Shares in Experian [LON:EXPN], the consumer credit data specialist, have been struggling to fully recover from the pandemic, which we find surprising.
Ultimately, Experian is a business that should be able to function relatively well under lockdown, but investors remain unconvinced, and the stock has had difficulty staying above what is emerging as a key resistance level at 3000.
Experian shares went south of 2000 in the depths of the pandemic, as investors dumped stock amid the panic selling in March. Since then they have staged a recovery, and had reached pre-pandemic trading levels by early July. Shares pushed higher, breaching 3000 in mid-September, but they came off a 52 week high in November and have been really struggling to get back there ever since.
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Most analysts tracking the stock have it down as a hold, with only one buy. Experian seems to have few fans at the moment. The stock does not seem to have fully recovered from the announcement of half yearly earnings, which saw it sell off by a staggering 11%. We think analysts and investors are now smarting and awaiting the next set of numbers (Q3 trading statement 19 January) with great caution.
“Even though lending dried up during lockdowns around the globe, denting its credit bureau data business, Experian has still showed resilience in the face of adversity, with first half organic growth of 2%,” notes Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “Experian’s consumer division, which gives people access to their credit reports to help them understand their finances better, has been the standout performer in North and South America.”
Credit matching services have become more attractive
Credit matching services in particular have become more attractive when banks are less willing to lend and consumers have a more pressing need for the best possible deal. The introduction of Experian Boost in the US, which allows consumers to add utility bills and subscriptions to their credit report, seems to have helped drive performance. The expansion of this service to the UK may have helped bolster its weak performance here, where lower lending and slower investment decisions have hurt the B2B business as well.
“Recovery is likely to have been hampered with fresh lock downs introduced from November onwards, weighing on the economy and the availability of credit,” says Streeter at Hargreaves Lansdown.
Where’s the growth story here?
This does not bode well for future Experian results. We like to see a company with a good growth story, and for large caps with enough money in the bank, the wherewithal to hold and and surge back once the post-pandemic recovery takes effect. Experian shares seem to have had their recovery last summer; now the market is waking up to the fact that the pandemic is having an unforeseen impact on demand for its services.
Just looking at consumer credit, we expect that the entire consumer lending industry is going to be sailing through uncharted waters this year – lenders themselves are having to re-think their strategies as millions of people will simply breach loan agreements, period. Governments will not be happy to see lenders punishing their clients because of COVID. Experian’s business model works well during normal circumstances; these are not normal circumstances.