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Experian shares attracting interest on back of trading update


Experian [LSE:EXPN], the credit ratings and data specialist, has released a first quarter trading update for the three months ended 30 June 2022. Total revenue growth was 7% at actual exchange rates and 9% at constant exchange rates. Organic revenue growth was 8%.

Latin America was the strongest performing region, with organic revenue increasing 18% at constant currency. The UK and Ireland grew by 5%, despite the macroeconomic outlook having “softened”. The group said its expectations for the full year are unchanged. It is targeting organic revenue growth in the range of 7-9%, total revenue growth in the range of 8-10% and modest margin accretion, all at constant exchange rates.

“These are solid results from Experian, with good growth being seen across the board, especially in Latin America, which grew 18% in the quarter,” Charlie Huggins, Head of Equities at Wealth Club, commented. “The North American business also put in a solid showing, while the UK and Ireland was resilient, growing 5%, despite the weakening economic outlook.”

Experian continues to weather the storm

It shouldn’t be a surprise that Experian continues to weather the storm. Its products and solutions are mission critical and an integral part of clients’ operating processes. Its business model is diverse with a large proportion of recurring revenues. In other words it’s the very definition of a quality defensive business.

This wasn’t always the case. Prior to the financial crisis, Experian was much more of a one-trick pony. The vast majority of revenues came from providing credit reports to large banks, leaving it painfully exposed to the fortunes of financial institutions.

Since then the group has successfully diversified into other sectors like health, automotive and retail, where its data solutions are used to verify identities and combat fraud, for example, while carving out a highly profitable consumer-facing business. As a result, the financial services sector now makes up well under half of revenue. To paraphrase 2010 Apprentice contestant Stuart Baggs, Experian is no longer a “one-trick pony, but a whole field of ponies.”

“Experian serves large addressable markets with plenty of scope to extend into more new areas – creating room for future growth,” Huggins said. “In the last year alone it launched 104 new products, with a further 151 in the pipeline. These new and recently launched products already generate almost $1 billion of revenue, and I’d expect that to ramp up in the coming years.”

Massive opportunity for Experian in Brazil

Then there is Brazil. The Brazilian Central Bank recently legalised the utilisation of positive data in the credit risk assessment process, which will greatly widen access to credit. As the owner of the dominant credit bureau in Brazil, this presents a massive opportunity for Experian to sell more data solutions, as demonstrated by the 18% organic revenue growth for Experian’s Latin America business in the first quarter.

“Clearly, there are risks to the business model, of which regulation and data security are probably the biggest,” said Huggins. “But overall, it’s hard to find fault with Experian’s progress. The business model is strong, the diversification strategy is paying dividends, and there are plenty of growth opportunities to go after. The future looks bright to me.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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