexisNexis.
In healthcare, RELX focuses on providing critical information and analytical tools that help healthcare professionals diagnose and treat patients. In business analytics, the company offers data and insights that help organizations optimize their business strategies and operations.
The company is known for its global reach and presence in many countries, which enables it to provide its services and products to customers across the world. RELX is also known for its commitment to sustainability and innovation, constantly investing in the development of new technologies and solutions that contribute to more effective information sharing and analytics.
Amazing CEO
Erik Engstrom, RELX's CEO, has become a prominent figure in corporate growth and innovation in recent years, although he maintains a very enigmatic profile. His approach to business is characterized by humility and effective leadership. Since his arrival in 2009, RELX's market capitalisation has increased by more than £50bn under his leadership, catapulting it into the top 10 largest UK companies in recent months.
RELX, formerly known as Reed Elsevier, has regularly ranked above the FTSE 100 for the past 13 years and its shares have risen by more than 500% since 2009. Total returns to shareholders, including reinvested dividends, have increased by over 1000%.
RELX plans to buy back £1bn of shares in 2024 and proposes to increase its full-year dividend by 8%. Innovations in AI were also announced, including products such as Lexis+ AI for lawyers, Scopus AI for academic research and Clinical Key AI for medical information.
RELX, based in London, continues to focus on a gradual transition from print operations to digital and analytics, with print revenue falling from around 27% to 5% during Engstrom's leadership. Its LexisNexis division, which was once considered a possible sale candidate, is now proving very valuable.
The recent acquisition of RELX
RELX's most recent acquisition, ThreatMetrix, is a San Jose-based fraud prevention and contextual authentication solution founded in 2005. RELX acquired it for a price of $821 million.
The company also confirmed that they are currently pursuing other opportunities and potential acquisitions that will strengthen their business. Over the course of several years, RELX has demonstrated that it will only purchase assets that bring new ideas, data or improved technology to the business. It must contribute significantly to the ongoing growth of its four divisions that serve professional customers who want to make faster and smarter decisions based on tools that deal with increasing volumes of information.
How was the first half of 2024?
In the first half of the year, the firm achieved revenues of £4.641bn, up 7% year-on-year. Revenue from electronic services, which account for 84% of total revenue, was also up 7%, with strong growth in personal activities offsetting a decline in print. Adjusted operating profit rose 10% to £1.583bn, driven by continued process innovation which led to an improved margin of 34.1%.
The firm posted a reported operating profit of £1.431bn, including £131m of amortisation of intangible assets. Adjusted profit before tax was £1.450 billion, while reported profit before tax was £1.295 billion. Income tax was £334 million, up from £284 million in the prior year.
Earnings per share rose to 59.5p at constant exchange rates, up 10% year-on-year. Reported earnings per share came in at 52.6p.
The dividend was raised to 18.2p, an increase of 7%. In the first half of 2024, the firm completed two smaller acquisitions totalling £61m and three smaller disposals totalling £52m. Net debt at 30 June 2024 was £6.973 billion, a slight increase from £6.883 billion at the start of the year. The ratio of net debt to EBITDA decreased to 2.0x.
Of the planned £1bn share buyback, £700m was completed in the first half, with a further £50m completed since 1 July and the remaining £250m to be used by the end of the year.
The company has also maintained its prestigious AAA ESG rating from MSCI for nine consecutive years, is ranked second in our sector by Sustainalytics and has been part of the Bloomberg Gender Equality Index for six consecutive years.
Key indicators
With a P/E of (36.61), the company is at the upper end of the valuation spectrum, indicating that investors are willing to pay a premium for expected earnings growth. This ratio also reflects high expectations for future performance, which are reflected in the company's stable earnings. The P/B ratio (20.03) indicates that the stock is valued much higher than its book value, which may reflect the company's strong reputation and its ability to generate above-average earnings, which investors consider to be valuable investment potential.
A P/S ratio of (4.96) indicates that the company's earnings are also highly valued, which is usually characteristic of firms with high growth potential or strong market positions.
The debt burden is relatively high, with a D/E of (1.85), indicating that the company relies on a significant amount of external capital to finance its growth. Its D/C ratio (0.65) indicates that the majority of its capital comes from external sources, which may imply increased financial risk but also the possibility of higher returns.
The high return on assets (ROA) and return on equity (ROE) of 18.54% and 123.26% respectively indicates efficient use of resources to achieve profits. ROIC (32.13%) confirms that the company can generate high returns on invested capital, which is a positive sign of its efficiency and competitiveness.
The company's margins are impressive, with gross margin of 74.68%, operating margin of 29.87% and net margin of 20.04%, indicating high efficiency in cost management and solid profitability. This mix of high margins is supported by a positive free cash flow (FCF) of 2.92%, confirming that the company is generating enough cash to fund future growth and investments.
The dividend of 2.03% and payout ratio of 38.29% shows that the firm maintains a healthy ratio between dividend payout and reinvestment of earnings. DPS ($0.75) shows a stable dividend policy that delivers a regular return to shareholders.
Analyst expectations
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